August 2019 Wrap Up - CGS-CIMB Research 2019-09-02: Singapore In 5 Minutes

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RIVERSTONE HOLDINGS LIMITED (SGX:AP4) HRNETGROUP LIMITED (SGX:CHZ) CSE GLOBAL LTD (SGX:544) FRENCKEN GROUP LIMITED (SGX:E28)

August 2019 Wrap Up - Singapore In 5 Minutes

• FSSTI down 5.88%, as trade tensions escalate once again.
• Weak economic data, end-19 GDP revised downwards to 0.5%
• Top picks: Frasers Centrepoint Trust (SGX:J69U), Keppel Corp (SGX:BN4), Mapletree Commercial Trust (SGX:N2IU), ST Engineering (SGX:S63), Thai Beverage (SGX:Y92), UOB (SGX:U11), UOL Group (SGX:U14), Wilmar International (SGX:F34), CSE Global (SGX:544), Frencken Group (SGX:E28), HRnetGroup (SGX:CHZ), Riverstone (SGX:AP4).
• FSSTI target 3,225, based on 12.5x CY20F P/E

Weak economic data; 2019F GDP revised to 0.5%

• The FFSTI closed at 3,101.68 pts on 30 Aug, down 5.88% from 31 Jul, as trade tensions escalated between US-China and Japan-South Korea, while ongoing protests in Hong Kong led to fears of exacerbating tensions between China and the more liberal countries. See Performance of Straits Times Index (STI) Constituents in August 2019.
• Final GDP growth for 2Q19 was unchanged at 0.1% y-o-y while seasonally-adjusted annualised reading (SAAR) fell 3.3% q-o-q. All sectors declined: electronics (-10% y-o-y), precision engineering (-3.4% y-o-y), chemicals (-0.3% y-o-y), and transport engineering (-5%). Domestic weakness also appeared, with slower growth in private consumption and private investments, while the services sector was weighed down by declines in retail and wholesale trade.
• Our economist has recently revised down our end-2019 GDP forecast to 0.5% (1.8% previously), and she expects the Monetary Authority of Singapore (MAS) to set a more accommodative stance in the S$NEER in Oct.
• Developers sold 1,178 private homes in Jul 19, up 43.5% m-o-m, but down 31.7% y-o-y. Condominium rental stemmed two months of decline, rising 0.8% m-o-m and 2.7% y-o-y, with prime apartments in the core central region (CCR) posting the largest increase of 1.1%, followed by the suburbs or outside central region (OCR) with 1% growth, and the city fringes or rest of central region (RCR) up 0.3%.

Markets

• Amidst the sell-off in Aug, REITs and technology were the only positive sectors. Industrials, oil & gas and maritime were sectoral underperformers.
• Index outperformers were Thai Beverage (SGX:Y92), Singapore Exchange (SGX:S68) and Ascendas REIT (SGX:A17U) on the back of better earnings releases, while Yangzijiang Shipbuilding (SGX:BS6), Hutchison Port Holdings Trust (SGX:NS8U) and Golden Agri-Resources (SGX:E5H) underperformed. See Performance of Straits Times Index (STI) Constituents in August 2019.
• Top gainers among the mid-large cap stocks were Mapletree Commercial Trust (SGX:N2IU), Thai Beverage (SGX:Y92), and Keppel DC REIT (SGX:AJBU). Meanwhile Hi-P International (SGX:H17) joined the underperformers in view of weaker future demand, even as its profits improved in 2Q19 on the back of better cost control.
• Institutional investors were net sellers for Aug, buying into telcos, consumer staples and REITs, while selling consumer discretionary, financials, and technology. Retail investors were net buyers, buying financials, industrials, consumer discretionary, and property, while selling telcos, and consumer staples. See SGX Market Fund Flow Overview; SGX Cumulative Fund Flow By Sector; SGX Weekly Fund Flow By Sector.
• Our recently-revised end-2019 FSSTI target currently sits at 3,225, still based on 12.5x CY20F P/E.
• Updated post the release of 2Q19 results, our top picks are Frasers Centrepoint Trust (SGX:J69U), Keppel Corp (SGX:BN4), Mapletree Commercial Trust (SGX:N2IU), ST Engineering (SGX:S63), Thai Beverage (SGX:Y92), UOB (SGX:U11), UOL Group (SGX:U14), Wilmar International (SGX:F34) for large caps; and CSE Global (SGX:544), Frencken Group (SGX:E28), HRnetGroup (SGX:CHZ), Riverstone (SGX:AP4) for small-mid caps.
• See our defensive picks in our last strategy report - Test of time.

Key Corporate News

• Keppel Corp (SGX:BN4) unit Keppel Land China to enter a joint venture (JV) to acquire and develop a site in Nanjing, China; development cost in excess of Rmb5bn (S$990m).
• Court approves the OUE Commercial REIT (SGX:TS0U)-OUE Hospitality Trust (SGX:SK7) merger by trust scheme of arrangement, effective 4 Sep 2019. OUE Commercial REIT will pay existing OUE Hospitality Trust holders 4.075 Scents and 1.3583 new OUE Commercial REIT unit per existing unit held.
• Soilbuild Business Space REIT (SGX:SV3U) has launched a fully underwritten non-renounceable preferential offering to raise about S$101.8m to fund its Australia property acquisition.

Technical perspective – bearish trend gaining strength

• With the sharp selloff of 7.4% in Aug, the STI has effectively turned into a bearish trend. More importantly, the break below the 3,100 psychological support in late-Aug formed a new lower low point at 3,040, further validating the downtrend.
• Despite the recent rebound to the 3,050 support, the STI would likely remain depressed in the downtrend with the 3,100-3,150 resistance acting as a ceiling. Moreover, the recent rebound still appears weak as shown by the bearish rejection near the 3,100 resistance. In the near term, the STI could be targeting the 3,000-2,960 support.
• A further break below this support would lead to another sharp selloff to the 2,860 support.
• See also Straits Times Index STI Constituents Target Price.

LIM Siew Khee CGS-CIMB Research | Jeremy NG Choon Heng CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-02

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