SHENG SIONG GROUP LTD (SGX:OV8)
UNUSUAL LIMITED (SGX:1D1)
CSE GLOBAL LTD (SGX:544)
FU YU CORPORATION LTD (SGX:F13)
WILMAR INTERNATIONAL LIMITED (SGX:F34)
Singapore Equity Strategy - Sep 2019 Quarter Earnings Review
- 3Q19 results were a mixed bag, with 26% of stocks we cover missing estimates, and 18% booking a positive surprise. COMFORTDELGRO (SGX:C52), KEPPEL CORPORATION (SGX:BN4), SEMBCORP INDUSTRIES (SGX:U96), SEMBCORP MARINE (SGX:S51) and SINGTEL (SGX:Z74) were some notable earnings misses by large-cap companies.
- After a few dismal quarters, plantation players have turned the corner, with two out of three reporting better-than-expected earnings. SINGAPORE EXCHANGE (SGX:S68) also reported better-than-estimated results.
- Earnings revisions for the STI remained negative. Nevertheless, the Street remains optimistic on positive earnings growth in 2020.
- Amongst the companies in our coverage universe, 43% witnessed an increase in 1FY earnings forecasts. Among the key stocks, BUMITAMA AGRI (SGX:P8Z), CAPITALAND (SGX:C31), CITY DEVELOPMENTS (SGX:C09), FIRST RESOURCES (SGX:EB5) and THAI BEVERAGE (SGX:Y92) booked a > 5% increase in 1FY earnings estimates. For 2FY, BUMITAMA AGRI, CAPITALAND, CITY DEVELOPMENTS, THAI BEVERAGE and WILMAR INTERNATIONAL witnessed more than a 5% increase in earnings estimates.
Plantation sector now rated OVERWEIGHT.
- Based on the expectation that CPO prices will trend north, we upgraded the sector to OVERWEIGHT. In September, we had upgraded FIRST RESOURCES to BUY (report: First Resources - Sensitive To CPO Prices; Upgrade To BUY). Amidst better-than-expected 3Q19 results, we raised our Target Price to SGD1.95 from SGD1.90 (report: First Resources - 2020 Biodiesel Allocation Up 63% Y-o-y; BUY), implying 9% upside.
- Following a positive earnings surprise, we also raised BUMITAMA AGRI to BUY (report: Bumitama Agri - Highly Sensitive To CPO Prices; Raise to BUY).
- FIRST RESOURCES and WILMAR INTERNATIONAL are our Top Picks in the plantation sector.
Earnings downgrades continue but Street expects growth in 2020
- The Street’s 2020 earnings estimate for the STI, which witnessed a pause in downgrades between March and July, has declined by 2% since end-September following a weak 3Q19 results season. Most downgrades came from the telecommunication, offshore marine, and transport sectors. The Street’s net profit growth for 2020 now stands at 4.8%.
Downside risk to earnings.
- The STI witnessed a sharp rebound in October on the back of compelling valuations, hopes of some resolution on the trade war between the US and China, and expectations of a likely turnaround in the electronics sector. While the index’s valuation remains reasonable amidst expected positive earnings growth for 2020, any escalation in trade tensions between the US and China could result in downgrades to the STI’s earnings growth.
The Straits Times Index STI offers one of the highest yields amongst Asian markets
- The STI is currently trading at a forward yield of 4.2% (based on local currency). This is the highest amongst all Asian markets, exceeding Australia, Taiwan and Hong Kong’s 4.2%, 4.0% and 4.0% yields. We believe such a relatively high yield should provide downside support amidst a backdrop of weakening growth and macroeconomic headwinds.
Key Target Price Changes Post 3Q19 Results
Top Picks.
- SHENG SIONG GROUP (SGX:OV8) is our preferred consumer pick;
- WILMAR INTERNATIONAL (SGX:F34) is our preferred plantation pick;
- ST ENGINEERING (SGX:S63) is our preferred industrial pick given its lower exposure to China as compared to other local banks, more reasonable valuation and > 5% dividend yield;
- UNITED OVERSEAS BANK (UOB, SGX:U11) remains our preferred financial sector pick;
- CDL HOSPITALITY TRUSTS (SGX:J85), MANULIFE US REIT (SGX:BTOU) and SUNTEC REIT (SGX:T82U) are our REIT sector Top Picks.
- We add UNUSUAL (SGX:1D1) to our list of small & mid cap Top Picks.
- See attached PDF for complete analysis.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-11-26
SGX Stock
Analyst Report
1.320
SAME
1.320
0.420
SAME
0.420
0.690
SAME
0.690
0.240
SAME
0.240
4.750
SAME
4.750
