2020 Sector Outlook & Stock Picks - RHB Invest 2019-12-19: Singapore Market Strategy

2020 Sector Outlook & Stock Picks - RHB Invest | SGinvestors.io CAPITALAND LIMITED (SGX:C31) KEPPEL CORPORATION LIMITED (SGX:BN4) SINGAPORE TECH ENGINEERING LTD (SGX:S63) SUNTEC REAL ESTATE INV TRUST (SGX:T82U) UNITED OVERSEAS BANK LTD (SGX:U11) WILMAR INTERNATIONAL LIMITED (SGX:F34) CDL HOSPITALITY TRUSTS (SGX:J85) CSE GLOBAL LTD (SGX:544) ESR-REIT (SGX:J91U) FU YU CORPORATION LTD (SGX:F13) MANULIFE US REIT (SGX:BTOU) OXLEY HOLDINGS LIMITED (SGX:5UX) SHENG SIONG GROUP LTD (SGX:OV8) UNUSUAL LIMITED (SGX:1D1)

2020 Sector Outlook & Stock Picks - Singapore Market Strategy


RHB's Singapore Top Picks For 2020


Company Name Market Cap
(USDm)
Rating Target
Price
Large Cap
CAPITALAND LIMITED (SGX:C31) 13,693 BUY S$4.20
KEPPEL CORPORATION (SGX:BN4) 9,034 BUY S$7.80
ST ENGINEERING (SGX:S63) 9,106 BUY S$4.55
SUNTEC REIT (SGX:T82U) 3,741 BUY S$2.08
UNITED OVERSEAS BANK (SGX:U11) 32,377 BUY S$29.50
WILMAR INTERNATIONAL (SGX:F34) 19,276 BUY S$4.75
Small/Mid Cap
CDL HOSPITALITY TRUSTS (SGX:J85) 1,441 BUY S$1.78
CSE GLOBAL (SGX:544) 204 BUY S$0.69
ESR-REIT (SGX:J91U) 1,364 BUY S$0.60
FU YU CORPORATION (SGX:F13) 142 BUY S$0.27
MANULIFE US REIT (SGX:BTOU) 1,561 BUY S$1.10
OXLEY HOLDINGS LIMITED (SGX:5UX) 1,089 BUY S$0.43
SHENG SIONG GROUP (SGX:OV8) 1,387 BUY S$1.39
UNUSUAL LIMITED (SGX:1D1) 216 BUY S$0.42



SECTOR OUTLOOK SUMMARY



Capital Goods (OVERWEIGHT)


Growing orderbook across the sector.

  • KEPPEL CORPORATION (SGX:BN4)’s offshore & marine business has secured SGD1.9bn worth of orders in 2019 – ahead of 12M18’s SGD1.7bn – with LNG and renewable-related projects accounting for c.60% of order wins. KEPPEL has an outstanding offshore & marine orderbook of SGD5.1bn vs. end-Dec 2018’s SGD4.3bn. YTD; SEMBCORP MARINE (SGX:S51) has won new contracts worth SGD845m (+16% y-o-y).
  • We expect the ramp-up in offshore & marine orders to be sustained in 2020 on the expected stability in crude oil prices. KEPPEL and SEMBCORP MARINE’s settlement agreements with Sete Brasil also pave the way for construction completion of some rigs and drill ships.
  • With order wins worth SGD5.4bn in 9M19 (2018: SGD5.2bn), ST ENGINEERING (SGX:S63) has amassed outstanding orders worth SGD15.9bn – an all-time high. This provides revenue visibility of 2.5 years.
  • See report: Capital Goods Sector 2020 Outlook - Strong Recovery In Earnings Growth.

Preferred exposure to the Capital Goods sector:



Commodities (OVERWEIGHT)

  • The CPO price climbed sharply since mid-Oct 2019. While we expected this increase, we believe the sudden spike may be a bit too sharp. We expect to see a slight pullback before prices start picking up again in 1Q20. Our CPO price assumption is MYR2,400 per tonne for 2020, and we expect the commodity to trade between MYR2,200 and MYR2,800 per tonne in 2020, with 1H prices being stronger than 2H levels.
  • See report: Plantation Sector 2020 Outlook - Singapore Planters Still Inexpensive.

Preferred exposure to the Commodities sector:



Consumer & Gaming (NEUTRAL)

  • While we expect sector earnings to be resilient in 2020, slow economic growth in the region, coupled with macroeconomic uncertainties, could mean consumer spending will remain sluggish. This should limit the upside potential for consumer discretionary companies.
  • Currently, we are neutral on most of the large-cap consumer stocks due to tepid earnings growth profiles and fairly-priced valuations. However, there is potential for a share price re-rating for THAI BEVERAGE (SGX:Y92) and GENTING SINGAPORE (SGX:G13) on event-driven catalysts.
    • THAI BEVERAGE is evaluating the listing of its beer business – while still at the early stages, a spin-off could help unlock some of value and improve gearing.
    • Meanwhile, GENTING SINGAPORE is one of three bidders for an integrated resort (IR) in Osaka. It is also preparing for another IR bid in Yokohama. We believe winning a Japanese IR bid will be a key share price catalyst.
  • See report: Consumer Sector - Selective Spending.

Preferred exposure to the sector:



Financials (NEUTRAL)

  • Our forecast of a flat y-o-y 2020 combined net profit of the three banks we cover points to a NEUTRAL stance. Total income next year should mainly be from non-II (including wealth management), while NII growth should be flattish, given the banks guiding for NIM pressure and soft loan growth.
  • We expect 2020 loan growth to average 3.5% y-o-y for the three banks and estimate NIM to narrow by 4-7bps – factoring in a falling SIBOR and recent competitive home mortgage rates, which will cut lending yields for the banks.
  • If the US-China trade war is resolved smoothly and within a short timeframe, there will be higher expectations of a stronger economic growth for Singapore – and banks’ earnings could rise more sharply. Conversely, if the US-China trade war worsens, weakening global growth could increase non-performing assets of Singapore’s banks.

Preferred exposure to the sector:



Manufacturing & Technology (OVERWEIGHT)

  • Our economist believes that the manufacturing sector could be bottoming out. However, sector growth may remain lacklustre amid weak global demand and uncertainties around the final resolution of the trade dispute between the US and China. Nevertheless, recent market optimism – given the likely signing of a Phase One trade deal between the disputing parties – makes us believe that the re-rating of technology stocks should continue into early 2020 as well.
  • The semiconductor sector has also showed signs of bottoming out, with global industry leaders guiding for a better outlook. According to Semiconductor Equipment & Materials International (SEMI), growth in global sales of semiconductor manufacturing equipment by original equipment manufacturers is expected to resume in 2020, with a 11.6% y-o-y jump. This compares with an estimated 18.4% drop in equipment sales in 2019.
  • See report: Manufacturing & Technology - Brighter Skies Ahead; Upgrade To OVERWEIGHT.

Preferred exposure to the sector:



Property (NEUTRAL)

  • We expect 2020’s market to be largely similar to 2019’s, ie volumes staying resilient but with little upside (0-3%-plus) to property prices. With elections likely by end-1H20, buying sentiment will remain cautious – but there may be a recovery in 2H20 if the outcome results in a favourable mandate for the ruling party vs. the previous term. Amidst uncertainties, we prefer players with well-diversified exposure and strong recurring income growth.
  • While developers have been calling for some relaxation in property cooling measures, we believe it is unlikely in the near term, as prices continue to rise. Such a move is also likely to be unpopular ahead of the upcoming general election and could potentially spike up prices amidst volatile market conditions in neighbouring countries.
  • Household balance sheets remain strong, with average loan-to-value of outstanding housing loans falling to 49% in 3Q19 – from 54% on average in 2017 – according to data from MAS. Most developers’ balance sheets also remain largely prudent (gearing of less than 0.8x). The strong balance sheets, coupled with the current low interest rate environment, should continue to support the property market and limit downside risks.
  • See report: Real Estate - 2020 A Year Of Two Halves.

Preferred exposure to the sector:



REITs (OVERWEIGHT)

  • We expect the REITs sector to remain in favour in 1H20, aided by persistent low interest rates and a favourable demand-supply outlook. However, we recommend investors to be more selective and prefer the laggards – mainly in the SMID-cap space – with stock-specific catalysts. Among sub-segments, our preference is for industrial, hospitality, and US office REITs.
  • Three key factors supporting REITs in 2020: Expectations of a prolonged low interest rate environment, inorganic DPU growth from the acquisitions made this year, and a benign supply outlook across most of the real estate sectors. Additional factors that could provide tailwinds to REITS could be an increase in debt ceiling limits and interest cost savings.
  • See report: REITs - Expecting Moderation After An Eventful Year.

Preferred exposure to the sector:



Telecom & Media (NEUTRAL)

  • The telecom sector’s risk-reward profile appears largely balanced in our view, with stocks having priced in the prospects of elevated competition over the past two years from new entrants and structural revenue/EBITDA pressures. The sector’s 1-year forward EV/EBITDA at 1SD below the historical mean is fair, supported by the telcos’ decent yields of 5.2-6.3%.

5G not likely to be a game changer.

  • We believe the frontrunners are SINGTEL (SGX:Z74) and a JV between STARHUB (SGX:CC3) and M1. Some of the key features of the call-for-proposal include the rollout of a 5G standalone network on the outset, requirements for mobile network operators to provide wholesale services to other operators – including mobile virtual network operators, and 50% 5G coverage on the 3.5GHz band within 24 months, or by end-2022.
  • While Singapore will be one of the first in the region to roll out 5G on the mid-band spectrum (3.5GHz), we see little impact on the sector in the medium term. This is due to the already-extensive fibre penetration/adoption nationwide and selected-use cases – mostly confined to enterprise verticals and smart solutions for cities.

Preferred exposure to the sector:



Transportation (NEUTRAL)

  • Although a benign oil price environment will be positive for transport operators, in a low domestic economic growth scenario, we prefer exposure to defensive names in the transport sector – an industry sector that tends to be cyclical in nature. A strong recovery in global economic growth could be positive for aviation players like SINGAPORE AIRLINES (SGX:C6L), SATS (SGX:S58) and CHINA AVIATION OIL (SGX:G92).

Preferred exposure to the sector:



Read also


See attached PDF report for complete analysis.







Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-12-19
SGX Stock Analyst Report BUY MAINTAIN BUY 4.200 SAME 4.200
BUY MAINTAIN BUY 7.800 SAME 7.800
BUY MAINTAIN BUY 4.550 SAME 4.550
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BUY MAINTAIN BUY 29.500 SAME 29.500
BUY MAINTAIN BUY 4.750 SAME 4.750
BUY MAINTAIN BUY 1.780 SAME 1.780
BUY MAINTAIN BUY 0.690 SAME 0.690
BUY MAINTAIN BUY 0.600 SAME 0.600
BUY MAINTAIN BUY 0.270 SAME 0.270
BUY MAINTAIN BUY 1.100 SAME 1.100
BUY MAINTAIN BUY 0.430 SAME 0.430
BUY MAINTAIN BUY 1.390 SAME 1.390
BUY MAINTAIN BUY 0.420 SAME 0.420



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