Phillip 2Q20 Singapore Strategy - Phillip Securities 2020-04-07: Man Vs. Virus ~ Bet On Us

Phillip 2Q20 Singapore Strategy - Phillip Securities Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) NETLINK NBN TRUST (SGX:CJLU) FRASERS CENTREPOINT TRUST (SGX:J69U) UNITED OVERSEAS BANK LTD (SGX:U11) PROPNEX LIMITED (SGX:OYY) SHENG SIONG GROUP LTD (SGX:OV8) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) VENTURE CORPORATION LIMITED (SGX:V03) CAPITALAND LIMITED (SGX:C31) STARHUB LTD (SGX:CC3)

Phillip 2Q20 Singapore Strategy - Man Vs. Virus ~ Bet On Us

  • The STI was down 23% in 1Q20. This was its worst quarterly performance since 2008 and 12th largest 3-month decline. All STI component stocks were down, except SGX (SGX:S68).
  • There has been a spike in both derivative and equity volumes. The worst-hit sectors were the transport, hospitality and consumer sectors, with stocks shedding more than 30%.






Outlook:

  • Man vs virus” was Newsweek’s cover-page headline more than 50 years ago. We have been fighting viruses for decades and should be confident that we can overcome this pandemic. Tremendous resources and attention globally is focused on fighting this virus.
  • Avoid the emotions of greed when prices rise and panic when they collapse. Rather, panic should be replaced by excitement when valuations turn attractive.
  • There are several reasons to be optimistic on the Singapore market:
    1. the spread of COVID-19 can be contained as demonstrated by China and Korea, albeit at an astronomical economic cost. China’s latest PMI shows a V-shaped rebound in manufacturing after its lock-down;
    2. fear among governments and countries helping to contain the spread through social distancing and lock-downs. At least a quarter of the world’s GDP is already in lock-down;
    3. massive fiscal and monetary stimulus underway globally. These measures cannot stop the spread but place a cushion (not floor) on the downside;
    4. historically profitable to buy into such a massive sell-off. Using a rear-view analysis, buying into such sell-offs generated attractive returns on a 6- and 12- month basis; and
    5. valuations of the STI are close to or even exceeded global financial crisis levels. This is not a timing indicator of a bottom but we are buying into very attractive multi-year low valuations. Basically, a bargain. However, for any sustained recovery, the market need to get an indication that new COVID-19 cases globally are bottoming.


Recommendation:

  • The sectors we favour most are banks, REITs and electronics. All three pay good dividend yields and have the balance sheets to support their payouts. Banks’ earnings will be lower due to weaker net interest margins and higher credit costs. But they have sufficient capital buffers to maintain dividends.
  • With interest rates at record-lows, assets that can provide yields will be the most sought-after, such as, REITs. We expect some impact on dividends from rental rebates, but the yields remain attractive.
  • Our model portfolio - Phillip Absolute 10 - outperformed the STI in 1Q20 (-18% vs the STI’s -23%). The worst-hit were our hospitality exposure, Ascott Residence Trust (SGX:HMN), followed by SingTel (SGX:Z74) and UOB (SGX:U11).
  • We have removed SingTel (SGX:Z74) from our model portfolio due to intense competition in Australia after the NBN migration and fears of renewed mobile competition after the Vodafone-TPG merger.
  • We have included Thai Beverage (SGX:Y92) instead. We find its valuations attractive at 12x FY20e PE for a dominant consumer stock with a market share of 90% in the spirits business.






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-04-07
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.530 SAME 1.530
NEUTRAL MAINTAIN NEUTRAL 0.990 SAME 0.990
ACCUMULATE MAINTAIN ACCUMULATE 3.110 SAME 3.110
ACCUMULATE MAINTAIN ACCUMULATE 27.800 SAME 27.800
BUY MAINTAIN BUY 0.700 SAME 0.700
ACCUMULATE MAINTAIN ACCUMULATE 1.410 SAME 1.410
BUY MAINTAIN BUY 0.950 SAME 0.950
ACCUMULATE MAINTAIN ACCUMULATE 18.100 SAME 18.100
BUY MAINTAIN BUY 4.200 SAME 4.200
ACCUMULATE MAINTAIN ACCUMULATE 1.700 SAME 1.700



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