Singapore Market Strategy - CGS-CIMB Research 2020-04-03: 1 Month Circuit Breaker, Not Locked Down

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SHENG SIONG GROUP LTD (SGX:OV8)

Singapore Market Strategy - 1 Month Circuit Breaker, Not Locked Down

• Singapore imposes is imposing a 1-month circuit breaker from 7 Apr to 4 May to slow the transmission of Covid-19. It is not a lockdown.
• Essential services remain open - food establishments, wet markets and supermarkets, clinics, hospitals, utilities, transport and key banking services.
• FSSTI target of 2,050 remains, on 9.5x CY21F (average market P/E in GFC from Oct 08-Mar 09).

Not “locked down” but more stringent control

• With the death toll of five and total Covid cases of 1,114 as of 3 Apr 2020, Singapore government implemented more stringent steps by closing most workplaces except for essential services and key economic sectors to pre-empt escalating infections. Singaporeans are encouraged to stay at home as much as possible and avoid socialising beyond immediate family and only go out for essentials such as buying food and exercising at parks at ‘safe distance’.
• The country is not locked down and remains in Dorscon Orange and not “Red” (defined as when contact tracing is hard and outbreak is uncontrollable). The government emphasised that the “circuit breaker” is not about business closures, but closing of business premises. School will be closed and go on full home based learning from 8 Apr.
• More financial handouts are to be announced on 6 Apr.

What are the essential services?

• Essential services allowed to stay open include
  1. healthcare and social services,
  2. food and related services,
  3. energy,
  4. water and waste management and environment,
  5. transportation and logistics,
  6. information and communications,
  7. security operations,
  8. facilities management and critical public infrastructure,
  9. manufacturing activities key to sustenance and security, and
  10. banking and finance.
• See https://covid.gobusiness.gov.sg/.

Who remains open?

• With social distancing measures as a guide, the clear cut names that are not affected are supermarkets (Sheng Siong (SGX:OV8), Dairy Farm (SGX:D01)), hospitals (Raffles Medical (SGX:BSL)), data centres (Keppel DC REIT (SGX:AJBU)), postal (SingPost (SGX:S08)), media (SPH (SGX:T39)) and telcos (SingTel (SGX:Z74), StarHub (SGX:CC3)) but some dealer outlets could be closed.
• Subject to further confirmation with the government,
  • semiconductors (Venture Corp (SGX:V03), AEM Holdings (SGX:AWX), UMS Holdings (SGX:558), Frencken Group (SGX:E28)),
  • shipyards (Sembcorp Marine (SGX:S51), Keppel Corp (SGX:BN4) O&M),
  • aircraft maintenance, digital economy and defense & security (ST Engineering (SGX:S63)),
  • water, waste & environment (Sembcorp (SGX:U96)) will go on.
• Public transport and taxi services (ComfortDelGro (SGX:C52)) and airport services (SATS (SGX:S58)) remain available.
• Banks are allowed to open but we believe some branches could be closed. OCBC (SGX:O39) has announced that 22 out of 46 branches will be closed. UOB (SGX:U11) and DBS (SGX:D05) will provide more details on 7 Apr.
• Selected hotel and serviced apartments (Hospitality REITs), including those supporting Covid-19 stay-home cases are allowed to stay open.

What will be closed and affected?

• Casinos (Genting Singapore (SGX:G13)), construction sites (BRC Asia (SGX:BEC), Yongnam (SGX:AXB)), retail malls except for supermarkets and essentials (retail REITs), property showroom (developers), office premises of non-essential services (Office REITs) will be closed.
• To some extent, we think the Industrial REITs could be affected if tenants are in the non-essential services.

Bearish near term

• Our technical analyst expects STI to fall towards 2,200 points in the near term.
• Safer names with earnings growth are Sheng Siong (SGX:OV8), Keppel DC REIT (SGX:AJBU) and SingTel (SGX:Z74).
• Liquid names with limited share price downside include
  • Yangzijiang (SGX:BS6) as workforce improved to 80% as of end Mar and stock is trading at trough of c.0.5x CY20F P/BV, and
  • Venture Corp (SGX:V03) as production of medical/bio medical may be sheltered. Stock is also not expensive at 9.5x CY21F P/E, backed by net cash.
• Top down shorts candidates that have not reached AFC/GFC trough valuations are Genting Singapore (SGX:G13), SATS (SGX:S58), ComfortDelGro (SGX:C52), developers and banks.
• We do not rule out further drastic stimulus such as corporate tax rebates, CPF cuts and blanket moratorium of loans payment.
• See attached PDF report for more.

LIM Siew Khee CGS-CIMB Research | Singapore Research Team CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-03

SGX Stock Analyst Report ADD MAINTAIN ADD 1.420 SAME 1.420