Singapore Market Focus - DBS Research 2020-08-06: Despair Not

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CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) COMFORTDELGRO CORPORATION LTD (SGX:C52) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) OVERSEA-CHINESE BANKING CORP (SGX:O39)

Singapore Market Focus - Despair Not

• In final ‘despair’ phase of bear market, STI supported at 2440.
• Hunt for yield – Ascendas REIT, Frasers Logistics & Commercial Trust, CapitaLand Mall Trust, Frasers Centrepoint Trust.
• Accumulate undervalued cyclicals and blue chips – CapitaLand, City Developments, ComfortDelGro, Thai Beverage and OCBC.

COVID-19 ups and downs.

• The viral resurgence in the US and the rise in cases in countries such as HK, Japan, Spain and the Philippines are a stark reminder that until a vaccine is found, the road to recovery is likely long drawn. The resurgence is flattening out in the US and there is cautious optimism that the outbreaks in other countries can be brought under control.
• On a positive note, there are more than 165 vaccine candidates and several are under phase 3 trials, the last phase before regulatory approval if the outcome is positive. Watch this space over the next 2-3 months.

Despair phase.

• We think the despair phase of this COVID-19 bear market started on June 10 when the STI was at 2800. This is typical of the last phase of the bear market characterised by worsening headline news, earnings losses, “no end in sight” negative sentiment and investors’ disinterest in stocks.
• Historically, stock market bottoms when GDP contraction is at its steepest. This is likely to have occurred in 2Q with GDP seen contracting by 12.6% y-o-y due to the Circuit Breaker lockdown.
• The trend of earnings cut continues with 2Q reporting season, by a further 5.4% for 2020 mainly from oil and gas and transport (Singapore Airlines (SGX:C6L)).
  • Singapore Airlines (SIA) - DBS Research 2020-07-30: 1QFY21 Sees S$1.1bn Loss On Decimated Passenger Demand.
• Positive upside came from technology and financials (SGX (SGX:S68), iFast (SGX:AIY)).
  • iFast Corporation - DBS Research 2020-07-24: Beneficiary Of Digitalisation.
  • Singapore Exchange - DBS Research 2020-08-03: Dividend Increase A Surprise.
• This brings EPS decline for 2020 by 23.8%, but with a stronger rebound in growth of 18.8% for FY21F. We expect a gradual recovery going forward.
• For the STI, we see technical support at 2440 that coincides with 11.41x (-1SD) 12-month forward PE, while STI YE target remains at 2850.

Hunt for yield continues.

• Against the backdrop of continued COVID-19 uncertainty, progress in vaccine developments and a near-zero interest rate environment, we continue to favour yield names while seeking opportunities in the undervalued cyclical space. Our picks are Ascendas REIT, Frasers Logistics & Commercial Trust, CapitaLand Mall Trust and Frasers Centrepoint Trust.
  • Ascendas REIT (SGX:A17U) has a 27% AUM exposure to logistics and 5% to data centres. Furthermore, its business park exposure (43% of AUM) should benefit from the future trend towards decentralised offices as more companies adopt flexible working arrangements.
    • See report: Ascendas REIT - DBS Research 2020-07-24: Fuel Cells Of The New Economy.
  • Frasers Logistics & Commercial Trust (SGX:BUOU) is in a good position to tackle the challenging business climate amid the COVID-19 pandemic following its merger with Frasers Commercial Trust.
    • See report: Frasers Logistics & Commercial Trust - DBS Research 2020-08-05: Trading Up In Quality.
  • CapitaLand Mall Trust (SGX:C38U) and Frasers Centrepoint Trust (SGX:J69U) are beneficiaries of Singapore’s phased reopening. We believe the worst is likely over for them. CapitaLand Mall Trust should benefit from footfall recovery while Frasers Centrepoint Trust is further underpinned by the resilience of suburban malls.
    • See report:
      • CapitaLand Mall Trust - DBS Research 2020-07-23: Broad Based Recovery To Revitalise Earnings Profile,
      • Frasers Centrepoint Trust - DBS Research 2020-07-24: Suburban Shines.
• We are also positive on Mapletree Logistics Trust (SGX:M44U) and Mapletree Industrial Trust (SGX:ME8U) for their resilient logistics and data centres/industrial exposures respectively. But FY20F yield has dipped below 4% with the share price rally in recent months. We prefer to buy on pullback.

Five undervalued cyclicals and blue chips to bargain hunt

• While REIT, technology and medical equipment stocks are hotly pursued by investors in the current environment, we believe investors should also keep an eye for opportunities in the undervalued cyclical sectors (Property and banks) and consumer related blue chips as several are trading at historic valuation extremes that should provide support.
• While there is a lack of strong upside catalyst currently, any positive news or development such as additional fiscal support, gradual recovery in global trade or progress in vaccine development should bode well for them. We believe the current lull period for these stocks is an opportunity to accumulate.
• Property developers offer deep value, trading at GFC trough valuations – P/B of 0.6x. Current valuations have priced in a 10-15% portfolio deterioration in asset prices, a scenario which is unlikely given low interest rates and the low yield environment.
• Our picks are CapitaLand (SGX:C31), City Developments (SGX:C09), ComfortDelGro (SGX:C52), Thai Beverage (SGX:Y92) and OCBC (SGX:O39).

See PDF report attached below for complete analysis.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2020-08-06

SGX Stock Analyst Report BUY MAINTAIN BUY 3.70 SAME 3.70

BUY MAINTAIN BUY 10.50 SAME 10.50

BUY MAINTAIN BUY 1.680 SAME 1.680

BUY MAINTAIN BUY 0.900 SAME 0.900

HOLD MAINTAIN HOLD 9.300 SAME 9.300