Singapore Market July 2020 Wrap Up - CGS-CIMB Research 2020-07-30: Singapore In 5

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Singapore Market July 2020 Wrap Up - Singapore In 5

• FSSTI closes Jul 20 down 2.4%, at 2,527.37 pts.
• Singapore in technical recession; slight recovery but downside risks remain.
• Maintain our FSSTI target at 2,495, still based on 12x CY21F P/E.
• Current Singapore stock top picks:
  • CapitaLand Mall Trust (SGX:C38U),
  • Frasers Centrepoint Trust (SGX:J69U),
  • SingTel (SGX:Z74),
  • Wilmar (SGX:F34),
  • Venture Corp (SGX:V03),
  • AEM Holdings (SGX:AWX),
  • CSE Global (SGX:544),
  • Japfa (SGX:UD2),
  • Riverstone (SGX:AP4),
  • Koufu (SGX:VL6) (see report: Koufu Group - CGS-CIMB Research 2020-07-01: Bringing In The Dough),
  • UG Healthcare (SGX:41A) (see report: UG Healthcare 2HFY20 Preview - CGS-CIMB Research 2020-07-30: Just Getting Started).

Circuit breaker bites: Singapore in technical recession

• The FSSTI closed Jul at 2,527.37 pts, down 62.54 pts m-o-m (-2.4%). Both the ECB and Fed held their benchmark rates steady, while the ECB committed to fully utilising its Pandemic Emergency Purchase Programme (PEPP) funds, citing significant downside risks. Singapore’s economy entered a technical recession, with 2Q20 GDP down 12.6% y-o-y (-41.2% q-o-q), as the circuit breaker in Apr-May disrupted economic activity.
• Some nascent shoots of recovery were seen in Jun 20’s data: IPI fell 6.7% y-o-y, an improvement from -8.1% y-o-y in 1Q20, implying that production has resumed, especially in the electronics industry. Performance in other segments were not so positive, with demand for chemicals, engineering and general manufacturing declining by double-digits in Jun.
• We keep our end- 20 GDP forecast at -4.9% and expect a moderate rebound of 5.3% in 2021, amidst uneven recovery and dampened consumer sentiment (also see ASEAN Econ Alpha note).
• New home sales (URA data) in Jun rose 21% y-o-y, almost double that of May (still under the circuit breaker), although prices slipped by 1.1% q-o-q. Declines were mainly seen the suburban and fringe areas, as the Central Core Region (CCR) held firm.
• Commercial rents remained unchanged in 2Q20 (1Q20: -0.8%), though the vacancy rate increased to 12.1% (1Q20: 11%). Retail rents fell a further 3.3% q-o-q, after declining 2.3% in 1Q20, while vacancy rate rose to 9.6% from 8% in 1Q20.

COVID-19 winners and losers. 2Q20 earnings season: mostly dismal

• Consumer Goods, Tech, and REITs were the outperforming sectors for Jul, while Consumer Services, Property, and Oil & Gas underperformed.
• Index performers were
  • Mapletree Industrial Trust (SGX:ME8U) (recent addition to FSSTI and acquisition of US data centres),
  • Wilmar (SGX:F34) (upcoming China listing),
  • Ascendas REIT (SGX:A17U) (Sydney acquisition).
• Index underperformers were
  • Keppel Corp (SGX:BN4) (O&M impairments),
  • Singapore Airlines (SGX:C6L) (poor results, slumping demand),
  • Hongkong Land (SGX:H78) (passing of new HK security law).
• Mid-large cap gainers were beneficiaries of COVID-19 and an increasing number of people working from home.
  • Riverstone (SGX:AP4) (gloves and PPE),
  • Hi-P International (SGX:H17) (manufacturing) and
  • Silverlake Axis (SGX:5CP) (software solutions).
• Last month’s biggest losers SPH (SGX:T39), Sembcorp Marine (SGX:S51) persisted, while slower-than expected recovery in travel hurt Ascott Residence Trust (SGX:HMN). See reports:
  • Singapore Press Holdings (SPH) - CGS-CIMB Research 2020-07-14: COVID-19 Steals The Headlines.
  • Sembcorp Marine - CGS-CIMB Research 2020-07-15: Restrained By Lockdowns.
  • Ascott Residence Trust - CGS-CIMB Research 2020-07-28: Gradual Recovery Ahead.
• Institutional investors were broad-based sellers for the month, especially in Financials, Industrials, and REITs, although there was a significant inflow to Tech. Retail investors continued to wade in the market, buying into Industrials, Telcos and REITs.
  • See SGX Market Fund Flow Overview, SGX Weekly Fund Flow By Sector.
• The only companies which had positive surprises for the 2Q20 results season were SATS (SGX:S58), SIA Engineering (SGX:S59) (Government Job Support Scheme [JSS]), the rest coming in evenly split between in-line and below expectations. See reports:
  • SATS - CGS-CIMB Research 2020-07-10: No Green Shoots Yet; Maintain REDUCE.
  • SIA Engineering - CGS-CIMB Research 2020-07-18: Buffered By Grant.
• Business announcements also saw more companies holding on to more cash as a prudent measure.

Key Corporate News

• OUE (SGX:LJ3) to sell US Bank Tower for US$430m, below valuation.
  • See OUE Announcements.
• Ascott Residence Trust (SGX:HMN) to sell Guangzhou, Paris serviced residences for S$191.4m.
  • See Ascott Residence Trust Announcements and report: Ascott Residence Trust - CGS-CIMB Research 2020-07-28: Gradual Recovery Ahead.
• Sembcorp (SGX:U96) completes Veolia deal for S$19.2m.
  • See Sembcorp Announcements.
• Koufu (SGX:VL6) to acquire fried food, dough supplier for S$22m.
  • See Koufu Announcements and report: Koufu Group - CGS-CIMB Research 2020-07-01: Bringing In The Dough.

Technical Perspective

• With another month of sluggish price action in Jul and the FSSTI falling -2.4%, a bearish formation, Head and Shoulders pattern has been triggered. More specifically, the bearish break below the uptrend line in the last week of Jul has validated the bearish formation signaling a deeper sell-off in the coming weeks.
• According to bearish formation projection, the FSSTI could fall further to the 2,400 support area. Moreover, the past five consecutive days of close below the 2,600 level further highlights the growing weakness.
• See STI chart in PDF report attached below.
• (see also STI constituents price targets and stock ratings)

LIM Siew Khee CGS-CIMB Research | Jeremy NG Choon Heng CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-30

SGX Stock Analyst Report ADD MAINTAIN ADD 3.000 SAME 3.000