Singapore Stocks 1H20 Results Wrap - UOB Kay Hian 2020-08-20: A Trough For The Times

Singapore Stocks 1H20 Results Wrap - UOB Kay Hian Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05)

Singapore Stocks 1H20 Results Wrap - A Trough For The Times

  • Despite downgrading earnings heading into the 1H20 results season, the COVID-19 pandemic took a larger-than-expected chunk out of earnings with a number of sectors seeing material impairments. With 2Q20 being the trough and our base case expectation for growth to resume in 4Q20, we maintain our STI year-end target of 2,760.
  • Focus on defensive blue chips, selected cyclicals and ‘reopening’ plays.



1H20 results season was worse than expected

  • 1H20 results season was worse than expected despite the consensus had downgraded earnings in 1H20 due to the COVID-19 impact. Although we had lowered our earnings by over 35% vs the start of 2020, only 56% of companies managed to beat or meet our earnings expectations – this is the lowest percentage in our dataset that goes back to 2009.
  • In addition, only 6% of companies beat our expectations which is comparable to the 6% seen in 4Q11 and 1Q15. Clearly, the sellside had underestimated the wide-ranging impact that COVID-19 had on the broad economy, with results being even worse if the Singapore government had not stepped in with some S$100b worth of stimulus measures.


Slowing but not stopping.

  • The spread of COVID-19 has largely slowed in recent weeks in Asia although certain countries have experienced second waves, eg Hong Kong, Japan and South Korea. Nevertheless, the focus of policymakers and markets has begun to shift from containing the pandemic towards revival of their domestic economies.
  • In our view, success will be determined by decisive policymaking, effective execution and a socially cohesive country, all of which Singapore represents.


Cautiously bullish.



STI 2020 year-end target

  • Our end-20 target for the STI of 2,760 remains unchanged, and implies an 8% upside from current levels. Based on consensus numbers, the STI is currently trading at 14.0x 2020F PE, which is only a 5% discount vs its long-term average of 14.8x, while its current 1.0x P/B is 1SD below its 10-year average.


STI 2021 year-end target

  • For 2021, our year-end target for the STI is 2,930 (6% upside from our end-20 target) and is based on a 10% discount to the STI’s long-term PE and P/B. However, there may be a multiples re-rating and thus upside to our target is 3,260 should a COVID-19 vaccine be found and successfully distributed.


Base-case scenario.

  • Our base case scenario envisages Singapore bumping along until at least end-3Q20 and resumption of growth by 4Q20. While a white swan event could occur with the discovery of a vaccine, the ability of companies or governments to produce and distribute such a vaccine on a massive scale (not to mention pay for it) may lead to delays.
  • Nevertheless, Singapore being well into Phase 2 re-opening with week-on-week declines in reported COVID-19 infections underpins our base-case scenario.


Lowering our earnings expectations for 2020...

  • We downgrade our 2020 earnings by 22% with the worst hit sectors being aviation, property, shipyards, land transport and ‘others’ which comprise Genting Singapore (SGX:G13) and SingPost (SGX:S08). Property, shipyards and land transport were particularly hard hit by asset impairments on top of their poor results.
  • On the positive side, the plantation sector was the only one with decent earnings upgrades from First Resources (SGX:EB5) and Bumitama Agri (SGX:P8Z).


…and 2021.

  • Given the uncertain trajectory of economic recovery next year, we also downgrade 2021 earnings by 10% with aviation, property and shipyards being the main culprits. On the positive side, we note the tech sector (ie Venture) saw earnings upgrades for both 2020 and 2021.


Nearly 60% of Singapore firms need 1-2 years to recover.

  • According to a Singapore Chinese Chamber of Commerce & Industry (SCCCI) survey among 1,020 members during June and July, nearly 6 in 10 Singapore firms forecast that recovery will only happen in 1-2 years’ time, with financing, cash flow and rising business costs being respondents’ top concerns. As 1H20 results have shown, revenue and profit margins have declined for large-and small-cap companies.
  • Somewhat surprisingly, only 8% of respondents had retrenched workers; while this demonstrates the success of the government’s Jobs Support Scheme, the risk in the medium term is what will happen to companies when the subsidies dry up.
  • In our view, the risk to small and medium-sized enterprises is higher vs listed companies which arguably entered 2020 with reasonably well-capitalised balance sheets.


We continue to advocate for equities, given that we are in a "risk free" environment.

  • With subdued near-term inflation and aggressive monetary policies globally, interest rates will likely remain very low for an extended period. This may drive market multiples higher despite deteriorating earnings estimates. We continue to believe that equities will benefit relative to cash or bonds.
  • Risks to our base-case scenario include reinfection of the population post re-opening of the economy, uneven and patchy economic recovery of Singapore’s key regional and global trading partners, and timeliness in the development and distribution of a vaccine.


Comments By Industrial Sector Post 1H20 Results


Banks - DBS: Better than expected; OCBC: Worse than expected


Gaming - Worse than expected


Healthcare - Worse than expected


Land Transport - Worse than expected


Media - Worse than expected

  • SPH (SGX:T39) saw print ad decreased 51% y-o-y in 3QFY20, a significant drop, while rental reliefs from its retail segment did not help to alleviate the decline. The only bright spot is its student accommodation business, with achieving a good proportion of targeted revenue for the next academic year. Overall, the outlook remains uncertain as revaluation losses are a potential headwind.
  • See report: Singapore Press Holdings (SPH) - UOB Kay Hian 2020-08-24: Awaiting Signs Of Relief.

Plantation - First Resources and Bumitama: In-line; Golden Agri: Worse than expected

  • In 1H20, most of the companies reported better y-o-y earnings on the back of higher selling prices despite lower FFB production and sales volumes. We highlight that companies revised their FFB production forecasts from positive-to-flat y-o-y growth to negative-to-flat y-o-y growth, unfavourable weather since 2019 being the key reason. However, we maintain most of our FFB production growth forecasts as we had taken in this impact previously.
  • We expect plantation companies to continue to deliver better h-o-h earnings in 2H20 on the back of higher selling prices. Production in 2H20 could be marginally better than 1H20 and, coupled with some inventory build-up towards end-Jun 20, this will translate into higher sales volumes as well, in our view. Maintain MARKET WEIGHT on the sector.
  • See report: Plantation – Singapore - UOB Kay Hian 2020-08-21: Expecting A Better 2H20.

Property developers: Worse than expected


Property agencies: Better than expected


REITs - Largely in-line with the exception of AREIT, CCT, ART and CDREIT.


Shipyards - Worse than expected


Technology - In-line


Telecoms - In-line



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Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-20
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