Singapore Stock Strategy - UOB Kay Hian 2020-09-21: Looking North For Opportunities

Singapore Stock Strategy - UOB Kay Hian Research | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34) FU YU CORPORATION LTD (SGX:F13) SASSEUR REIT (SGX:CRPU) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Singapore Stock Strategy - Looking North For Opportunities

  • Data coming out of China in the past few weeks has shown that the economy is experiencing a rebound post-COVID-19 slowdown. Importantly, this rebound is ahead of other countries, as seen most clearly in the PMI numbers vs that in Singapore and other developed markets.
  • For Singapore-listed China economic-rebound plays, we highlight Sasseur REIT (SGX:CRPU), Yangzijiang Shipbuilding (SGX:BS6), Wilmar International (SGX:F34) and Fu Yu (SGX:F13) as they are beneficiaries, given that > 50% of their revenue is from China.



CHINA: AHEAD OF THE REBOUND CURVE


China’s economic recovery post-COVID-19 has been impressive

  • China’s economic recovery post-COVID-19 has been impressive with latest indicators showing m-o-m improvement. In particular, FAI growth accelerated to 8.8% y-o-y in Aug 20 from 7.4% in Jul 20, industrial production (IP) grew 5.6% y-o-y in Aug 20 vs 4.8% in Jul 20 while retail sales returned to positive territory (0.5% y-o-y) for the first time since the pandemic although it is still the laggard among the three indicators.

PMI data has been strong too.

  • Data for August including the Purchasing Managers’ Index (PMI) for both the manufacturing and non-manufacturing sectors as well as exports have printed on the strong side. This affirms the sustained economic recovery in 3Q20 and also suggests that monetary policy easing is now less urgent and more likely to be targeted at certain segments that require support rather than a broad-stroke application. UOB Global Economics and Market Research (UOB GEMR) forecasts China’s GDP growth will accelerate to 4.9% y-o-y in 3Q20 from 3.2% y-o-y in 2Q20.
  • Consumer confidence has been picking up as well as seen in increased spending on cars, duty-free shopping and dining out. For example, auto sales climbed 11.8% y-o-y in August, while sales of telecoms products rose 25.1% y-o-y, according to China’s National Bureau of Statistics.

Continued recovery in 2H20.

  • Looking ahead, UOBKH’s China team expects FAI and IP to be key growth drivers in 2H20, supported by the recent surge in government bond issuances (see chart on next page). With the expected resumption in global economic activity in 2H20, UOB GEMR expects China’s industrial production to hold up in the current half of the year.
  • China’s export growth accelerated to 9.5% y-o-y in Aug 20, strongly beating Bloomberg consensus of 7.5% y-o-y, mainly driven by a further recovery in exports to the US to a two-year high of 20.0% y-o-y growth in Aug 20 (Jul 20: +12.5% y-o-y). While that may be surprising, considering that globally social-distancing measures remain largely in place, many countries are struggling with serious disruptions in manufacturing which has thus resulted in China's exports relishing its strong growth momentum. This has positive ramifications for IT manufacturing companies in Singapore, such as Fu Yu and Hi-P.

What are the risks?

  • In our view, the pace of recovery will be uneven, given the size and scope of the Chinese economy. UOB GEMR points out that downside risks to the GDP numbers remain, for example, from floods or a possible resurgence of COVID-19.
  • In addition, international air travel restrictions largely remain in place and the global economy is still weak as many governments have maintained strict social-distancing measures which have the effect of reining in economic activity.


IMPLICATIONS FOR SINGAPORE STOCKS


Top Singapore-listed stocks with > 50% of revenue from China

  • We highlight Sasseur REIT (SGX:CRPU), Yangzijiang Shipbuilding (SGX:BS6), Wilmar International (SGX:F34) and Fu Yu (SGX:F13) as beneficiaries from China’s early and strong economic recovery post-COVID-19 shutdowns, given that more than 50% of these companies’ revenue is from China.
    • Sasseur REIT, in particular, has already benefitted from China’s economic rebound as its 2Q20 results reported a strong 56% q-o-q recovery in sales.
    • Fu Yu’s streamlining of its China operations should enable it to capture higher margins as its business recovers in 2H20.
    • Although Yangzijiang Shipbuilding may not be seen as a clear beneficiary yet, we highlight that in 2020, the company had undertaken a very successful pivot to garner more China-based clients after the disruption caused by the lockdown in Mar- Apr 20.
    • For Wilmar International, the IPO of its subsidiary in China, Yihai Kerry Arawana, where it derives 60% of its revenue, will be a key share price catalyst in the next few months.

Wilmar International (SGX:F34).


Yangzijiang Shipbuilding (SGX:BS6).

Sasseur REIT (SGX:CRPU)


Fu Yu (SGX:F13).


NOT-RATED stocks with China revenue exposure.






Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-09-21
SGX Stock Analyst Report BUY MAINTAIN BUY 5.350 SAME 5.350
BUY MAINTAIN BUY 0.290 SAME 0.290
BUY MAINTAIN BUY 0.990 SAME 0.990
BUY MAINTAIN BUY 1.170 SAME 1.170



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