SATS LTD. (SGX:S58)
SINGAPORE TECH ENGINEERING LTD (SGX:S63)
CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
UNITED OVERSEAS BANK LTD (SGX:U11)
Singapore Stock Market - Stay Focused On The Positives
- STI should hold above March20 low, near 2380 support.
- A Biden victory would be positive for China-related stocks.
- Not all doom and gloom for travel stocks – SATS, ST Engineering, Far East Hospitality Trust, China Aviation Oil.
- Yield curve steepens – UOB, selective on S-REITs: Ascendas REIT, Frasers Centrepoint Trust, CDL Hospitality Trusts, Far East Hospitality Trust.
Look beyond the immediate term.
- We believe that the current market sell-off will end above March lows. It should come as soon as STI hits 2380 and if not, STI should hold above 2300.
- Asia is on the recovery, led by China. Singapore’s GDP has also passed its inflexion point and is set to register positive 2021 y-o-y growth. The world is also closer to a COVID-19 vaccine than before. Watch the US presidential election outcome for clues.
- A Biden win is seen as positive for Asian equities; a blue wave is a bonus while a Trump second term may spell more uncertainty.
US presidential election
If Trump wins -
- We believe one of the key beneficiaries of Trump’s second term are the oil & gas players which have exposure in the US. Trump’s support and the deregulating of the US oil & gas industry have led to the country’s crude oil production growing to a record 12.9 million barrels per day (November 2019), up 44.9% from 8.8 million barrels per day (January 2017) since he was inaugurated.
- A second term for Trump may be positive for oil service providers in the US such as CSE Global (SGX:544). CSE Global is currently trading at 8.2x FY21F PE (-0.8 SD) and with its outlook improving as oil prices stabilise and economies gradually reopen, we think its valuations are undemanding.
- Deregulation of the energy industry and a lift to drilling activities could spur demand for rigs and vessels for Keppel Corp (SGX:BN4) and drive contract wins closer to S$4-5bn p.a.
If Biden wins -
- Biden will adopt a more “open and negotiable” approach with China and has said that he will consider removing or reducing tariffs. Companies that have production facilities in China and sales exposure to the US will benefit.
- Valuetronics (SGX:BN2) and Hi-P International (SGX:H17) have c.40-50% and c.30% revenue exposure to the US respectively.
- Valuetronics has a strong balance sheet (cash of HK$1.05bn and no long-term borrowings) and is currently trading 10.4x/9.7x FY21F/22F PE, which is at a discount to its peer average of 20.6x/14.2x.
- Hi-P International is currently trading at 12.3x/11.7x FY21F/22F PE.
- A Biden victory and easing of US-China trade tensions is positive for China’s recovery that should lift sentiment for China-related stocks.
- Hutchison Port Holdings Trust (SGX:NS8U) derives 90% of its profits from Yantian Port and 30% of Yantian Port’s business are exports to the US.
- China Aviation Oil (SGX:G92) derives 60-65% of profits from Shanghai Pudong Intl Airport Aviation Fuel services, which should benefit from a strong rebound in domestic air travel at Shanghai Pudong Intl Airport.
Yield curve steepens
- S-REITs have underperformed banks in recent weeks as a rebound in the US 10-year yield in anticipation of a second US fiscal stimulus package led to a bear steepening of the yield curve. The US 10-year yield has room to rise further to 1.3% next year on positive vaccine development news and recovery in the US economy. This may lead to near-term profit taking in view of the fragile economic growth. That said, forward yields of 6.5% (5.2% spread vs 10-year bond) should lend some support.
- Negative developments allowing smaller companies to end lease obligations without penalty will be an overhang on selected retail, office and industrials REITS.
- We turn more cautious on REITs, top slice those REITS which have performed well with forward yields of c.4% or lower such as Keppel DC REIT (SGX:AJBU) and Mapletree Industrial Trust (SGX:ME8U).
- Our large-cap pick is Ascendas REIT (SGX:A17U) for its resilient operating metrics and FY20F/21F yields of 5.1% and 5.6% respectively.
- We also prefer Frasers Centrepoint Trust (SGX:J69U) that is positioned to ride on Singapore’s Phase 3 reopening, as well as Far East Hospitality Trust (SGX:Q5T) and CDL Hospitality Trusts (SGX:J85) for the anticipated recovery in travel when a COVID-19 vaccine is available.
- Banks’s relative outperformance should continue if yields continue to rise. Our pick is UOB (SGX:U11) as we believe that its negatives are largely priced in and further improvement in loans under moratorium figures should be viewed positively.
Balancing COVID-19 resurgence, vaccine news and reopening
- Travel-related stocks took a beating last week after the strong COVID-19 resurgence in Europe led into a month-long nationwide lockdown and restrictions for Germany, Spain and Italy. Mass gatherings at election rallies have triggered a third wave of COVID-19 in the US. The fear is that with the cold autumn/winter months just starting in the northern hemisphere, the beleaguered aviation and hospitality sectors will be dealt an extended blow in the months ahead.
- But it is not all doom and gloom. The world will know the outcome of the first COVID-19 vaccine candidates (e.g. by Pfizer and Moderna) currently under Phase 3 trials by end- November to early December. A positive outcome will likely mark a recovery from major lows for travel-related stocks.
- The Singapore government’s commitment to restoring air connectivity while guarding against COVID-19 will position our aviation and hospitality stocks as among the first to ride on the recovery in international travel once a vaccine is readily available. In the meantime, the ‘Singapore discovers’ vouchers from the government will help lift demand for domestic staycations.
- Among the hospitality REITs, our preferred picks in the current pre-vaccine environment is Far East Hospitality Trust (SGX:Q5T) (100% Singapore revenue exposure) and CDL Hospitality Trusts (SGX:J85).
- Our pick to ride on Singapore’s airspace reopening is SATS (SGX:S58) and ST Engineering (SGX:S63). We are also positive on China Aviation Oil (SGX:G92) with the recovery of China’s domestic air demand to pre-COVID levels.
STI – Look beyond the immediate term
- US election outcome – Biden victory is seen as positive for Asian equities while a Trump second term may spell more uncertainty.
- Current sell-down should end above March low.
- Technical support at 2380, 2300 should hold up.
Kee Yan YEO CMT
DBS Group Research
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Wei Le CHUNG
DBS Research
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Janice CHUA
DBS Research
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https://www.dbsvickers.com/
2020-11-03
SGX Stock
Analyst Report
3.660
SAME
3.660
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SAME
3.800
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SAME
1.200
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SAME
22.200
