Singapore Stock Market - UOB Kay Hian 2020-11-25: Laggards Have Their Day In The Sun

FRASERS CENTREPOINT TRUST (SGX:J69U) WILMAR INTERNATIONAL LIMITED (SGX:F34) KEPPEL REIT (SGX:K71U) KEPPEL CORPORATION LIMITED (SGX:BN4)

Singapore Stock Market - Laggards Have Their Day In The Sun

Positive news on the vaccine front has led to a global switch out of growth to value stocks, and some Singapore-listed value stocks have benefitted.
With investors chasing laggards, a number of stocks now appear to be in overbought territory, with the top 5 culprits being Sembcorp Marine, SIA Engineering, SATS, CDL Hospitality Trusts and ARA US Hospitality Trust.
While sentiment may continue to grind some of these stocks higher, we advocate investors to stick to blue chips with strong financials and dividend-paying ability.

Since news of Pfizer and BioNTech’s vaccines on 9 Nov 20, the laggard stocks on the STI have staged a remarkable rebound following a global trend for funds switching from growth to value stocks.
In the past week, 5 of the worst performing stocks year-to-date, namely Sembcorp Marine (SGX:S51), ARA US Hospitality Trust (SGX:XZL), SPH (SGX:T39), Frasers Hospitality Trust (SGX:ACV) and Bumitama Agri (SGX:P8Z) - have averaged a 13% w-o-w return, beating the STI’s 4% gain.
Sembcorp Marine Share Price and SPH Share Price gained 31% and 20% w-o-w respectively. The share price outperformance belies the fact that a number of these companies are likely to remain in bad financial shape even in the face of any meaningful economic recovery in 2021, in our view.
See Straits Times Index (STI) Constituents share price performance.

Some of the share price movements in the past few weeks have resulted in a number of stocks being firmly embedded in the overbought territory - “Overbought” being defined as current share prices being at a premium to our fair value or target price. The top 5 culprits on this front are
Given positive newsflow on the vaccine front, it is therefore no surprise that these stocks are all in sectors that have been badly hit by the COVID-19 pandemic, i.e. offshore marine, aviation and hospitality, and are thus seen as potentially benefitting the most from a faster-than-expected economic recovery.

There are less overbought stocks in the small/mid-cap sector with only seven stocks trading at a premium to our fair value or target price. These are

The best performing stocks since the Mar 20 lows have not given up their gains with Sembcorp Industries (SGX:U96), CDL Hospitality Trusts (SGX:J85), Far East Hospitality Trust (SGX:Q5T), SATS (SGX:S58) and Genting Singapore (SGX:G13) leading the way, averaging 96% return vs the STI’s 31% return over the same period.
With 11 of the top 20 stocks being REITs, the sector continues to be one that has provided investors strong outperformance again this year.
See S-REITs share price performance.

Focus on blue chips which have strong operating cash flow and the potential to continue paying dividends. We highlight 10 stocks in our large-cap coverage universe that have the highest upside to target prices. We note that this list is very diversified with three of these stocks being REITs, as well as financials, industrials, healthcare, plantation and technology stocks.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-25

SGX Stock Analyst Report BUY MAINTAIN BUY 3.150 SAME 3.150

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