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Singapore Stock Picks - CGS-CIMB Research 2020-11-17: Go With The Flow, Don’t Fight The Market

Singapore Stock Picks - CGS-CIMB Research | SGinvestors.io SINGAPORE AIRLINES LTD (SGX:C6L) UNITED OVERSEAS BANK LTD (SGX:U11) DBS GROUP HOLDINGS LTD (SGX:D05) KEPPEL CORPORATION LIMITED (SGX:BN4) SINGTEL (SGX:Z74) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) CAPITALAND LIMITED (SGX:C31) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) FRASERS CENTREPOINT TRUST (SGX:J69U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) SBS TRANSIT LTD (SGX:S61) BOUSTEAD SINGAPORE LIMITED (SGX:F9D) JAPFA LTD. (SGX:UD2) CSE GLOBAL LTD (SGX:544) KOUFU GROUP LIMITED (SGX:VL6) UG HEALTHCARE CORPORATIONLTD (SGX:8K7)

Singapore Stock Picks - Go With The Flow, Don’t Fight The Market




Change in favourites; Go with the flow

  • Continue from: Singapore Stock Strategy - CGS-CIMB Research 2020-11-17: First Earnings Upgrade Offers Hope; Mean Reversion Ahead.
  • We were previously prepared to rotate into cyclicals and beaten down sectors if a COVID-19 vaccine was widely available. However the musical chair of switching into these names were violent after the Pfizer vaccine news broke last week. Yield instrument (REITS) were generally used as a funding source into Capital Goods, Transport and Gaming.
  • We do not see a point in going against the market. The caveat is one has to look beyond two years for earnings normalisation as the real struggle against the COVID-19 virus is far from over. Critical mass deployment of any vaccine will take time and, in our view, clarity is only likely by mid-2021 globally, but the natural tendency among investors to look ahead will trigger the sustained shift into 2020-beaten down sectors.
  • Arguably, 2021 could be a better year than this one as our economist forecasts a GDP growth of 5.3% (2020: -5.7%), seeking reassurance from the recent discovery of COVID-19 vaccines that the trend of economic normalisation would start materialising next year.


Defensive earnings recovery: Upgrade Banks from Neutral to Overweight.

  • We believe Singapore banks’ earnings recovery is sustainable in FY21F as credit costs likely peaked in 2020 with asset quality holding steady going forward. As book value risks dissipate, we expect improving ROE towards double-digits by FY23F to drive valuations back to historical mean of 1.3x.
  • The banks’ aggressive efforts to grow non-interest income to buffer their subdued interest income could still see room to surprise on the upside.
  • Resumption of dividends to pre-COVID-19 levels is also a key catalyst.
  • See Singapore Banks - CGS-CIMB Research 2020-11-06: Focusing Less On BV Risks, More On ROE.


Vaccine beneficiaries: Upgrade Transport from Neutral to Overweight.

  • The transport sector has underperformed the index by c. 30% year-to-date, even with the recent outperformance, suggesting ample headroom for upside on any positive development, including more bilateral travel arrangements, as well as reciprocal leisure travelling, especially from China.
  • Domestically, Singapore is well prepared to enter into phase 3 with broader economy activities by the end of 2020 or early-2021 which could see positive demand for land transport (ComfortDelGro (SGX:C52)).
  • See also recent SGX market update: SGX Transportation Stocks On The Move With 11% Gains In Early November.


Singapore Stock Picks

  • Our stock picks are based on
    1. recovery theme,
    2. value, and
    3. yield with growth prospects.
  • Large cap stocks that are perceived as a recovery proxy are
  • Keppel Corp (SGX:BN4) belongs to the value category with finalisation of O&M strategic review by 1Q21F a near-term catalyst.
  • We still like SREITs as the sector trades at c.5% 12-month forward dividend yield, midway between the average and +1 s.d. long term yield band, and at 1.06x P/BV. Whilst our sub-sector ranking is retail, industrial, office and hospitality, pegged by order of most-liked to least-liked preference, we continue to be selective on stock selection. Our REITs picks are
  • We replace NetLink Trust (SGX:CJLU) with SingTel (SGX:Z74) as a non-REIT yield play. Catalysts are
    1. potential award of a full digital bank licence together with Grab,
    2. 100% FY3/21F dividend payout vs. our expectations of 75% and
    3. H-o-h earnings recovery in 2HFY3/21F.
  • Small caps: SBS Transit (SGX:S61) and Koufu (SGX:VL6) are our picks on the recovery of the domestic economy into Phase 3 as social distancing measures ease further.
  • We like Boustead Singapore (SGX:F9D)’s strong earnings momentum, which is likely to sustain into 2H21F, driven by stronger energy segment contribution and recovery from the property segment. The stock is trading at 4x ex-cash FY22F P/E.
  • We continue to like CSE Global (SGX:544) for the steady dividend yield of c.6%, Japfa (SGX:UD2) for its undemanding valuations of 6x FY21F P/E, -0.5 s.d. below mean as the market is still giving full credit of sustained dairy and poultry margin.
  • We keep UG Healthcare (SGX:8K7) due to its undemanding valuations (9x FY23F), assuming more normalised profits that are backed by +59% y-o-y manufacturing capacity expansion to 4.6bn pcs/ p.a.
  • See PDF report attached below for complete analysis.

    Recent reports on our Singapore stock picks:






    LIM Siew Khee CGS-CIMB Research | Singapore Research Team CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-17
    SGX Stock Analyst Report ADD MAINTAIN ADD 4.570 SAME 4.570
    ADD MAINTAIN ADD 22.520 SAME 22.520
    ADD MAINTAIN ADD 25.510 SAME 25.510
    ADD MAINTAIN ADD 6.460 SAME 6.460
    ADD MAINTAIN ADD 3.100 SAME 3.100
    ADD MAINTAIN ADD 0.700 SAME 0.700
    ADD MAINTAIN ADD 3.420 SAME 3.420
    ADD MAINTAIN ADD 3.200 SAME 3.200
    ADD MAINTAIN ADD 2.890 SAME 2.890
    ADD MAINTAIN ADD 1.500 SAME 1.500
    ADD MAINTAIN ADD 3.600 SAME 3.600
    ADD MAINTAIN ADD 1.200 SAME 1.200
    ADD MAINTAIN ADD 1.000 SAME 1.000
    ADD MAINTAIN ADD 0.600 SAME 0.600
    ADD MAINTAIN ADD 0.860 SAME 0.860
    ADD MAINTAIN ADD 1.700 SAME 1.700


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