CITY DEVELOPMENTS LIMITED (SGX:C09)
VENTURE CORPORATION LIMITED (SGX:V03)
COMFORTDELGRO CORPORATION LTD (SGX:C52)
2021 Singapore Stock Market Strategy - Sector Outlook & Weightings For 1H21
- Continue from report: 2021 Singapore Stock Market Strategy - UOB Kay Hian 2020-12-09: Reopening & Recovery.
Our Singapore stock market sector weightings:
- Our sector weightings for Singapore stock market are outlined below.
- We have also included:
- our thoughts on the sectors; and
- stocks in Singapore that would be leveraged to a better-than-expected recovery from the COVID-19 pandemic.
- Sectors to OVERWEIGHT
- Banks: OCBC (SGX:O39) over DBS (SGX:D05).
- Blue chips: SingTel (SGX:Z74), Keppel Corp (SGX:BN4), Sembcorp Industries (SGX:U96).
- Healthcare: Riverstone (SGX:AP4), Parkway Life REIT (SGX:C2PU).
- Plantations: Wilmar International (SGX:F34), First Resources (SGX:EB5).
- Selected retail and hospitality S-REITs: Frasers Centrepoint Trust (SGX:J69U), CDL Hospitality Trusts (SGX:J85), Far East Hospitality Trust (SGX:Q5T).
- Technology: NanoFilm Technologies (SGX:MZH), Venture Corp (SGX:V03).
- Sectors to MARKET WEIGHT
- Aviation: ST Engineering (SGX:S63), SATS (SGX:S58).
- Consumer: Thai Beverage (SGX:Y92).
- Gaming: Genting Singapore (SGX:G13).
- Property Developers/Agencies: City Developments (SGX:C09), CapitaLand (SGX:C31), PropNex (SGX:OYY).
- Shipyards: Sembcorp Industries (SGX:U96), Yangzijiang (SGX:BS6).
- Telecoms: NetLink Trust (SGX:CJLU).
- Land transportation: ComfortDelGro (SGX:C52).
- COVID-19 Recovery Plays
- Aviation: Singapore Airlines (SGX:C6L), SATS (SGX:S58).
- Gaming: Genting Singapore (SGX:G13).
- Hospitality: Ascott Residence Trust (SGX:HMN), CDL Hospitality Trusts (SGX:J85), Far East Hospitality Trust (SGX:Q5T), ARA US Hospitality Trust (SGX:XZL), City Developments (SGX:C09).
- Property Developers: City Developments (SGX:C09) and CapitaLand (SGX:C31).
Singapore Stock Market Sector Outlook Comments For 1H21 – Large Caps
Aviation
- Analyst: K Ajith.
- Market has already priced in much of the positives from expected traffic pick-up post-vaccine news. We downgraded Singapore Airlines (SGX:C6L) to SELL on 4 Dec 20.
- We are neutral on SATS (SGX:S58) and ST Engineering (SGX:S63), but the latter has less downside risk due to its diversified operations and yield support of 3.9%.
Banks
- Analyst: Jonathan Koh.
- Banks have maintained guidance for cumulative credit costs in 2020-21 at 80-130p (S$3b-5b) for DBS (SGX:D05), and 100-130bp (S$2.5b-3.5b) for OCBC (SGX:O39).
- For DBS, we estimate provisions at S$2.9b in 2020, and to drop to S$1.6b in 2021.
- For OCBC, we estimate provisions at S$2.1b in 2020, and to drop to S$0.9b in 2021.
- We see dividend yield from DBS improving from 4.3% 2021 to 5.2% in 2022 and for OCBC from 5.0% 2021 to 5.6% in 2022. Maintain BUY for OCBC (Target Price: S$12.85).
- See recent reports:
Gaming
- Analysts: Vincent Khoo, Jack Goh.
- Operationally, the gaming sector’s earnings recovery has staged a strong comeback, attributed to the resilient mass market and local patronage.
- Moving forward, we anticipate more doses of positivity as Singapore mulls over more border relaxation with some neighbouring countries. The likelihood of vaccine(s) being approved (eg Pfizer-BioNTech’s vaccine) also suggests market outperformance for the gaming sector in 2021.
- See recent reports:
Healthcare
- Analyst: Lucas Teng.
- Key upside for the healthcare sector would come from the border reopening and resumption of medical tourism for medical services businesses. We expect Raffles Medical Group (SGX:BSL)’s 2H20 results to be up strongly (on a h-o-h basis) and sustained into 1H21. This is compared to the lockdown seen in 1H20 as domestic medical services stage a recovery. However, medical tourists still contribute approximately 15-30% of Raffles Medical Group’s revenue.
Land Transport
- Analyst: Lucas Teng.
- Sequential recovery will remain in play as ComfortDelGro (SGX:C52)’s taxi segment will likely see lower rental rebates in 4Q20 and into 1H21. Ridership boost from a resumption of tourism could provide further uplift for the segment. We expect the taxi segment to return to operating profitability levels in 1H21.
- In the hard-hit UK market, news of continued funding support for Transport for London beyond the bailout timeline of Mar 21 could also lift some overhang.
Media
- Analyst: Lucas Teng.
- Advertising revenue will continue to be hurt by the structural shift towards digital advertising, and we expect the media recovery to lag behind the economic recovery in 1H21. On the other hand, SPH (SGX:T39)’s property segment will benefit from a reopening of borders the return of international students tourism boosting student accommodation assets and SPH REIT (SGX:SK6U) respectively.
Plantation
- Analysts: Leow Huey Chuen, Jacquelyn Yow.
- Our CPO price assumption for 2021 is at RM2,600/tonne (US$650/tonne). We expect CPO prices to continue to trade at higher range in 1H21 as compared to 2H21, as we expect strong CPO production recovery in 2H21.
- The Indonesia government had just announced that it will raise its CPO levy to US$55-$255 per tonne starting 10 Dec 20. The levy will increase by US$15 for every US$25 price hike in CPO.
- This will negatively affect pure Indonesia players as their net realised selling prices would be lower due to the need to bear the export levy. We would prefer integrated companies such as Wilmar International (SGX:F34) and First Resources (SGX:EB5), as they will benefit from the lower export levy charged on refined products as compared to crude oil palms.
Property
- Analysts: Adrian Loh, Loke Pei Hao.
- Key upside for CapitaLand (SGX:C31) and City Developments (SGX:C09) may come from better-than-expected recovery in Singapore and China residential sales. However, this will be offset by the hospitality segment, which remains hamstrung by regional and global slowdown in business and leisure travel. In addition, higher-than-expected impairments may hit the hospitality segments of both companies.
- PropNex (SGX:OYY) remains a decent, albeit small cap, play in the Singapore property space. The company’s earnings momentum will likely continue into 1H21, given the continued strong sales momentum within the Singapore residential property market in 2H20.
REITs
- Analysts: Jonathan Koh, Loke Pei Hao, Nicola Ho.
- Retail REITs will benefit from progressive normalisation in consumer confidence and spending, with Singapore scheduled to enter Phase 3 of Reopening by end-20.
- BUY Frasers Centrepoint Trust (SGX:J69U) and Lendlease REIT (SGX:JYEU).
Shipyard
- Analyst: Adrian Loh.
- The offshore & marine (O&M) sector continues to remain in the doldrums, with dayrates and utilisation rates declining by 9-10% y-o-y year-to-date in 2020. A 30% decline in Brent oil price has not helped the industry outlook, which we expect to remain bearish in the next 1-2 years. Thus, Sembcorp Marine (SGX:S51) will continue to make losses in 1H21 on our estimates and likely for the full year.
- Keppel Corp (SGX:BN4)’s move towards either a strategic merger or a full divestment of its O&M business will be the key event to watch out for in 1Q21, while Sembcorp Industries and Yangzijiang (SGX:BS6) face better prospects in our view. The latter has had a decent run-rate of new order wins, and we continue to expect positive newsflow for the company heading into 1Q21.
- Absent the weight of Sembcorp Marine (SGX:S51)’s troubled financials, Sembcorp Industries (SGX:U96) heads into 2021 having divested a number of its problematic assets in the past 12-24 months. While its debt load appears high, we highlight that this is due to its project-financing loans which are consolidated. Economic recovery in 2021 should benefit its various utilities, industrial property development and renewables businesses.
Technology
- Analyst: John Cheong.
- Venture Corp (SGX:V03) should continue to enjoy q-o-q sequential recovery in 4Q20. New products are expected to be launched in 2021. Also, consensus revenue forecasts suggest strong recovery for some of Venture’s clients in 2021 to levels comparable to or higher than 2019. We expect a sequential recovery for earnings in 4Q20 (+6.3% q-o-q) and net profit to decline 18.7% y-o-y for 2020 and rebound by 20.3% in 2021.
- NanoFilm Technologies (SGX:MZH) provides renowned blue chip customers with surface vacuum coating technology solutions, which is critical in enhancing the functionality and useful life of products. We expect a robust 3-year earnings CAGR of 38.7% for 2019-22F, from the bigger wallet share of existing customers and the new application of technology. We believe its unique technology provides a strong competitive advantage and warrants a premium to peers.
Telecoms
- Analyst: Chong Lee Len.
- The reopening of the economy is positive for Singtel. The stock is well positioned to record better earnings performance for 2HFY21, as the gradual reopening of the economy allows for aggressive customer acquisition activities. In addition, we see fairly benign competitive landscape in Singapore, as TPG aims to expand indoor coverage in 2021. The commercial roll-out of 5G packages (with handset bundles) bodes well for Singapore telco players, namely SingTel (SGX:Z74) and StarHub (SGX:CC3).
- Singapore Telecom Sector - UOB Kay Hian 2020-10-28: Benign Competitive Landscape Into 4Q20 As Telcos Welcome The 5G Era.
- SingTel - UOB Kay Hian 2020-12-07: Grab-SingTel Secures Digital Full Banking Licence, Positive In The Long Term.
- StarHub - UOB Kay Hian 2020-11-19: Focusing On Good Customer Experience To Drive Near-Term Profitability.
- For defensive earnings, we like NetLink Trust (SGX:CJLU) given its sustainable earnings and dividend of 5%.
Singapore Small & Mid-Cap Stock Picks
- Analysts: John Cheong, Clement Ho Joohijit Kaur, Llelleythan Tan.
- Our top picks in the small/mid cap space are Frencken Group (SGX:E28), BRC Asia (SGX:BEC), Food Empire (SGX:F03) and InnoTek (SGX:M14).
Frencken Group (SGX:E28)
- Frencken Group (SGX:E28)'s rarnings upside may arise from better-than-expected capacity utilisation, new projects and global auto recovery. Meanwhile, key data points to look out for include guidance from key clients such as ASML, Seagate Technology and Thermo Fisher Scientific.
- At current prices, Frencken Group is trading at an undemanding valuation of 10.2x 2021F PE vs peers’ average of approximately 12x 2021F PE.
BRC Asia (SGX:BEC)
- Gross margins have improved since BRC Asia (SGX:BEC)’s acquisition of Lee Metal in 2017. 2020 Build-To-Order flat launches were slightly higher than that in 2019.
- We opine that new construction contracts awarded will likely recover off the low seen in Aug 20, seeing that new contracts awarded in Sep 20 were up (+102% m-o-m). With the gradual normalisation of construction activities and sustained margins, we are optimistic of BRC Asia (SGX:BEC)’s recovery and expect earnings to rebound strongly in FY21 at 88% y-o-y.
Food Empire (SGX:F03)
- Given the consumer staple nature of its products, low price points and its market-leading position, demand for Food Empire (SGX:F03)'s products is relatively price inelastic and fairly resilient in the face of an economic slowdown, in our view.
- We expect Food Empire's earnings to grow by 6% y-o-y and 5% y-o-y in 4Q20 and 1Q21 respectively on the back of stronger margins and recovery in revenue post-lockdown measures in 2Q20. Food Empire is currently trading at an attractive 8.3x 2021F PE, a significant discount to peers’ average of > 20x 2021F PE.
InnoTek (SGX:M14)
- Strong expected earnings growth in 2021 from the recovery in China’s auto sales and robust TV demand.
- Despite already having one of the strongest margins among its peers, we still expect InnoTek (SGX:M14)'s margins to improve further in 2021 due to strong cost-cutting on of S$72.9m, forming 57% of InnoTek’s market cap.
Continue to read:
See also recent reports:
Adrian LOH
UOB Kay Hian Research
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Singapore Research Team
UOB Kay Hian
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https://research.uobkayhian.com/
2020-12-09
SGX Stock
Analyst Report
9.200
SAME
9.200
23.760
SAME
23.760
1.780
SAME
1.780
