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Phillip 2021 Singapore Strategy - Phillip Securities 2021-01-05: Equities In A Sweet Spot

Singapore Strategy - Phillip Securities Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) ASIAN PAY TELEVISION TRUST (SGX:S7OU) MANULIFE US REIT (SGX:BTOU) FRASERS CENTREPOINT TRUST (SGX:J69U) PROPNEX LIMITED (SGX:OYY) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) CAPITALAND LIMITED (SGX:C31) COMFORTDELGRO CORPORATION LTD (SGX:C52) KEPPEL CORPORATION LIMITED (SGX:BN4) YOMA STRATEGIC HOLDINGS LTD (SGX:Z59)

Phillip 2021 Singapore Strategy - Equities In A Sweet Spot


2020 REVIEW

  • The STI was down 11.8% in 2020. (see Performance of Straits Times Index STI Constituents in 2020) It was the worst performer in Asia, coinciding with Singapore’s worst GDP contraction on record of -6% to -6.5% in 2020. When we compare the STI to other major asset classes such as corporate bonds, gold and U.S. markets, 2020 was its second (or even third) consecutive year of underperformance, in USD terms.
  • The pandemic triggered a slash in consensus earnings by around 27% for 2020, primarily due to banks, telcos and aviation. The worst-hit sectors were the pandemic epicentres of transportation (-30%) and hospitality REITs (-20%). Other sectors similarly affected by the pandemic were even worst hit. They included telecommunications (-27%) and ship/marine yards (-37%). Sectors that managed to clock gains were industrials (+9%), industrial REITs (+10%) and healthcare (+30%).


2021 OUTLOOK

  • We believe the Singapore equity market is in a sweet spot. Containment of the pandemic has led to an earlier and more pronounced economic rebound than many countries, where the pandemic is still raging on. Globally, new COVID-19 cases average 561k per day. A positive is the infection curve is bending albeit at very elevated levels. In Singapore, community cases averaged one per day over the past week due to a recent surge. Phase 3 reopening in Singapore should accelerate the economic momentum as restrictions on group activities are further relaxed.
  • Other conditions conducive for an equity rally include low interest rates, undemanding valuations and attractive dividend yields. Vaccines and fiscal stimulus offer downside protection to global growth, in our view. Approval of Moderna’s and Pfizer’s vaccines can support 1.8bn doses for 900mn people in 2021. If all the 10 leading vaccines are approved, there is capacity for 9.3bn dosses, enough to cover two-thirds of the global population in 2021. Vaccines can bend the infection curve in 2021.
  • With vaccines dominating all the headlines and an economic boom in 2021 forecast by just about every economist and government, the question is, has everything been priced in? We think No, looking at the large underperformance of our equity market. Yes, risks remain. The most obvious are vaccine failures to tame mutations of the virus, their side effects or even inefficacy.
  • Other factors that could unsettle markets are monetary-policy misjudgements by the Fed or foreign-policy faux pas by the new U.S. administration. But we think the likelihood of such pitfalls is low.


2020 PHILLIP ABSOLUTE 10 PERFORMANCE REVIEW:



2021 TOP 10 SINGAPORE STOCK PICKS - PHILLIP ABSOLUTE 10

  • The STI’s relative performance has been poor. Therefore, it is challenging to simply buy beta to find returns. Our focus is on individual names to generate alpha. With our 10 stocks, we look for balanced returns to avoid excessive volatility in our model portfolio.
  • For our 2021 absolute return portfolio, our The Phillip Absolute 10 - by category are:
    • Dividend yields: Ascott Residence Trust, Asian Pay TV Trust and Manulife US REIT provide the foundation of our portfolio to generate valuable yields.
    • Dividend/Earnings growth:
      • Frasers Centrepoint Trust (SGX:J69U) offers exposure to very resilient suburban retail malls at major transportation nodes. These malls are being sustained by necessity spending. Expansion in catchment areas and efficiencies gained from its recent acquisition are expected to power its growth.
      • We believe property transactions will rise this year, driving growth for PropNex (SGX:OYY).
      • After a challenging 2020, we look forward to a volume recovery in 2021 for Thai Beverage (SGX:Y92).
    • Re-rating:
      • CapitaLand (SGX:C31) was hit hard by their hospitality and retail-mall exposure last year. We expect a recovery plus re-rating from fee-management growth for assets under management.
      • ComfortDelGro (SGX:C52) is our exposure to a resumption of group and economic activities in Singapore.
      • Keppel Corp (SGX:BN4)’s re-rating is expected to come from more aggressive divestments and asset monetisation.
      • Yoma Strategic (SGX:Z59) is a proxy for Myanmar’s fast-growing economy, consumption and digitalisation of financial services through its KFC franchise, property development and fintech arm, Wave Money.
  • See PDF report attached below for more details on each of the picks.


2021 STRAITS TIMES INDEX STI TARGET

  • Our 2021 target for the STI is 3,200. This is based on 14x P/E, its 10-year P/E ratio average and earnings rebounding 25%, still 10% below pre-COVID levels. The index is trading at 15x P/E on depressed earnings.


SECTOR NARRATIVES

  • Consumer: Macro conditions are weak for the Singapore consumer, with a drop in income and record job losses. Stock picks are critical. We prefer essential consumer products such as groceries and affordable F&B.
  • Finance: We think banks can be re-rated upwards and outperform. This is premised on an economic recovery and a removal of the asset-quality overhang when loan moratoriums are lifted. It will trigger MAS to roll back dividend caps and pre-emptive bad-debt provisioning in 2020/21.
  • Healthcare: Hospital and specialist admissions could remain sub-par without foreign patients as our international borders stay closed. However, elective treatments such as health screening, aesthethics and dental have rebounded strongly due to better health awareness and shift in spend from travel to healthcare. Glove makers face uncertainties over glove demand after the pandemic. The market is already pricing in a decline in glove profits, though profits should still be elevated as hygiene practices by healthcare workers have changed. Other industries are also adopting the use of gloves, for instance, air travel, F&B, etc.
  • Property: Demand for property has been resilient through the recession. Some reasons are stable prices after the introduction of the total debt servicing ratio in 2013, rising income and a growing pool of HDB upgraders.
  • REITs: Volatility in dividends has shaken confidence in the sector. But we believe the elusive search for yields will draw investors back to REITs, especially with strong Singapore or U.S. currencies backing these payouts.
  • Technology: The electronics sector is undergoing a structural boom. Multiple drivers for hardware technology products include more cars using more electronics to meet new emission standards and increased usage of automated driving. 5G rollout is also expected to raise demand for infrastructure and smartphones. A work-from-home economy has led to more cloud spending on communication. Elsewhere, memory demand is supported by the insatiable consumption of streaming entertainment, data analytics and storage.
  • Telecommunications: Loss of inbound and outbound roaming revenue has led to the overnight disappearance of 20% of high-margin mobile revenue. The silver lining is, the market has priced in this loss and sector valuations are turning more attractive.
  • Transportation: Cancelled holidays and business trips sum up the airline industry this year. We believe air travel will only resume gradually as the pandemic is still raging in many countries and most are not willing to risk imported cases. Our preference is land transportation where the recovery is more evident and there is less reliance on international travellers.




TECHNICAL VIEW - Straits Times Index STI Struggling to close above 3,000 level

  • 2020 has been a wild ride for the STI. Prices slid to 2208 from 3,032 in a single month. Subsequent upside remain corrective and the best performing month was in November 2020, where prices rebounded by more than 500 points.
  • The failure to return back above 3,000 in 2020 signals a more corrective tone. Technical momentum indicate that 2021 may signal another round of upside above 3,000. However, the rally completion must be completed within Q1, otherwise it will be considered a weak rally and the STI can slide further.

See PDF report attached below for detailed analysis with more data points and charts.






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-01-05
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.15 UP 1.080
BUY MAINTAIN BUY 0.150 SAME 0.150
BUY MAINTAIN BUY 0.920 SAME 0.920
BUY MAINTAIN BUY 2.790 SAME 2.790
BUY MAINTAIN BUY 0.850 SAME 0.850
BUY MAINTAIN BUY 0.860 SAME 0.860
BUY MAINTAIN BUY 3.820 SAME 3.820
BUY MAINTAIN BUY 1.830 SAME 1.830
BUY MAINTAIN BUY 6.120 SAME 6.120
BUY MAINTAIN BUY 0.460 SAME 0.460


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