Singapore Market Focus - DBS Research 2021-02-01: Pausing For A Higher Climb


Singapore Market Focus - Pausing For A Higher Climb

Not the beginning of the end.

  • The current decline is a ‘healthy correction’ rather than the start of a major downturn. Singapore’s manufacturing sector continues to recover. Impact of new COVID-19 strains are uncertain, but current infection rates are falling in the US and Europe. he trend should continue as we approach warmer weather. Vaccinations have started globally and should pick up pace in the months ahead as vaccine supplies increase.

Some uncertainty as earnings season starts.

  • Unattractive P/E valuation, high COVID-19 daily infection rates in numerous countries, uncertainty about the Biden administration’s stance on China and the uncertain impact on market stability from the “retail vs hedge fund” battle in the US triggered profit taking over the last week. Investors fled for the sidelines at the start of the 4Q20 results season.

Strong December data.

  • The manufacturing sector continues to recover with Singapore’s December NODX (+6.8% y-o-y, expectation -0.7%), electronics export (+13.7% y-o-y, previous -3.8%) and industrial production (+14.3% y-o-y, expectation +12%) coming in better than expected.

Infection rates down, new strains a concern.

  • COVID-19 infection rates, although still high in US and Europe, have come off substantially from their peaks. For example, the US 7-day moving average of daily new cases has fallen from 282K to 170K in recent weeks and the downtrend should continue as warmer weather approaches. Vaccinations have started across the globe with the US and UK leading the pack among major developed economies. The approval of more COVID-19 vaccines going forward will accelerate the vaccination rate. The developing uncertainty is the transmission of new COVID variants B.1.1.7 (UK strain) and B.1.351 (South Africa strain) that appears more transmissible.

First 100 days.

  • The US stock market has a strong tendency to end positively in the first 100 days of a new Presidential term. If this trend continues to hold true for Biden, the current US stock market volatility that is affecting global bourses should eventually find a bottom with US equities heading to fresh year-to-date highs by/before end of April.

Green lane suspension – Look beyond the dark clouds

  • The suspension of Singapore’s green lane arrangement with Germany, Malaysia and South Korea underscores the difficulties of restarting international travel in the absence of herd immunity against COVID-19.
  • Stocks potentially affected in the near-term are Singapore Airlines (SGX:C6L) and SATS (SGX:S58) as well as hospitality REITs with significant Singapore exposure such as Far East Hospitality Trust (SGX:Q5T) and CDL Hospitality Trusts (SGX:J85). But we won’t press the panic button just yet. We believe downside to most of these stocks is limited as there is a good possibility that investors, having rode through nearly a year of pandemic uncertainty, won’t mind holding on a little while longer as the light at the end of the tunnel draws closer.
  • The World Economic Forum to be held in Singapore in May 2021 is a sentiment booster. Next, we think the grim global COVID-19 situation may improve soon. Spring will soon arrive in the Northern hemisphere. The warmer weather will give many countries that were badly affected by COVID-19 during the cold winter months a better chance of bringing the pandemic under control. Vaccine rollout is also poised to pick up pace as more supplies become available and vaccine acceptance improves. These factors brighten the prospect of a recovery in international travel before the end of this year.

America’s Midway moment

  • America has suffered heavily in the COVID-19 pandemic. Going forward, we are cautiously optimistic that the US can be one of the first major developed countries to achieve herd immunity.
  • Our reasons are:
    1. the Biden administration has rolled out a comprehensive ‘war-time’ COVID-19 plan that includes an aggressive vaccination campaign.
    2. Biden is ordering enough vaccines to inoculate 300million Americans (c.90% of population) by the end of summer to early fall → Dr Anthony Faucci has said that if the vaccination campaign progresses well, the US can achieve herd immunity by early fall (Sept/Oct 2021).
    3. Single shot vaccine by Johnson & Johnson could be the 3rd to be approved by FDA, increasing vaccine supply and speeding up vaccination rate.
    4. US public vaccine acceptance rate should be high given the country’s high 7.9% infection rate and high death toll.
    5. US has a head start - 26mil of Americans have been already been infected → nearly 7.9% of population current has anti-bodies: bad news gets turn around when the focus is herd immunity.
  • Stocks that benefit if the US vaccination timeline progresses as expected are –

Earnings watch

M&A and undervalued stocks

Valuetronics (SGX:BN2) –

  • Valuetronics has a high net cash level, accounting for ~69% of its market capitalisation and offers ~5% FY21F dividend yield. It is currently trading at ~3.7x FY21F EV/EBITDA, which is at a significant discount to its peer-average of ~11.8x.

China Aviation Oil (SGX:G92) –

  • China Aviation Oil is currently trading at < 3x FY21F ex-cash P/E, and its share price could re-rate further if the company is able to make significant earnings-accretive acquisitions. It has net cash of ~US$400m (accounting for ~50% of its market capitalisation), which it can use to make earnings-accretive acquisitions. We are beginning to see domestic travel momentum pick up in China and believe there is deep value in this stock.
  • See report: China Aviation Oil - DBS Research 2021-01-25: Still Undervalued At < 3x Ex-Cash P/E.


  • AIMS APAC REIT is trading slightly below its book value (0.95x P/NAV). While it is not cheap from a M&A point of view, we believe its high-quality assets (business parks and modern ramp-up facilities) make it an attractive target.

Hutchison Port Holdings Trust (SGX:NS8U) –

STI support at 2880, 2790

  • We see the current decline as a ‘healthy correction’ rather than the start of a major downturn. Mid-January pullback from 3017 was expected –
    • Forward P/E valuation was above 14.37x (+1SD) 12-month forward P/E,
    • Results season hesitance,
    • Uncertainty over vaccine efficacy on South Africa COVID-19 strain,
    • Realisation that the new Biden administration won’t lower tariffs on China any time soon.
  • Support for the Singapore market is at STI 2880 13.78x (+0.5SD) 12-month forward P/E and 2790 13.2x (average) 12-month forward P/E.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | Wei Le CHUNG DBS Research | https://www.dbsvickers.com/ 2021-02-01
SGX Stock Analyst Report BUY MAINTAIN BUY 1.380 SAME 1.380