Singapore Stock Strategy - UOB Kay Hian 2021-03-26: Further Reopening Measures Announced; STI 2021 Year-End Target Raised To 3450

CHINA SUNSINE CHEM HLDGS LTD (SGX:QES) FOOD EMPIRE HOLDINGS LIMITED (SGX:F03) FRENCKEN GROUP LIMITED (SGX:E28) INNOTEK LIMITED (SGX:M14)

Singapore Stock Strategy - Further Reopening Measures Announced; STI 2021 Year-End Target Raised To 3450

While an easing stance was expected, the government’s recent announcement regarding a wide range of COVID-19-related relaxation measures was a positive one. Sectors to benefit from locally-driven consumption plays include office and retail REITS, land transportation and food courts and restaurants.
We believe there is further upside to the STI and raise our 2021 year-end target by 8.5% to 3,450 (previously 3,180).

The Singapore Government recently announced a wide range of COVID-19-related relaxation measures:
- increased capacity for weddings, marriage solemnisations and live performances, and
- 75% of employees are now allowed back at work vs 50% previously.
In addition, the government is now opening up vaccination to Singapore residents aged 45 to 59, with the programme for prioritised groups (eg healthcare workers, seniors aged 60 and above) well under way.
As of 23 Mar 21, more than 1.1mil COVID-19 doses have been administered with > 300,000 people having received both vaccine doses.
In our view, all of these measures underpin positive sentiment in the market and should lead to share price gains in selected sectors.

Sectors to benefit from locally-driven consumption plays include
- office and retail REITS or companies with retail exposure (e.g. Keppel REIT (SGX:K71U), Suntec REIT (SGX:T82U), SPH (SGX:T39) with its Paragon shopping centre),
- land transportation (ComfortDelGro (SGX:C52), SBS Transit (SGX:S61)), and
- food courts and restaurants (Koufu (SGX:VL6), Jumbo (SGX:42R)).
In our universe of stocks, we forecast 65% y-o-y EPS growth for 2021, but adjusting for impairments and exceptional items in 2020, we believe that the “true” EPS growth is likely to be 35% for 2021 followed by 20% growth in 2022.
Most sectors, with the exception of aviation, are expected to see EPS growth in 2021 but more importantly we view downside EPS risk as being low at present.

We have upgraded our year-end STI target to 3,450 vs 3,180 previously. This uses a top-down approach where we have applied mean P/E and P/B multiples of 16x and 1.19x.
We highlight that our top-down approach is very much in line with a bottom-up approach: by applying UOB Kay Hian’s aggregate earnings estimates for 2021, we would arrive at a year-end STI target of 3,343.

At present the STI is trading at a forecast 2021F P/E of 16.3x, which is a premium to the long-term average P/E of 15.0x (excluding 1999). We believe this is fair given that Singapore has managed the COVID-19 situation extremely well and more positive news on the reopening and recovery front could see the STI trade higher.
On the P/B front, valuations appear fair as the STI’s 2021F P/B of 1.06x is in line with its past 5-year P/B of 1.11x.

Leasing activities started to pick up since end-20 and while demand remains subdued in 1H21, we believe that activity should start to recover in 2H21, driven by non-bank financial services companies and Chinese technology companies. We highlight that displaced tenants from buildings slated for redevelopment, such as AXA Tower and Fuji Xerox Towers, will also be looking for office space. In addition, we believe that business sentiment has improved with the rollout of COVID-19 vaccinations.
For 2Q21, we are
- OVERWEIGHT on banks, healthcare, plantation, technology, as well as office, suburban retail and hospitality S-REIT sectors, and
- MARKET WEIGHT on aviation, consumer, property developers, shipyards, telecommunications and land transport.

Adrian LOH UOB Kay Hian Research | Singapore Research UOB Kay Hian | https://research.uobkayhian.com/ 2021-03-26

SGX Stock Analyst Report BUY MAINTAIN BUY 0.580 SAME 0.580

BUY MAINTAIN BUY 1.300 SAME 1.300

BUY MAINTAIN BUY 1.720 SAME 1.720

BUY MAINTAIN BUY 0.820 SAME 0.820