Singapore Market Strategy - UOB Kay Hian 2021-05-17: Circuit Breaker “lite”


Singapore Market Strategy - Circuit Breaker “lite”

  • Being such an open economy with what seems to have been unfettered travel from countries like India, which has been wholly unable to control COVID-19, the Singapore government has announced tighter restrictions to stem a spike in cases within the country.
  • We believe the share price declines on 14 May are a knee-jerk reaction and would focus on companies with strong business franchises and those with the majority (or all) of their earnings from overseas.

“Phase 2 - Heightened Alert” restrictions take place from 16 May 21

  • On 14 May 21, the Singapore government announced tightened measures to deal with a sharp spike in community cases of COVID-19. To reduce risks of community transmission, the government has mandated, amongst other things, that it will prohibit indoor “mask-off” activities such as dine-in at F&B establishments, strenuous indoor exercise class or strenuous individual and group indoor sports and exercise activities, and limit social gatherings to 2 people, down from 5. These new “Phase 2 - Heightened Alert” restrictions take place from 16 May 21 through to 13 Jun 21.

Two steps forward...

  • The unfortunate move back into Phase 2 has come about after the economy had gingerly transitioned into Phase 3 of its reopening on 28 Dec 20. Singapore had looked to be an oasis of safe and prudent management of the pandemic in Southeast Asia, with its journey into post-pandemic normality looking to be a fairly even one as community cases generally numbered no more than a few a day.

...but one step back.

  • However it was notable as early as January and February that imported cases, particularly from India, were a consistent feature of the Ministry of Health’s (MOH) daily COVID-19 updates even as infection cases from India kept rising on a weekly basis from February onwards. Nevertheless, travel bans were not implemented from India nor from other countries with higher levels of COVID-19 infection rates. As a result, Singapore now has the 4th largest number of Indian COVID-19 variant cases globally.

Impact on Singapore Stocks

Short-lived – for now.


Food Empire (SGX:F03) (BUY/ Target Price: S$1.20) – John Cheong

  • Food Empire's key markets of Russia and Vietnam have seen the worst of COVID-19 and performed well even during the lockdown period, which we attribute to Food Empire’s strong brand strength and pricing power. Current valuation of 11x 2021F P/E is attractive vs consumer peers which trade at > 20x.

InnoTek (SGX:M14) (BUY/ Target Price: S$1.20) – John Cheong

  • InnoTek's key manufacturing plant and customers are based in China, and thus should continue to enjoy strong growth in China’s auto market. Current ex-cash 2021F P/E of < 5x makes it the cheapest manufacturing stock in Singapore.
  • InnoTek has just penetrated the EV market, which exposes it to upside from this sector.

Yangzijiang Shipbuilding (SGX:BS6) (BUY/ Target Price: S$1.76) – Adrian Loh

  • 100% of Yangzijiang Shipbuilding's revenues and profit come from China which is arguably one the most COVID-19 unaffected countries at the moment. Strong orderflow this year has bolstered its current orderbook to a record high of US$6.6b with deliveries stretching into 2023. The company won US$4.01b in orders this year alone and we expect more announcements in the coming months.
  • Yangzijiang Shipbuilding's net cash at end-1Q21 was RMB8.8b or S$0.47/share, or 34% of the current share price. Yangzijiang Share Price fall of 3.4% on 14 May presents a buying opportunity in our view.

Sembcorp Industries (SGX:U96) (BUY/ Target Price: S$2.27) – Adrian Loh

  • Sembcorp Industries has had a good 2021 year-to-date on the solar front with 82MWp of projects awarded in Singapore and 400MW in India. Growth in Singapore likely to continue with more HDB contracts under the SolarNova rooftop initiative in addition to other government buildings.
  • Sembcorp Industries's earnings resilience can be attributed to the fact that its revenue and profit comes from essential services, ie the provision of energy, water, waste and wastewater treatment.

PropNex (SGX:OYY) (BUY/ Target Price: S$1.34) – Adrian Loh

  • The Singapore market saw record property transactions in 1Q21. Given the usual revenue-recognition time lag, this will only be recognised in 2Q and 3Q21.
  • PropNex (SGX:OYY) earned S$0.04 in earnings per share in 1Q21, so assuming that it earns a paltry S$0.02 for the rest of the year (highly unlikely in our view), PropNex would yield 3-4%, assuming 70% payout ratio as in past years. In addition, the return to Phase 2 delays the likelihood of property cooling measures, in our view.

Frencken (SGX:E28) (BUY/ Target Price: S$1.72) – Clement Ho

  • The current chip shortage situation in the semiconductor industry will likely continue to benefit Frencken, in our view. Industry sources and outlook of key customers in the semiconductor industry have maintained that demand for equipment is likely to be sustained at reasonably high levels in 2021. Frencken is classified as an “essential service” in the geographies it operates in, hence we do not expect any operational disruptions at this point.

iFAST (SGX:AIY) (BUY/ Target Price: S$7.96) – Clement Ho

  • Phase 2 (Heightened Alert) could spur a further shift towards digitalisation in the wealth management industry, which iFAST is well-positioned for. We continue to await further details on the Hong Kong eMPF platform which could see upside in our and street’s 2021-22 earnings forecasts, in our view.

SIA (SGX:C6L) (SELL/ Target Price: S$4.40) – K Ajith

  • We believe SIA's share price has potential downside to S$4.00 assuming a target P/B of 1.0x FY22/23 average book value. We had valued SIA at 1.1x FY22/23 average book value. In our view, should borders remain closed till 3Q21, SIA may see its share price retrace to S$4.00.

SGX (SGX:S68) (BUY/ Target Price: S$12.35) – Lucas Teng

  • In our view, renewed stay-home measures may spur heightened retail trading on SGX which enhances volumes and clearing fees for cash equities.

Thai Beverage (SGX:Y92) (BUY/ Target Price: S$0.92) – Lucas Teng

  • We believe that spirits volumes will remain resilient due to off-trade sales. Spirits consumption from home will be unaffected by enhanced stay-home measures if any were to materialise in Thailand. Thai Beverage reported 2QFY21 net profit of Bt5.93b (S$252.3m), up 19.7% y-o-y, led by gains from the spirits and beer segments. An interim dividend of Bt0.15 was declared and will be paid on 11 Jun 21.

ComfortDelGro (SGX:C52) (BUY/ Target Price: S$1.95) – Lucas Teng

  • Expect weakness from lower rail ridership and taxi rental rebates. Our last call on ComfortDelGro was a BUY with target price at S$1.95.

Retail REITs – Jonathan Koh

  • The F&B sector is the worst hit by the new measures. The government will increase the Jobs Support Scheme (JSS) support rate to 50% of the first S$4,600 of gross monthly wages paid to local employees during the period for which dining-in is prohibited. This is an increase from the 10% support for wages paid up to Jun 21.
  • Suburban malls have proven their resiliency during the COVID-19 pandemic and are well positioned to weather the upsurge in new daily cases in the near term. With more employees instructed to work from home (WFH), the nascent recovery at downtown malls could be disrupted in the near term.
  • Retail REITs to weather selling pressure. These include Frasers Centrepoint Trust (SGX:J69U) (retail malls: 97% of AUM), Lendlease REIT (SGX:JYEU) (retail malls: 70% of AUM), CapitaLand Integrated Commercial Trust (SGX:C38U) (retail: 33%, integrated developments: 29%) and Suntec REIT (SGX:T82U) (retail malls: 20% of AUM).
  • BUY Frasers Centrepoint Trust (Target Price: S$3.06) for exposure to resiliency of suburban malls. Lendlease REIT's share price has corrected 7.1% last week. We see opportunity to accumulate Lendlease REIT (Target Price: S$0.97) on the current weakness.

Banking sector business as usual. – Jonathan Koh

  • Customer service activities at bank branches can still be conducted with branch staff and customers both wearing masks. As such, bank branches are not affected by cessation of indoor “mask-off” activities. Thus, it is business as usual at bank branches.
  • Singapore banks are IT savvy with strong digital capabilities. DBS was recognised as the World’s Best Digital Bank (2016 and 2018), while UOB was recognised as the Best Digital Bank in Singapore (2019) and Thailand (2019), and Most Innovative Digital Bank in Asia (2019). Many customers have flocked to banks’ digital platforms ever since the COVID-19 pandemic erupted.
  • Singapore banks benefit from steadfast recovery in developed countries. US banks continued their rally with Bank of America, Citigroup, Goldman Sachs and Morgan Stanley gaining 1.2%, 1.7%, 2.8% and 2.9% respectively last Friday. While the Fed has kept interest rates near zero and viewed the recent rise in inflation as transitory, many investors feared that the Fed could be forced to hike interest rates earlier than expected. This would have a positive knock-on effect on SIBOR and SORA in future.
  • Maintain OVERWEIGHT. Our top pick for Singapore banks is OCBC (SGX:O39) (BUY/ Target Price S$15.50) followed by DBS (SGX:D05) (BUY/ Target Price: S$35.45).

Adrian LOH UOB Kay Hian Research | Singapore Research UOB Kay Hian | https://research.uobkayhian.com/ 2021-05-17
SGX Stock Analyst Report BUY MAINTAIN BUY 1.200 SAME 1.200