Singapore Strategy - CGS-CIMB Research 2021-05-14: Groundhog Day

Singapore Strategy - CGS-CIMB Research | SGinvestors.io KEPPEL DC REIT (SGX:AJBU) RIVERSTONE HOLDINGS LIMITED (SGX:AP4) SINGAPORE EXCHANGE LIMITED (SGX:S68) SINGAPORE TECH ENGINEERING LTD (SGX:S63) WILMAR INTERNATIONAL LIMITED (SGX:F34)

Singapore Strategy - Groundhog Day




Phase 2 of heightened alert

  • With new daily in-community COVID-19 cases rising to 24 as of 13 May, the Singapore government is imposing stricter social gathering guidelines. It will review this two weeks after implementation to adjust for the next course of action; it did not rule out even more stringent measures thereafter if the situation does not improve. Schools remain open.
  • Social gathering size is reduced to two (from the recently reduced five). Eateries and hawker centres will only offer takeaway and delivery services. Work from home is again the default (from 50% capacity of the respective workplace).
  • Other prohibitions include strenuous indoor exercise classes and sports as well as personalised services like facials that require the removal of masks except for medical and dental services. Wedding receptions will not be allowed, but marriage solemnisations are allowed to continue with up to 100 pax with pre-event testing (PET). Congregational and other worship services are now also subjected to a lower cap of 50 pax, with PET required for pax up to 100. Attractions that previously received approval to operate at 50% will be reduced to 25%. More COVID-19 tests which include rapid antigen testing regime will be rolled out progressively in addition to the more accurate polymerase chain reaction (PCR) test.
  • The government will provide one-month rental waivers for eateries in government-owned premises. Commercial landlords are urged to support F&B outlets during this period. F&B tenants make up 10-40% of retail REITs’ gross rental income. Based on our analysis, every month of rental rebates given by retail landlords to F&B tenants will impact our FY21F DPU forecast for retail REITs by 0.5% to 4%.


Relatively defensive names


Keppel DC REIT (SGX:AJBU) (HOLD, Target price: S$2.86)

  • We see minimal implication from CB2.0, structurally, as we expect demand for data to increase in the medium term. Keppel DC REIT (SGX:AJBU)'s current FY21F dividend yield of ~4% looks decent.

Singapore Exchange (SGX:S68) (ADD, Target price: S$11.61)

  • We think that SGX (SGX:S68) would be a key beneficiary of the second Circuit Breaker period (dubbed CB2.0) as investors place out capital into financial markets in lieu of discretionary spending. Average monthly total market turnover on the SGX rose to S$29.8bn in CY20 (vs. S$22.1bn in CY19) following the first round of CB measures implemented in Apr 20. Given the average turnover of S$30.3bn in 4MCY21, we see upside in trading volumes.
  • On the flip side, CB2.0 introduces risks that banks may tone down their outlook on domestic economic recovery. That said, we think the impact on transaction-based fees may not be as severe as seen during CB1.0 as both banks and customers have since adapted to new-normal virtual practices.

ST Engineering (SGX:S63) (ADD, Target price: S$4.00)

  • ST Engineering (SGX:S63) has a diversified business and strong order book of S$15.7bn as at end-Mar. Defence/public spending and strong demand for freighters globally should provide earnings visibility for the group and are key catalysts for the stock, in our view. Decent dividend FY21F yield of 4% at current ST Engineering Share Price.

Riverstone (SGX:AP4) (ADD, Target price: S$1.80)

  • Riverstone (SGX:AP4) offers strong near-term earnings visibility, and current valuation of ~5x FY21F P/E is cheap, in our view. Higher dividend payout remains a key catalyst – assuming 60% dividend payout ratio, Riverstone's FY21F dividend yield could reach 13.2%.

Wilmar International (SGX:F34) (ADD, target price S$6.15)

  • Derives 60-70% of its earnings from food products as well as feed and industrial products segments in China. As such, its earnings are more defensive than peers, as proven by its record 1Q21 earnings. Wilmar (SGX:F34) could benefit from higher consumer products sales which will help cushion any drop in demand from hotel restaurant and café (HORECA) sector during periods of lockdowns in some countries.





LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-14
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.860 SAME 2.860
ADD MAINTAIN ADD 1.800 SAME 1.800
ADD MAINTAIN ADD 11.610 SAME 11.610
ADD MAINTAIN ADD 4.000 SAME 4.000
ADD MAINTAIN ADD 6.150 SAME 6.150



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