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Phillip 3Q21 Singapore Strategy - Phillip Securities 2021-07-06: Vax And Relax

Singapore Stock Strategy - Phillip Securities Research | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) ASIAN PAY TELEVISION TRUST (SGX:S7OU) ASCOTT RESIDENCE TRUST (SGX:HMN) DBS GROUP HOLDINGS LTD (SGX:D05) FRASERS CENTREPOINT TRUST (SGX:J69U) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) CAPITALAND LIMITED (SGX:C31) COMFORTDELGRO CORPORATION LTD (SGX:C52) KEPPEL CORPORATION LIMITED (SGX:BN4) Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)

Phillip 3Q21 Singapore Strategy - Vax And Relax


Singapore Stock Market 2Q21 Review:

  • After a sizzling 1Q21, the STI was back to its old penchant. The 1.1% contraction in 2Q21 led to its underperformance against major asset classes. Our bullish expectations did not pan out. After touching a high of 3,237 at end-April, the index succumbed to tighter social-gathering measures announced on 4 May.
  • Restrictions were further tightened on 18 May, under Phase 2HA. Unlike the circuit breaker, the impact was narrowed to the entertainment, retail and service sectors as social interactions were limited to two and work-from-home again became the default. Sentiment nosedived on fears over another infection wave.
  • During the quarter, a handful of mid-cap sectors did rally. Property agencies (PropNex (SGX:OYY)) jumped as much as 58% on the back of a resilient residential property market. Malaysia-based iron-ore producers (Fortress Minerals (SGX:OAJ)) skyrocketed 65% as iron-ore prices spiked 40%.



Singapore Stock Market 3Q21 Outlook:

  • We remain positive on equities. Unlike 6-12 months ago, vaccinations are underway globally. Visibility of normalcy is slowly appearing. Attitudes towards COVID-19 have also changed dramatically in Singapore. The disease is now considered endemic and managed like the common flu. We will not even be reporting daily infections soon but only patients in intensive care or requiring oxygen lifelines.
  • A broad timeline has been laid out for a return to normalcy. Each milestone in vaccinations will lead to more community activities and eventually, an easing of border restrictions. The second half of July will mark the first milestone of full vaccination for 50% of the population. National Day is expected to be celebrated with a two-thirds achievement. The aim is to reach 70-80% by October. Travel between countries with rising vaccination and falling infection rates may be permitted without stay-home-notice requirements.
  • The news cycle is almost daily dominated by inflation. Although U.S. inflation is climbing, we do not expect the hyperinflation of the 1970s. Economic conditions are vastly different this time. From 1970 to 1980, core CPI rose an average 7.3% p.a., from only 1.2% in the early 1960s. Accompanying the spike was a credit boom of 11% p.a., a 10x oil-price leap, trade union bargaining power and 6% unemployment. Today, U.S. loan growth is 4%, oil price is down a third from a decade ago and trade unions, hardly noticeable. Only unemployment is at similar levels. Without the threat of raging inflation, we expect the Fed to raise interest rates only in late 2023. Fed commentaries indicate a job-recovery priority over transient inflation.
  • Our target for the STI is kept at 3400 (PER 16x forward). A 10% premium to a historical average of 14x, warranted in view of low interest rates and better earnings growth.
  • See report attached below for complete analysis with data charts.


Singapore Stock Market 3Q21 Recommendation:

  • Our strategy is to position for an aggressive relaxation of group activities and eventual border re-opening. The caveat for this is the country’s ability to meet vaccination rates for its population, vaccine availability and containment of vaccine-resistant variants. Sectors we favour include entertainment, hospitality and land transport.
  • While we do not cover the entertainment sector, by year-end, we can expect cinema operations and concerts to return to pre-COVID arrangements.
  • In hospitality, our preferred stock is Ascott Residence Trust (SGX:HMN). Around 30% of its assets are found in Europe and the U.S., where vaccinations and travel are picking up faster than the rest of the world.
  • In land transport, ComfortDelGro (SGX:C52) is our pick. As work and social arrangements return, we expect a healthy recovery in earnings. Balance sheet has improved. Net cash rose from S$64mn in 2019 to S$279mn in 2020. Lower capex, grants and a cash-generative business yielded free cash flows of S$377mn in 2020. ComfortDelGro's share price is down 30% from pre-COVID levels. We expect the stock to claw back some of its losses.
  • Banking remains Overweight. We expect another leg in their rally from a recovery in loan growth, net interest margins and relaxation in the dividend cap.
  • Building materials should profit from a resumption of construction work. Construction demand is expected to rise 20% this year, albeit from a low base.




Singapore Stock Picks - The Phillip Absolute 10


Strategy commentary:


Deletions from our model:


Phillip Absolute 10 For 3Q21

  • Ascendas REIT (SGX:A17U): Industrial portfolio to capture demand from logistics, tech, manufacturing and biomedical sectors. Stability from scale and diversification across geography, asset class and customer base.
  • Ascott Residence Trust (SGX:HMN): Faster recovery than peers due to 69% exposure to countries with large domestic travel markets. Plans to double long-stay portfolio of PBSA and rental housing to 15% will strengthen income stability.
  • Asian Pay TV Trust (SGX:S7OU): Attractive 8.6% dividend yields paid quarterly. Dividend payout of S$18mn well-supported by free cash flow of S$77mn. Backhaul revenue from 5G mobile operations to provide upside.
  • DBS (SGX:D05): With the economic outlook stabilising and general provisions set for further reversals in FY21e, we expect record profits for 2H21e. Key catalyst is the removal of the dividend cap, currently under review by MAS.
  • Frasers Centrepoint Trust (SGX:J69U): Proximity to household catchment and increased daytime population to keep suburban mall space in demand. Value proposition and resilience of suburban malls validated amidst pandemic.
  • Thai Beverage (SGX:Y92): At 14x P/E, valuations are attractive for a consumer company with a 90% share of Thailand’s spirits market.
  • CapitaLand (SGX:C31): Pivot from retail to new economy assets to unlock value and growth opportunities while demerger provides an opportunity to re-rate the company on higher valuations for real-estate fee and rental-based income.
  • ComfortDelGro (SGX:C52): Recent restrictions in group activities and return to office will likely dampen transport volumes. However, we believe the worst is over and balance sheet has strengthened.
  • Keppel Corp (SGX:BN4): Keppel is taking another step toward a final resolution on its O&M unit with two non-binding MOUs signed with Sembcorp Marine and Kyanite Holdings. With a final resolution close, Keppel is expected to re-rate.
  • Q&M Dental (SGX:QC7): Earnings growth supported by a 20% increase in the number of clinics to 149 this year. Also contributions from new COVID-19 PCR testing services.










Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-07-06
SGX Stock Analyst Report BUY MAINTAIN BUY 3.650 SAME 3.650
BUY MAINTAIN BUY 0.150 SAME 0.150
ACCUMULATE MAINTAIN ACCUMULATE 1.170 SAME 1.170
ACCUMULATE MAINTAIN ACCUMULATE 31.400 SAME 31.400
BUY MAINTAIN BUY 2.880 SAME 2.880
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.860 SAME 0.860
BUY MAINTAIN BUY 4.380 SAME 4.380
BUY MAINTAIN BUY 1.830 SAME 1.830
BUY MAINTAIN BUY 6.200 SAME 6.200
BUY MAINTAIN BUY 1.00 SAME 1.00


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