Singapore 2H21 Market Strategy - UOB Kay Hian 2021-06-28: Potentially A Bumpy Ride, But There Is Still Gas Left In The Tank

Singapore Market Strategy - UOB Kay Hian Research | SGinvestors.io OVERSEA-CHINESE BANKING CORP (SGX:O39) SINGAPORE EXCHANGE LIMITED (SGX:S68) COMFORTDELGRO CORPORATION LTD (SGX:C52) FRASERS CENTREPOINT TRUST (SGX:J69U) GENTING SINGAPORE LIMITED (SGX:G13) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) RIVERSTONE HOLDINGS LIMITED (SGX:AP4) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6) SEMBCORP INDUSTRIES LTD (SGX:U96)

Singapore 2H21 Market Strategy - Potentially A Bumpy Ride, But There Is Still Gas Left In The Tank

  • The Singapore market has performed extremely well year-to-date, with its valuations remaining inexpensive both regionally and globally. Although the Asian region faces a more bumpy recovery post COVID-19, we believe the STI has tailwinds from Singapore’s robust GDP growth and positive sentiment from the re-opening.
  • We continue to like financials, selected re-opening plays, and COVID-19-resilient sectors among others.



A bumpy recovery but we remain long equities.

  • The global economic backdrop is generally favourable for equities at present with the World Bank forecasting global GDP to increase by 5.6% in 2021 – its strongest post-recession pace in 80 years. While this is positive for the Singapore stock market, we note that the global and regional economic recovery remains uneven and largely reflects sharp rebounds in some major economies such as the US, China and Eurozone.
  • In a number of Singapore’s key Southeast Asian neighbouring countries, obstacles to vaccination continue to weigh on activity, and the World Bank forecasts that even by 2022, output in a number of emerging and developing economies will still be below pre-pandemic projections.
  • We believe that the STI has tailwinds from robust GDP growth and positive sentiment from re-opening, and investors should remain long equities in our view.


Singapore market valuations remain inexpensive compared with US and European stocks

  • Singapore market valuations remain inexpensive compared with US and European stocks, especially considering that its companies are fundamentally healthy with low debt and rising cash balances. Closer to home, the STI is the most inexpensive on a P/B basis and relatively inexpensive on a P/E basis. In addition, the STI has one of the highest yields in the region with potential upside from banks and REITs.
  • In a rare show of strength, the STI was one of the best performing indices year-to-date, up 8.8% as at 22 Jun 21 and in line with the Stock Exchange of Thailand, while other regional Asian markets were mixed. In US$ terms, the STI’s performance also stacked up well vs other asset classes and other global stock market indices.


Long-term bond yields to remain low for the next 12 months.

  • On 16 June, the Federal Open Market Committee stated that it would keep its benchmark interest rate close to zero, with central bank officials signalling on their so-called “dot-plot” that there could be two rate hikes in 2023. The potential rate hikes (as well as tapering) in 2023 means that for 2021 and well into at least 1H22, equities will continue to be favoured over bonds, in our view.


V-shaped recovery in earnings in 2021.

  • Within UOB Kay Hian’s Singapore coverage universe, we forecast a 143% y-o-y core EPS growth in 2021 due to the low base that was affected by COVID-19 in 2020. We then expect earnings growth to moderate in 2022 to 22% y-o-y. With the exception of a small earnings decline for healthcare, most sectors are expected to see core EPS growth in 2021 and 2022 with shipyards, telecoms and land transport exhibiting the highest delta vs 2020.
  • We note that Bloomberg consensus EPS growth for 2021 is even higher at 187% y-o-y.


Investment Thesis & Sector Recommendations.



UOBKH's Key SG Stock Recommendations for 2H21.

  • OCBC (SGX:O39)
    • New CEO, but unchanged focus to expand in China’s Greater Bay Area.
    • Upgraded its guidance to mid-to-high single-digit loan growth for 2021 (2020: +0.5%); NIM is expected to stabilise at 1.50-1.55%.
    • We expect OCBC to gradually increase recurrent regular dividends.
  • SGX (SGX:S68)
    • Trading volume for SGX remains elevated.
    • Has a wide range of liquid derivative products in key asset classes such as equities, currencies and commodities, which assure customer stickiness.
    • MSCI changes to boost derivatives volume; higher average fee per contract.
    • Currently trades at 24x FY22F P/E, below peers’ average multiple of ~28x.
  • ComfortDelGro (SGX:C52)
    • Preparations for the new normal, including expanded vaccinations and testing, could also see the return of land transport activities at a faster rate.
    • Value unlocking in Australia which includes a partial sale of assets or an IPO.
    • Limited downside risk.
  • Frasers Centrepoint Trust (SGX:J69U)
    • Has divested assets to focus more on larger and dominant suburban malls, which has also freed up balance-sheet headroom for further acquisitions in the future.
    • Strong DPU momentum to continue in 2021 due to recent acquisition of AsiaRetail Fund; DPU for 1HFY21 rose > 28%.
    • Recovery in tenant sales to be supported by COVID-19 vaccination and re-opening.
  • Genting Singapore (SGX:G13)
    • Local patronage holding up well; international footfall largely absent as expected.
    • 1Q21 results were unexciting but should be near the trough and market should eventually start to price in 2022 recovery as vaccinations accelerate.
    • We and the market remain wary of the Japan IR bid.
  • Lendlease Global Commercial REIT (SGX:JYEU)
    • Potential acquisition of Jem could boost pro forma FY20 DPU by 3.6% and pave the way to acquire other properties in the sponsor pipeline.
    • Will also look to increase its exposure to other gateway cities via sponsor.
    • Laggard with attractive yield of 6.0% and 6.1% for FY21 and FY22 respectively. Trades at a significant 8% discount to NAV of S$0.85/share.
  • Thai Beverage (SGX:Y92)
    • Recent 2QFY21 results in line with expectations and resilient despite enhanced COVID-19 measures.
    • Thai beer gaining market share, spirits market stable, minimal impact from Myanmar.
    • Attractively priced at less than 16x FY21 P/E, or -1.5 standard deviation to its mean P/E.
  • Sea Ltd (US$)
    • One of Southeast Asia’s largest internet companies.
    • Digital financial services to be next engine of growth.
    • Expanded digital entertainment business to maintain competitiveness.
  • Riverstone (SGX:AP4)
    • Strong beat in 1Q21 results; we expect 2021 to be another record profit year.
    • For 2021, we expect ASP to increase by around 83% y-o-y and ASP for cleanroom gloves to increase around 41% y-o-y.
    • Its cleanroom gloves stand a good chance of maintaining a favourable ASP beyond the pandemic.
  • Ascendas REIT (SGX:A17U)
    • Ascendas REIT has seen positive rental reversion driven by Singapore and the US.
    • Upcoming redevelopment of Science Park I could enhance 2022 distributable income by 1.5-4.6% depending on plot ratio approved by authorities.
    • More acquisitions are forthcoming in 2021 post S$1.4b acquisitions in 2020.
    • Data centres add a new engine for growth and expansion.
  • Yangzijiang Shipbuilding (SGX:BS6)
    • 1Q21 NPAT and margins stronger than expected and likely to expand in 2Q and 3Q21.
    • Strong order win outlook for the remainder of 2021.
    • Valuations remain undemanding, with 2021 EV/EBITDA and P/B multiples of 6.0x and 0.8x respectively.
  • Sembcorp Industries (SGX:U96)
    • Recently announced a long-term plan to transform itself from brown to green energy.
    • Plans to grow its renewables capacity by 4x to 10GW.

STI 2021 year-end target: 3,456

  • Our STI target has been upgraded slightly from 3,450 to 3,456, which is an aggregate of both a top-down and bottom-up methodology.
    • On a top-down basis using average long-term P/E and P/B multiples of 15.4x and 1.1x respectively, we arrive at a year-end STI target of 3,570.
    • Using a bottom-up methodology and applying UOB Kay Hian EPS estimates to the STI’s long term P/E multiple, we arrive at a lower year-end target for the STI of 3,343.
  • Based on Bloomberg consensus, it would appear that the STI is trading at reasonable valuations with a 2021F P/E of 14.8x and P/B of 1.1x while yielding 3.8%. Currently, the STI is trading at P/E of 22x which is well above its long-term mean due to expectations of a strong economic recovery in 2021 and continuing into 2022.
  • On the other hand, P/B valuations are more moderate with Bloomberg consensus forecasting 1.1x P/B for 2021F which is a 27% discount to long-term average P/B of 1.5x, but in-line with 5-year average P/B of 1.1x.
  • We believe that P/B expansion could continue in 2021-22 given that ROE is expected to rise from 8.3% in 2021 to 9.1% in 2022. At 9.1%, this is nevertheless 16% below the STI’s average ROE of 10.8%.
  • See the 15-page Singapore market strategy report: "From Pandemic to Endemic: Potentially A Bumpy Ride in 2H21, But There Is Still Gas Left In The Tank" attached below for complete analysis.





Adrian LOH UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2021-06-28
SGX Stock Analyst Report BUY MAINTAIN BUY 15.500 SAME 15.500
BUY MAINTAIN BUY 12.350 SAME 12.350
BUY MAINTAIN BUY 1.950 SAME 1.950
BUY MAINTAIN BUY 3.060 SAME 3.060
BUY MAINTAIN BUY 1.080 SAME 1.080
BUY MAINTAIN BUY 1.01 SAME 1.01
BUY MAINTAIN BUY 0.920 SAME 0.920
BUY MAINTAIN BUY 1.750 SAME 1.750
BUY MAINTAIN BUY 3.830 SAME 3.830
BUY MAINTAIN BUY 1.76 SAME 1.76
BUY MAINTAIN BUY 2.590 SAME 2.590



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