Singapore Market Outlook - CGS-CIMB Research 2021-08-19: Done Well, Cautiously Optimistic, FSSTI Target 3496

CITY DEVELOPMENTS LIMITED (SGX:C09) SINGTEL (SGX:Z74) SPH REIT (SGX:SK6U) KIMLY LIMITED (SGX:1D0) HRNETGROUP LIMITED (SGX:CHZ)

Singapore Market Outlook - Done Well, Cautiously Optimistic

Relative to the region, we think Singapore will soon be out of the woods with full vaccination rate at ~78% currently and edging towards border reopening.
EPS trim of 1.9-2.3% in 2Q21 results not alarming; we still see EPS growth of 39% in 2021F and 12% in 2022F. Our end-2021F FSSTI target 3,496.
Added City Developments, SingTel, SPH REIT, Wilmar, HRnetGroup, Kimly to our picks.
Others we continue to like: Ascendas REIT, ST Engineering, SATS, UOB, ComfortDelGro, Yangzijiang, CSE Global, Aztech Global, Q&M Dental.

On 15 Aug, Singapore has fully-vaccinated 78% of its population against COVID-19, on track to meet its 80% target by early-Sep. A gradual reopening of its economy looks more realistic now compared to a quarter ago. The Singapore government is looking at letting fully-vaccinated business travellers from Australia, Canada, Germany and South Korea to enter the country as part of pilot arrangements to progressively reopen its borders.

At 13.5x CY21F P/E, FSSTI is close to 0.5 standard deviation from its mean since 2009 and has done relatively well with +10% outperformance year-to-date, driven by sustainable recovery across sectors. P/BV has also re-rated to 1x CY21F, corresponding to the gradual ROE improvement. The low interest rates and government readily handing out relief packages and stimulus have also contributed to the liquidity in the market.
We are taking a cautiously optimistic view that while earnings cut may not be rampant, there will be no significant upgrade as well as we are still living with the pandemic. Regional COVID-19 vaccination plans being rolled out properly should sustain the recovery of economies.
The negatives of the COVID-19 pandemic are known and felt over the past 12 months. There are some unknowns that could keep market hopeful/volatile. These include:
1. when free international travel will be allowed,
2. the US Federal Reserve tapering and timing of the first federal fund rate (FFR) hike.
Our FSSTI target of 3,496 is based on 0.5 standard deviation above 12-year mean of 15.2x P/E) supported by the 39% EPS growth in CY21F and 12% in CY22F. Assuming more EPS cuts ahead, our index target could shift towards 12-year mean of 14.3x P/E or 3,289.

Having seen a strong performance in the first half of 2021 with the FSSTI gaining 10%, best half-year rally since 2017, the current price action continues to signal a move higher in the coming months. Notably, after hitting a 14-month high at 3,237 points in Apr 21, the FSSTI has been trading in a correction phase. Nevertheless, the multiple rebounds off the 20-week moving average since May 21 suggests the uptrends remains firmly intact.
More importantly, with the gradual recovery over the past two weeks, the FSSTI is trading right at the downtrend line. For further confirmation of the bullish move, watch for a breakout above the 3,200 level. Considering that the FSSTI has been trading in a correction phase for a prolonged period, over the past two months, in the bullish breakout scenario, a substantial move higher will likely happen with the bulls targeting the 3,400 resistance followed by the 3,500 psychological resistance by end of the year.
On the other hand, if further weakness persists, the near-term support at 3,060 – 3,100 area will likely halt the selloff and turn the FSSTI back into the uptrend. In other words, look out for buying opportunities near the 3,060 – 3,100 support area.

LIM Siew Khee CGS-CIMB Research | Singapore Research Team CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-19

SGX Stock Analyst Report ADD MAINTAIN ADD 8.970 SAME 8.970

ADD MAINTAIN ADD 2.900 SAME 2.900

ADD MAINTAIN ADD 1.060 SAME 1.060

ADD MAINTAIN ADD 0.460 SAME 0.460

ADD MAINTAIN ADD 1.15 SAME 1.15