Phillip 4Q21 Singapore Strategy - Phillip Securities 2021-10-08: Investing In Inflation

Phillip 4Q21 Singapore Strategy - Phillip Securities Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) ASIAN PAY TELEVISION TRUST (SGX:S7OU) DBS GROUP HOLDINGS LTD (SGX:D05) FRASERS CENTREPOINT TRUST (SGX:J69U) HRNETGROUP LIMITED (SGX:CHZ) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) CITY DEVELOPMENTS LIMITED (SGX:C09) COMFORTDELGRO CORPORATION LTD (SGX:C52) KEPPEL CORPORATION LIMITED (SGX:BN4) Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)

Phillip 4Q21 Singapore Strategy - Investing In Inflation


3Q21 Review:

  • 3Q21 was sluggish, with the STI down 1.4%. Despite a jump in vaccination rates to 82% of the population in September, COVID-19 cases in Singapore spiked to record highs. Dining and office restrictions returned. The virus also triggered record high cases in Southeast Asia. This hurt regional consumer stocks on the STI, namely the Jardine Group of companies.
  • Of the 30 STI names, only 9 made gains during the quarter. Restructuring themes outperformed, namely CapitaLand Investment (SGX:9CI) and SingTel (SGX:Z74).



4Q21 Outlook:

  • Inflation is increasing in the global economy, especially in the U.S. Major inflation indicators are at decade highs with little signs of abating. Even after three rounds of quantitative easing (QE) from 2008 to 2012, money supply hardly budged. The current QE4 combined with fiscal stimulus has resulted in an unprecedented spike in liquidity into the real economy. Cost pressures are building up for manufacturers and consumers, from commodity prices, PMI inputs, transport and energy. While not runaway, inflation is likely to be higher than market expectations.
  • We see upside risk for interest rates. Bond yields are historically too low compared to core inflation in the U.S.. Since the 1960s, investors have been demanding real returns in interest rates that exceed inflation (or CPI). The repricing of higher interest rates forms the macro backdrop for our equity strategy. Prime beneficiaries of higher interest rates will be financials: banks for their variable-rate loans and excess deposits, and SGX (SGX:S68) for its collateral float from derivatives clearing members of S$13bn.
  • Our STI target is unchanged at 3400. We remain positive on the re-opening trade. COVID-19 is now a pandemic for the unvaccinated. Vaccinations globally could hit 50% by year-end, with developed countries leading the way at 65-70%. Countries are cautiously re-opening borders for the vaccinated. Domestic travel and hospitality should enjoy a huge rebound when travel is relaxed. As vaccinations expand globally to include the young and anti-viral drugs are approved for use, we expect even more aggressive global re-openings.


4Q21 Recommendation:

  • We favour financials. Asset reflation, economic recoveries and rising interest rates will be major tailwinds for banks. Another sector that will likely benefit is property. Rising residential property prices in Singapore are backed by affordability, still-low interest rates and increasing replacement costs. The property price index has risen around 7% over the past 12-months, a shade below its high-single-digit growth before cooling measures kicked in. Furthermore, over the past eight years, the index was only up 6.7%. Our pick is City Developments (SGX:C09). It is the largest listed Singapore residential developer. Its stock has been languishing at multi-year lows despite a S$3bn pipeline of residential projects, a potential recovery for its 152 hotels and the potential monetisation of UK commercial assets through a REIT.
  • Ultimately, the largest catalyst for the STI will be a complete re-opening of borders. Tourist arrivals this year were a pathetic 153k. The number was 19mil in 2019. Many sectors will enjoy an uplift when travellers return. Primary beneficiaries will be hospitality, travel, malls and even telecommunications. We recommend investors to stick to this theme, despite the disappointment so far. High vaccination rates have not resulted in “freedom days”. Instead, the recent spike in cases has placed a huge burden on the country’s healthcare infrastructure. This is being addressed, with living with an endemic COVID-19 being the goal.
  • We recently initiated coverage on HRnetGroup (SGX:CHZ), one of the largest recruitment (permanent and temp) agencies in the region. This is a company with a rare ROE of above 100%, net cash of S$300mil and 4% dividend yield. It is also benefiting from an upswing in job hirings. Scale, track record and balance sheet are its competitive advantages over smaller peers. See report: HRnetGroup - Phillip Securities 2021-08-19: Record Breaker.


Phillip Absolute 10


Strategy commentary:

  • We are dialing back our yield exposure with more cyclical and reflation names.
    • City Developments (SGX:C09) will benefit from the upswing in residential property, rebound in hospitality and monetisation of commercial properties in the UK.
    • HRnetGroup (SGX:CHZ) is riding on an upswing in job hirings from the huge vacancies in part-time and permanent jobs.

Deletions from our model:



Phillip Absolute 10 For 4Q21

  • Ascott Residence Trust (SGX:HMN): Our proxy to the recovery in travel and hospitality. Ascott has a wide geographic reach across 15 countries and domestic tourism will recover ahead of peers.
  • Asian Pay TV Trust (SGX:S7OU): The current dividend yield of 7.7% or S$18mil is well-supported by the annual free cash flow of S$70mil to S$80mil. Backhaul revenue from 5G mobile operations will become a new source of cash flow.
  • DBS (SGX:D05): Largest beneficiary of rising interest rates and improving economic conditions. There is upside to dividends with the removal of the dividend caps and high CET1 ratio.
  • 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.
  • HRnetGroup (SGX:CHZ): One of the largest recruitment agencies in the region benefiting from a resurgence in hiring activities.
  • Thai Beverage (SGX:Y92): At 14x P/E, valuations are attractive for a consumer company with a 90% share of Thailand’s spirits market.
  • City Developments (SGX:C09): After the massive sell-off from losses in China, we expect a re-rating from the upswing in residential property, rebound in hospitality and monetisation of commercial properties in the UK.
  • ComfortDelGro (SGX:C52): Multiple share price drivers including recovery in train volumes, lower taxi rebates, the listing of Australian subsidiary and restructuring of loss making Downtown Line operations.
  • Keppel Corporation (SGX:BN4): The two re-rating catalyst include disposal of loss-making marine business and related assets, plus acquisition of SPH attractive assets.
  • Q&M Dental (SGX:QC7): Earnings growth will be 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/ 2021-10-08
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.190 SAME 1.190
BUY MAINTAIN BUY 0.150 SAME 0.150
ACCUMULATE MAINTAIN ACCUMULATE 32.000 SAME 32.000
BUY MAINTAIN BUY 2.870 SAME 2.870
BUY MAINTAIN BUY 1.050 SAME 1.050
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.860 SAME 0.860
BUY MAINTAIN BUY 9.190 SAME 9.190
BUY MAINTAIN BUY 1.830 SAME 1.830
BUY MAINTAIN BUY 6.280 SAME 6.280
BUY MAINTAIN BUY 0.82 SAME 0.82



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