DBS Group Research analysts Yeo Kee Yan and Janice Chua believe that the 2QFY2022 performance of SGX-listed counters has “allayed” concerns of further lows.
In a report dated Aug 24, the analysts write that the 2QFY2022 results season “debunked immediate slowdown concerns”, reflecting Singapore’s resilience. Twenty one companies reported better-than-expected earnings compared to 13 that disappointed, while more than half came in line with expectations.
Companies under DBS’s coverage saw positive revisions of 2.1% and 0.8% to FY2022 and FY2023 earnings respectively. The positive revisions were led by industrial heavyweights on favourable operating conditions, such as Singapore Airlines (SIA) on its reopening, higher prices and tariffs for Sembcorp Industries, while DFI Retail Group’s earnings was revised down amid challenges to its grocery retail business, say Yeo and Chua.
According to them, earnings upgrades have led to strong earnings growth of 15.4% and 12.7% for FY2022 and FY2023 respectively, while the key themes of banks, reopening and technology remain in play despite macro headwinds.
“We expect mid-teens earnings growth in FY2022 and FY2023 for companies under our coverage despite macro concerns. Higher net interest margin (NIM) should support 10% to 15% earnings per share (EPS) growth for banks OCBC and UOB in both FY2022 and FY2023,” they write.
“Strong earnings are expected from our reopening picks such as SIA, ComfortDelGro, Genting Singapore, Ascott Residence Trust (ART) and CDL Hospitality Trust as border restrictions ease. Info tech players like UMS Holdings and Venture Corporation may defy the notion of tech headwinds on strong demand,” add the analysts.
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They add the caveat that investors should “be selective” with the key themes identified, preferring stocks with earnings resilience and those with market leading positions or strong support from key customers as higher operating costs may be a concern in upcoming quarters.
In their report, the analysts have indicated that their top preference was for shares in SIA followed by SATS and UMS, CSE Global and Raffles Medical, with Q&M Dental Group at the bottom of the list.
In addition, Yeo and Chua have identified eight stocks that could be a “surprise” on either the upside or downside in 2HFY2022; they are positive on Raffles Medical, Sembcorp Industries, UMS Holdings and Delfi, while recommending investors “avoid” Q&M Dental Group, OUE Commercial REIT and CSE Global.
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At the same time, the analysts see the benchmark Straits Times Index’s (STI) mid-July low should “hold intact”. The index already had earnings cuts at the recent low heading into the 2QFY2022 season priced in.
However, the better-than-expected corporate earnings has removed this “immediate concern”, say the analysts.
“Underpinned by double-digit EPS growth, the STI’s valuation is attractive, trading below 12.2x (-1 standard deviations) 12-month forward P/E,” the analysts write.
“STI’s mid-July low of 3090 should hold intact although the trend forward will still be sideways as investors keep watch over inflation and rate hikes. Near-term resistance is at 3,303, support levels at 3,200 [and] 3,150,” they add.
As at 1.56pm, the STI was trading 12.88 points or 0.4% up at 3,246.36 points.
