SINGAPORE (Sept 28): Singapore’s economy is on the road to recovery, led by improvements in the tech-related manufacturing industry, according to Maybank Kim Eng Research.
“Our 12-month market outlook is incrementally more positive and we believe index levels and valuations could hold further headroom,” says analyst Neel Sinha in a Tuesday report.
Singapore's industrial production remained on a roll in August, with manufacturing output growing 19.1% from a year earlier on the back of robust electronics output.
See: Singapore August factory output rises 19.1% on-year
“Electronics and semiconductor production reached record highs in July, while the Singapore PMI (Purchasing Managers' Index) hit a six-year high in August,” Sinha notes.
In a separate report, Maybank economist Chua Hak Bin says Singapore’s GDP growth in 2017 could outpace the government’s growth forecast of 2-3%.
See: Maybank expects flash 3Q GDP at 3.8% as manufacturing charges ahead
With the economy performing better than its expectations at the start of the year, Maybank is assigning “overweight” ratings on the cyclical banking, property, and gaming sectors.
Here are six of Maybank’s key stock picks to ride on the improving economy.
United Overseas Bank (UOB)
Maybank has a “buy” call on UOB with a target price of $26.40.
According to Sinha, the sector-specific risks in offshore and marine (O&M) are likely past their peak, and the related impact to the financial sector is subsiding.
Forecasts for loan growth for the sector have also been raised by 5-9% following the first-half results.
“[UOB’s] pricing strategy and discipline should help maintain best customer spreads in the sector,” Sinha says.
As at 12.20pm, shares in UOB are trading 9 cents lower at $23.75.
UOL Group
Maybank has a “buy” recommendation on UOL Group with a target price of $9.43.
According to Sinha, UOL is the “most liquid proxy for expected higher property prices in Singapore.”
In addition, the analyst notes that there is potential for value unlocking in the medium term with restructuring of holdings.
As at 12.20pm, shares in UOL are trading 4 cents lower at $8.13.
GuocoLand
Maybank has a “buy” rating on GuocoLand with a target price of $2.75.
According to Sinha, GuocoLand is relatively under-researched, and a laggard compared to other Singapore property developers.
However, the analyst notes that it has rallied in recent months despite having Singapore market exposure accounting for a significant two-thirds of its estimated NAV.
As at 12.30pm, shares in GuocoLand are trading 1 cent higher at $2.30.
CapitaLand Commercial Trust (CCT)
Maybank has a “buy” call on CapitaLand Commercial Trust with a target price of $1.81.
“[CCT’s] recent Asia Square Tower 2 acquisition is positive in our view as it is a quality asset with occupancy upside,” Sinha says.
CCT last week announced it is buying the 46-storey Grade A office building from American asset manager BlackRock Inc for a total of $2.15 billion – making it one of Singapore’s largest real estate deals this year.
See: CapitaLand Commercial Trust to buy Asia Square Tower 2 for $2.15 bil
See: Asia Square Tower 2 acquisition seen by analysts as mostly positive for CCT
In addition, Sinha notes that the stock is “trading at a discount to underlying physical market transactions.”
As at 12.30pm, units in CCT are trading half a cent lower at $1.66.
Ascendas REIT (AREIT)
Maybank has a “buy” recommendation on Ascendas REIT with a target price of $2.90.
Sinha says that, with the business parks segment of industrial space making up close to 60% of its portfolio, AREIT is the best proxy to the recovery.
As at 12.30pm, units in AREIT are trading 3 cents higher at $2.69.
Genting Singapore
Maybank has a “buy” rating on Genting Singapore with a target price of $1.35.
“Operating conditions have been improving with 2Q17 showing VIP volume growth for the first time in 14 quarters and mass market GGR (gross gaming revenue) was flat after four quarters of year-on-year declines,” says Sinha.
As at 12.30pm, shares in Genting Singapore are trading half a cent higher at $1.17.
| Stock | FY2017 earnings | Dividend yield FY2017 |
| United Overseas Bank | 11.0x | 3.0% |
| UOL Group | 14.3x | 1.9% |
| GuocoLand | 7.0x | 3.1% |
| CapitaLand Commercial Trust | 21.1x | 5.3% |
| Ascendas REIT | 16.6x | 6.0% |
| Genting Singapore | 22.5x | 2.6% |
