Singapore companies are geared towards reopening, writes Maybank Kim Eng Research analyst Thilan Wickramasinghe. Of the 10 companies presenting at Maybank Kim Eng’s Invest Asean Singapore conference, the majority were “upbeat with a hint of caution” on growth prospects in 2021 and 2022.
The 10 companies are: AEM, ComfortDelGro, Frencken Group, Micro-Mechanics, Nanofilm Technologies, Oversea-Chinese Banking Corporation (OCBC), Q&M Dental, Singapore Exchange (SGX), United Overseas Bank (UOB) and Yoma Strategic.
In a July 14 note, Wickramasinghe notes their optimism on growth prospects in 2021-2022F from rising demand catalysed by pandemic reopening and new opportunities. “There was also increasing focus on business strategies that integrate sustainability as well as exploring adjacencies for existing products.”
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Still, Wickramasinghe notes “a measure of caution” given regional uncertainty from resurging Covid-19 infections and political instability. “Nevertheless, rising vaccine rates and strong external demand should drive upside to growth in Singapore.”
Wickramasinghe’s top picks are: Ascendas Reit, ComfortDelGro, CapitaLand Integrated Commercial Trust, DBS, Frencken Group, OCBC, Q&M Dental, ST Engineering, Thai Bev and UMS.
According to Wickramasinghe, 70% of the companies expect improvements or defence of margins going forward led by a shift towards a higher value product mix and improving demand conditions.
This is especially evident in the Technology sector where new generation test handlers are ramping up production for AEM, while Frencken is successfully passing on cost increases.
At the same time, global supply chain disruptions do not seem to have had a material impact to operations, while chip shortages are a tailwind for wafer fabrication equipment (WFE) players such as Micro-Mechanics.
Elsewhere, the banking sector expects defensible net interest margins (NIMs) as loan growth shifts liquidity to higher yielding assets together with a steeper yield curve. Overall, 90% of presenting companies expect stronger earnings momentum in 2021F.
Wickramasinghe also notes an increasing focus on sustainability and new verticals. Nearly half the companies are integrating environmental, social and governance (ESG) factors into their business strategies.
Banks are leading this with both OCBC and UOB investing in new green products and capabilities, while SGX is launching new sustainable indexes, says Wickramasinghe.
Similarly, ComfortDelGro is expanding its electric vehicle infrastructure while replacing its taxi fleet with hybrids.
Separately, companies are focusing on capturing new growth avenues and leveraging product adjacencies. Nanofilm Technologies is using its solutions to expand into automotive, optical lenses as well as fast-moving consumer goods (FMCG), fuel cells, Internet of Things (IoT) and 5G.
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Similarly, Q&M Dental is expanding its Covid-19 PCR testing segment, while aggressively opening new clinics in Singapore and Malaysia.
Wickramasinghe upgrades Singapore’s GDP forecast to 6.8%, while maintaining a Straits Times Index (STI) target of 3,537.
“There remains underlying caution, particularly from resurging Covid-19 cases regionally as well as political uncertainty, especially for Yoma Strategic, where disruptions in Myanmar may affect many of its business lines. Nevertheless, Singapore’s vaccine rollout trajectory and a strong external sector has [our] Macro team upgrading 2021F GDP to 6.8% and 2022F to 3.5%,” he writes.
“We maintain our STI target of 3,537, which offers 12% upside. Our strategy calls for a mix of value and growth stocks with positive sector weightings on Financials, Transport, Telcos, Consumer Cyclicals, Industrial & Commercial REITS.”
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