Go for visibility and resilience, say DBS Group Research analysts Yeo Kee Yan and Woon Bing Yong, favouring stocks with visible growth like Keppel Corp, ST Engineering, UOB, UMS and more.
“STI’s choppy rangebound trend from the 3,030 to 3,230 level since the middle of March should continue in the weeks ahead,” note Yeo and Woon in an Aug 6 note.
Yeo and Woon expect the “choppy sideways trend” that has been a “characteristic” of the Singapore market to continue in the foreseeable future. They point to the uncertain global Covid-19 situation due to the Delta variant, growing US-China friction, seasonal volatility over the next one to three months with August a typically weak month and normalising growth.
The Singapore market current trades near 13.48 times (+0.25 standard deviations) 12-month forward price-to-earnings (P/E).
See also: Analysts positive on Yangzijiang following strategic review of investment arm
Singapore is currently the world leader in terms of the percentage of population vaccinated with mRNA vaccines. “We are cautiously optimistic on domestic reopening with some 80% of population to be fully vaccinated by early-September. Beneficiaries include public transport operator ComfortDelGro, retail REITs Frasers Centrepoint Trust and Mapletree Commercial Trust. Travel bubbles are uncertain for now given the ever-changing global Covid-19 situation,” note Yeo and Woon.
Yeo and Woon prefer stocks with strong growth visibility, such as semiconductor company UMS that rides on the sector’s sustained demand. “The momentum in the semiconductor industry remains strong as the US three-month semiconductor equipment billings has continued to post strong gains, increasing 58.4% y-o-y to US$3.67 billion in June 2021. UMS is trading at 14.7 times FY2021F earnings, which is below the peak valuation multiple of 17 times in 2018. This is despite the strong industry momentum that has already surpassed the 2018-highs.”
Shipbuilder Yangzijiang should rise on its recent big newbuild orders and a record order book of US$6.67 billion and US$8.74 billion respectively, they add. “While margins are likely to be affected by higher steel cost in the near-term, this could be partially offset by higher revenue and divestment gains from vessel disposals.”
Meanwhile, UOB will gather strength from strong earnings growth and upside from dividend while ST Engineering’s tall order book provides strong visibility and yield, say Yeo and Woon.
Keppel Corp’s acquisition of SPH offers scope for re-rating, the deal is earnings per share (EPS) accretive while providing monetisation opportunities from SPH’s prized assets, write Yeo and Woon.
“Keppel Corp is our preferred situational play, its latest offer to take SPH private is both earnings accretive and synergistic, adding an 18% boost to recurrent income while providing monetisation opportunities to unlock value from SPH’s suite of prized assets in student hostels and senior living portfolio.”
“We also like industrial/logistics REITs that are less impacted by potential setbacks to Singapore’s reopening, [such as] Keppel DC REIT and Mapletree Logistics Trust,” they add.
While the Singapore government has plans for quarantine free travel for the vaccinated to countries where Covid-19 is under control, Yeo and Woon believe that travel bubbles or corridors will remain unstable given the ever-changing situation. “Thus, we maintain our view that travel/tourism related names such as SATS, SIA and hotel REITs that are more reliant on international tourist arrivals such as CDL Hospitality Trust will lag domestic recovery.”
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As at 3.26pm, the STI is trading 4.03 points higher, or 0.13% up, at 3,184.03.
Photo: Bloomberg
