DBS Group Research analysts Yeo Kee Yan, Janice Chua and Woon Bing Yong are recommending investors switch from stock leaders to laggards on the recovery theme.
This is as shares in counters benefitting from the reopening theme have re-rated since the easing of measures. Some of the easing of measures include the lowering of the DORSCON code to yellow from orange.
In their May 4 report, the analysts have highlighted that the reopening theme is a subject that they have remained positive on, even during the initial Omicron sell-off in late November in 2021.
“This conviction has been rewarded as measures progressively ease in more recent months,” the analysts write.
So far, counters that are a proxy for the reopening theme have been seeing re-ratings in their share price. The counters that have led the action so far, are SATS, SIA Engineering Company (SIAEC), Far East Hospitality Trust (FEHT) and Suntec REIT.
As borders and domestic restrictions ease further, the analysts are seeking to identify recovery laggards that may see better interest as borders and domestic restrictions ease further.
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The counters identified are ComfortDelGro, Frasers Centrepoint Trust (FCT), Genting Singapore, Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT) and Thai Beverage (ThaiBev).
The counters were chosen after the analysts compared their current stock prices with their respective closing prices on Feb 7, 2020, the date that Singapore raised its DORSCON code to orange.
Analysts positive on value-unlocking counters
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In addition, value-unlocking stocks are “back in play”.
To date, shares in counters such as City Developments Limited (CDL), ThaiBev and ComfortDelGro have outperformed.
CDL has signalled a quickening pace in unlocking the value of its “legacy assets” while ThaiBev is proceeding with its spin-off listing. ComfortDelGro may revive its Australian unit IPO if the business successfully renews its expiring bus contracts in 2022, write the analysts.
Among the small-cap stocks, the analysts at DBS see the possibility of GuocoLand either securitising its income-producing portfolio or converting itself into a “stapled security”.
These are the stocks to ‘top-slice’
Further to their report, the analysts have identified five stocks to “top-slice”.
Top-slicing refers to the move where investors sell and take profit on a portion of their holdings in a company. They will then retain the rest as they believe that the company and its share price will continue to do well.
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Suntec REIT is one of the counters identified by the analysts at DBS as its share price has recovered to its pre-pandemic levels.
“At the current price level, our analyst thinks equity fundraising is a funding option,” writes the team.
PropNex and APAC Realty are also on the list as they are currently affected by the recent property cooling measures. The rising interest rates that will affect the property market for the next one to two years may not bode well for the counters in the short-term as well, note the analysts.
“PropNex trades at 13.6X FY2022 – that’s at +1.8 standard deviation of its historical mean. For APAC Realty, the latest acquisition by the Morgan Stanley PE fund, at 61 cents per share, caps the near-term upside,” they write.
The analysts are also “wary” of Riverstone’s healthcare glove segment due to lower average selling prices (ASPs) and surging raw material costs.
“Finally, we think any further upside for The Hour Glass is limited, as it has risen close to the four-year peak forward P/E ratio of 14.5x,” they write.
STI to trade between 3,200 to 3,250 points
The period between May to August is traditionally a seasonally weaker period for counters on the Singapore Exchange (SGX).
“We think this year is no exception, especially with rate hikes, inflation, and supply chain disruption woes,” the analysts write. “The Fed could lift rates by 125-150 basis points (bps) by end-July and 200-225bps by year end. MAS sees 2022 headline inflation rising by 4.5%-5.5% y-o-y.”
To this end, they estimate that the benchmark Straits Times Index (STI) will be trading between support at 3,200 to 3,250 points with near-term resistance at 3,408.
The STI closed 51.68 points lower or 1.55% down at 3,291.89 points on May 6.
