CGS-CIMB Research analyst Lim Siew Khee has kept her top picks for the reopening of the Singapore economy to SATS, Frasers Centrepoint Trust (FCT) and United Overseas Bank (UOB).
This comes as the Singapore government has relaxed its Covid-19 measures to now allow a group of five diners from July 12, from groups of two previously.
In her report on July 7, Lim says she sees these three counters as plays for international travel, retail, as well as a laggard pick on the back of the Singapore government’s aim to progressively reopen borders by end September or early October.
Her defensive counter picks include Ascendas REIT (A-REIT), Frasers Logistics & Commercial Trust (FLCT), CSE Global and Singapore Technologies Engineering (ST Engineering).
For growth in earnings per share (EPS), Lim sees potential in Aztech, Grand Venture Technologies and Q&M Dental, while ComfortDelGro (CDG), Singapore Press Holdings (SPH) and CapitaLand are her picks on counters undergoing restructuring.
Yangzijiang and Japfa are her top picks in terms of affordable valuations.
Amongst her top picks, Lim has removed Keppel Corporation following the merger announcement with Sembcorp Marine (SembMarine) and UOL, which is pending launches of projects.
She has replaced them with ST Engineering and CapitaLand.
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“We added ST Engineering in our top pick list, with its potential re-rating catalyst being the execution of its strategy to grow its international defence and smart city business,” writes Lim.
“Strong domestic travel in the US benefiting aircraft maintenance & repair could see ST Engineering’s commercial aerospace profitability return to pre-Covid levels earlier than its Singapore peers,” she adds.
Lim has given an “add” recommendation on ST Engineering with a target price of $4.41.
On CapitaLand, Lim likes the group for its “active capital recycling strategy”. She has also given CapitaLand an “add” rating.
“Our target price [of $4.04] assumes a 35% discount to revised net asset value (RNAV) of $6.22. Details of its proposed corporate restructuring exercise, expected to be released in 3QFY2021, could catalyse its share price, in our view.”
As results season for the 2QFY2021 looms, Lim believes that the earnings per share (EPS) upgrade momentum could taper in the upcoming quarter’s results season. This, she says, may be due to the heightened restrictions imposed from May 16 to June 13.
“Notably, banks, which typically drive the market EPS, may be more conservative in their assessment of asset quality amid the resurgence of Covid-19 cases in the region with the risk of loan moratoriums being introduced,” says Lim.
“However, we believe there are some stocks that could yield positive earnings surprise, especially in the small cap space, namely Hong Leong Asia, HRNet, Q&M Dental, Aztech, ISDN and GKE Corporation.”
“Big caps that could surprise positively are Singapore Exchange (SGX) and Raffles Medical Group,” she adds.
To this end, Lim has kept her Straits Times Index (STI) target for the end-2021 at 3,488 points, which is still based on +0.5 standard deviation (s.d.) of 10-year mean price-to-earnings (P/E) of 15.3 times.
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As at 4.31pm, the STI is trading 18.39 points higher or 0.6% up at 3,125.98 points.
Photo: Bloomberg
