The benchmark Straits Times Index (STI) is expected to reach 3,500 points by the end of 2022, according to UOB Kay Hian analyst Adrian Loh and the Singapore research team.
Loh’s estimate implies a 13% upside from the STI’s current levels
It also underlines his underlying bullishness or the year ahead.
“Our 2022 STI target is based on 20% earnings growth for 2022, and target price-to-earnings (P/E) and price-to-book (P/B) multiples of just under 14 times and 1.0 times respectively,” Loh writes in a Dec 13 report.
“Both of these target multiples are around 10% discount to the past 5-year average for the index, which we believe is fair,” he adds.
In the same report, Loh remains positive on the STI as he believes that the index will continue to perform well in 2022.
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“Given the nature of a coronavirus-caused pandemic, a recovery was always going to be bumpy, and the recent emergence of the Omicron variant has injected a significant amount of volatility into global markets,” he writes.
“While new variants will likely emerge, we believe that these are causes for concern and not panic as the policy outlook remains supportive in Asia; more importantly, the Singapore market is inexpensive vs its regional peers and its developed market peers.”
He adds that valuations for the STI in 2022 currently appear inexpensive with the index trading at a forecast 2022 P/E and P/B of 13.2 times and 1.1 times respectively, and paying a yield of over 4%.
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“We highlight that these multiples are meaningful discounts to the STI’s long-term averages, so we expect some level of mean reversion in 1H2022,” he says.
For the Singapore stocks under UOB Kay Hian’s coverage, Loh has also estimated total earnings per share (EPS) growth of 29% in 2022.
All sectors – with the exception of the aviation sector – are expected to register earnings growth y-o-y, he adds.
To this end, property, shipyards and the land transport sectors are expected to see the strongest earnings growth on a y-o-y basis, although the first two sectors are coming off low bases from 2021.
In addition, UOB’s team of economists have pegged Singapore’s gross domestic product (GDP) growth to come in at 3.5% y-o-y in 2022 after a “solid rebound” of 6.5% in 2021.
“Despite the relatively high base in 2021, growth in 2022 should be underpinned by the export and manufacturing sectors, which will benefit from the expected recovery of Singapore’s key trading partners as they bolster their vaccination efforts into 2022,” writes the team.
Finally, Loh has identified his top large-cap picks as City Developments (CDL), ComfortDelGro (CDG), DBS, Genting Singapore, Keppel Corporation, OCBC, Raffles Medical, Sembcorp Industries, Sembcorp Marine (SembMarine), Singapore Technologies Engineering (ST Engineering) and Thai Beverage.
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Within the small and mid-cap sectors, Civmec, Food Empire, Innotek and UMS Holdings are Loh’s top picks.
For 1HFY2022, Loh is recommending “overweight” on the consumer, financials, land transport, property, S-REITs, shipyards and industrials, as well as the technology sectors.
He is also recommending “market weight” on the aviation, gaming, healthcare, plantations and the telecommunications sectors in the same period.
“Covid-19 recovery plays include Singapore Airlines (SIA), SATS, Genting Singapore, Ascott Residence Trust, CDL Hospitality Trusts, and Far East Hospitality Trust,” he writes.
As at 12.12pm, the STI is trading 3.75 points higher or 0.12% up at 3,123.70 points.
Photo: Bloomberg
