Singapore Traders Spectrum
Wired Weekly
Page 2
Between the 2 companies, we have a slight preference for
SembCorp Marine over Keppel Corp because the former is a
pure O&M play.
Noting the trend of a weak global manufacturing output
through 3Q, avoid stocks exposed to manufacturing,
technology and global trade as companies are more likely to
report lack lustre 3Q results. Stocks in the
manufacturing/technology (e.g. Amtek Engineering,
Broadway and Venture Corp) sectors as well as those
exposed to global trade (NOL & Cosco Corp) are likely to
continue their lack lustre performance as the 3Q results
season draws closer.
Finally, the decline in CPO price from RM3140/MT to
RM2400/MT through 3Q could be a dampener on upstream
CPO planters ahead of the 3Q results season. Avoid First
Resources, Indofood Agri and Kencana Agri.
In the shadow of the 3Q results season and technical
recession risk
Concerns about the Singapore economy dipping into a
technical recession in 3Q and anticipation of a generally lack
lustre results season is likely to contain the STI around the
3100 mark in the short-term. The hunt for yield plays is likely
to continue. Interest among cyclical stocks is likely to still
swirl around the O&M sector with their better earnings
visibility while stocks tied to global trade, electronics and
manufacturing are likely to be shunted aside during this
period.
Our Singapore economist thinks a technical recession is in
store for Singapore after August industrial production fell
2.3% m-o-m (-2.2% y-o-y). Dragged down by the
electronics and transport engineering sub-sectors, the figure
was worse than his forecast for a 2% m-o-m (+3.2% y-o-y)
gain. Singapore 2Q GDP had declined 1.1% on a q-o-q basis.
Our economist forewarns that this weaker than expected
August IP could seal the fate for a technical recession in 3Q
even if it’s a brief one.
The 3Q results season looms in October. This is likely to pull
some investors back into the side-lines on the concern that
the global economic slowdown that continues to manifest
itself through the third quarter will filter down to corporate
earnings. STI had rallied 13% since early June on optimism
that central banks will pull out all the stops to prevent the
Eurozone crisis and the ailing US job and housing markets
from worsening. The FED’s QE3 and ECB’s OMT answered
investors’ hopes.
At 3060, STI trades at 13X (slightly below -0.5SD) FY13F PE.
With the global economy still shrouded with uncertainties,
we do not see the STI heading above the current 13.26x (-
0.5SD) FY13F PE level of 3123. That is, STI is likely to hover
around the 3100 immediate resistance level at best in the
short-term heading towards the 3Q results season.
STI at various forward PE levels
-2sd
10.65x PE
-1.5sd
11.52x PE
-1 sd
12.39x PE
-0.5 sd
13.26x PE
Avg
14.13x PE
+0.5 sd
15.0x PE
FY 13 2,508 2,713 2,918 3,123 3,328 3,533
Source: DBS Research
Still seeking yield
Investors should maintain their exposure in yield trades given
the uncertain global economic outlook and low interest rate
environment (FED to keep interest rates near zero till mid-
2015).
Among the S-REITs, we continue to like Suntec REIT, Fraser
Commercial Trust and Fraser Centrepoint Trust. Suntec REIT
remains one of the cheaper S-REITs, offering an attractive
0.8x P/BV and FY12-13F yields of 6%. Fraser Commercial
Trust also trades at an attractive 0.8x P/BV with potential
rerating catalysts from the sale proceeds of Keypoint in April.
Fraser Centrepoint Trust’s re-rating catalysts will hinge on
the acquisition of Changi City Point.
Sieving further among the S-REITs with a Buy
recommendation, offer at least 6% upside to our
fundamental target price and with a yield of at least 5%, 3
more names appear – K-REIT, CapitaRetail China Trust and
Far East Hospitality Trust.