|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UOB Kay Hian this morning released its 2010 Strategy report, predicting that 1H10 will continue to remain well-supported and the Singapore market's benchmark index will hit 3,270 by year-end.
Yesterday, the index closed at 2,913.
The first half will be buoyed by earnings upgrades by the market, the opening of the integrated resorts as well as firm GDP headlines expected for 1Q10 and 2Q10, said the research house.
In the first half, there is likely to be consensus earnings upgrades.
Consensus estimates have been trending upwards since May 09.
For 2010, UOB Kay Hian forecast the market's core EPS to grow by 17.7% yoy.
Driving the earnings growth would be the banks and property sector, where the research house forecast2010 EPS growth of 16.0% yoy and 37.7% yoy respectively.
It warned: “The offshore and marine sector, where we are MARKET WEIGHT, could disappoint themarket.”
Instead, it favours banks and property stocks in 1H10 but would lower the beta in 2H10. Banks and property stocks are favoured for their strong earnings outlook and attractive valuations.
UOB Kay Hian figured that prospects for 2H10 may not be as rosy on expectations of a rise in interestrates, selective cutbacks in government stimulus packages and an uncertain external environment.
Currently, the market does not look overvalued to UOB Kay Hian.
The market's 2010F PE of 15.3x looks undemanding against an EPS growth of 17.7% yoy. This compares well against its long-term mean of 17.6x. On a P/B basis, the market's P/B of 1.56x is also inexpensive and at a 11% discount to its long-term P/B of 1.75x.
Using a bottom-up approach of the target prices of the stocks under its coverage, UOB Kay HIan has a 12-month target of 3,270 for the FSSTI.
This would imply a 2010F target PE of 17.6x, which is in line with its long-term PE of 17.6x.
UOB Kay Hian’s top buys include City Developments, Ho Bee, OCBC, DBS, CDREIT, Ezra Holdings, SIA Engineering and SPH.
Top SELL: Singapore Airlines
| STOCKS |
INVESTMENT HIGHLIGHTS |
CDL Hospitality Trusts |
Positioning for 2010 when tourist arrivals will benefit from the opening of the two IRs and further economic recovery. Hotel assets are in prime locations. |
| City Developments | Best proxy for gaining exposure to the Singapore structural change story as it derives nearly 90% of its value from Singapore. |
| DBS | High-beta large-cap play on eventual economic recovery. DBS has gained market share in Singapore as it is focusing on organic growth in Singapore and Hong Kong. |
| Ezra | Next leg of growth from subsea services segment and fabrication yard in Vietnam to double FY09 profit by FY12F |
Ho Bee |
Among the developers under our coverage, Ho Bee is a key beneficiary of the rerating of Sentosa’s property prices and demand for high-end residential property. |
| OCBC | NPL ratio has peaked with reduction in inflow of new NPLs and we expect to see the resumption of loan growth in 2010 with a strong pipeline of loans to businesses and consumers, as well as lower credit cost. |
| Singapore Press Holdings | Ad spend recovery is picking up momentum. The opening of the IRs to provide further drivers to advertising recovery. Compelling 6-7% dividend yield. |
| SIA Engineering | Geared towards a recovery in flight arrivals. As load factor increases, line maintenance and engine maintenance work will rise. Strong cashflow to underpin dividends. |
Singapore Airlines |
Passenger yield continue to fall amid an economic recovery, underscoring our view that SIA faces a structural downturn. Valuations are also challenging. |
Source: UOB Kay Hian, Jan 8
Our comment: The stocks above are blue chips no doubt, but don't their current PE ratios look pricey?
