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Banking – Singapore

Goodbye 2018, Welcome 2019


Banks outperformed by 4.9% in 1H18 but underperformed by 1.9% in 2H18 so far. The euphoria over interest rate hikes and NIM expansion in 1H18 gave way to concerns over escalation in trade conflict in 2H18. While banks are typical cyclical plays, their emergence as yield plays would provide valuation support and limit potential downside in 2019. Maintain OVERWEIGHT. BUY DBS and OCBC. We prefer OCBC due to its potential to play catch-up in NIM expansion and dividend payout


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ESR-REIT: New kid on the block


After completing a merger with Viva Industrial Trust (VIT)on 15 Oct, ESR-REIT is the fourth largest industrial REITlisted in Singapore, and the largest with an entirelySingapore-focused portfolio. According to our forecasts,ESR-REIT is trading at 0.9x FY19F P/B and offering a 7.8%FY19F dividend yield. In comparison, its large cap peers aretrading at an average P/B of 1.19x and an average dividendyield of 6.5%. We see tangible merger synergies that areyet to be fully appreciated by the market. Furthermore, webelieve it is an opportune time to gain exposure to the SGindustrial space through the REIT. While we are wary of theback-end loaded supply injection expected in 4Q18, webelieve the relatively slower pace of supply increase from2019 to 2022 will lead to a better demand-supply situationas well as a further improvement in rents. We derive a fairvalue estimate of S$0.59 for ESR-REIT using a dividenddiscount model (cost of equity: 7.5%, terminal growth rate:0.5%). Initiate coverage on ESR-REIT with a BUY.


Singapore Strategy 2019

Buy Selectively & Stay Defensive!


Slowdown in global economic growth and an uncertain trade outlook amidst tensions between China and the US will translate into a volatile 2019 for the STI. While the 12.7x forward P/E and 4.2% dividend yield make the STI’s valuations look compelling, we recommend investors stay selective and focus on buying stocks that offer stable earnings, strong balance sheets, and sustainable dividends. The consumer and industrials sectors are preferred defensive sectors that outperformed after peak GDP growth in previous economic cycles. Our end-2019 STI target is 3,300, implying an 11% TSR.


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Roxy-Pacific Holdings

The “Grinch” who stole Roxy’s Xmas


Upgrade to HOLD; lower TP to S$0.39. We upgrade our rating on Roxy to HOLD from FULLY VALUED previously and nudge down our TP to S$0.39 from S$0.40, based on a 55% discount to RNAV. It is currently trading at below -1.5SD of its historical average. As such, we believe the potential headwinds from new property measures have been substantially priced in.


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  • Lionel Lim