Excerpts from RHB report

Analyst: Shekhar Jaiswal

Singapore Strategy 2019
Investors Seeking Defensive Stocks

Banks and REITs are finding favour with investors. During our recent Singapore equity strategy investor meetings in Malaysia and Singapore, we found investors agreeing with our stance of building defensive positions in Singapore.

330dbsBanks are preferred for their more reasonable valuations and high dividend yields.

REITs are also a favourite as investors are expecting a more benign interest rate environment in 2019.

Investors agree that STI’s valuation looks inexpensive. While Indonesia and Philippines were the most preferred ASEAN markets, investors agreed that STI’s forward P/E of 12.3x (at -1SD), +4% index EPS growth, and expectations of gradual appreciation in the SGD against the USD made Singapore an inexpensive market to invest in.

Although preference was for large caps, investors were interested in quality SMID caps. Fu Yu Corp (sustainable high dividends) and Silverlake Axis (expectations of strong earnings recovery) were the preferred SMID cap names amongst investors.

Macro risks from trade war escalation and slowdown in China were key concerns. Downside risk to Singapore’s 2019 GDP growth and STI Index’s EPS growth from worsening trade tensions between the US and China, as well sharp slowdown in China’s economic growth were the key macroeconomic risks that investors were concerned about.

ST Engineering (STE) favoured for earnings growth; Queries on ComfortDelGro (CD) were on likelihood of an upside earnings surprise. STE found favour among investors for its +13% earnings growth. Recent recovery in its Marine orderbook was also viewed positively.

Questions on CD were on the likelihood of a positive earnings surprise given that competition from Gojek has not been as strong as previously expected, and given the possibility of strong earnings contribution from its acquisitions in 2018. We rate CD as NEUTRAL as we expect its Singapore taxi business to remain under pressure at least in 1H19.

We rate banks, REITs and consumer sectors as OW. Amidst elevated macroeconomic risks, we continue to recommend investors stay selective and focus on stocks that offer stable earnings, strong balance sheets, and sustainable dividends. Consumer and industrial are our defensive sector picks. OVERWEIGHT (OW) on banks given strong growth and high yields. We prefer REITs that are beneficiaries of improving economic activity, and/or have strong balance sheets (see our 2019 Singapore Strategy).

Full report here.

Share Prices

Counter NameLastChange
AEM Holdings1.160-0.010
Avi-Tech Electronics0.340-
Best World Int.1.360-
China Sunsine1.100-
CNMC GoldMine0.2950.010
CSE Global0.470-
Eagle HTrust USD0.655-
Food Empire0.495-0.005
Golden Energy0.168-
GSS Energy0.067-0.002
ISDN Holdings0.220-
JB Foods0.6500.005
KSH Holdings0.455-0.010
Moya Asia0.063-
Nordic Group0.265-
Oxley Holdings0.305-
REX International0.082-0.002
Sing Holdings0.385-0.005
Straco Corp.0.7600.005
Sunningdale Tech1.220-0.010
Sunpower Group0.445-0.005
The Trendlines0.078-
Tiong Seng0.210-0.005
Uni-Asia Group0.710-
Yangzijiang Shipbldg1.0100.010

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