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UOB KAYHIAN |
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ST Engineering (STE SP) Remains a Long-Term Defensive Pick; Keep BUY
Maintain BUY and SGD4.90 TP, 46% upside with c.4% yield. Business and geographic diversity should ensure STE delivers revenue growth during 2019-2022 despite near-term economic uncertainties. Its recordhigh orderbook, earnings contribution from recently completed acquisitions and investments to expand its capabilities in the Aerospace and Electronics segments should deliver long-term earnings growth. While weak earnings for 2020 is likely (from COVID-19), market seems to be pricing in more than our worst case scenario. The stock has outperformed STI by 3.6% YTD.
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Yangzijiang Shipbuilding (Holdings) (YZJSGD SP) Receives The Second-largest Order In Its Operating History
YZJ received a US$1.15b order for 10 dual-fuel 14,000TEU containerships, of which two are firm and eight are options. Based on its historical track record, 90% of its options are exercised and we note that its client may be using this order to strategically re-enter the container market. We maintain BUY with a slightly lower target price of S$1.25 and note that the company’s current P/B is only 5% away from its -2SD level of 0.43x.
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| UOB KAYHIAN | DBS VICKERS |
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Banking – Singapore Extreme Circumstances Call For Extreme Measures
The Fed cut the Fed funds rate by an unprecedented 100bp and re-introduced QE during its second unscheduled FOMC meeting last Sunday, an aggressive preemptive strike to avert a credit crunch. The worst-case scenario for interest rates has already materialised. Maintain OVERWEIGHT. Our top pick is OCBC as its 2020F P/B of 0.80x is below the trough P/Bs in five out of the previous six crises. BUY DBS for 2020 dividend yield of 7.1%, which is 2SD above its long-term mean.
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Singapore Banks Pressured by Fed’s rate cut
• Fed announced 100bps rate cut; Net Interest Margin (NIM) to see more downside; further trim OCBC and UOB’s NIM forecasts by another 5-8bps • Raised credit costs further by 4-9bps through FY21F as increased travel restrictions will likely push recovery of global travel and consumption further out • Dividends may be reduced on lower earnings • Maintain HOLD on OCBC and UOB with reduced TP pegged to c.0.8x FY20F P/BV (-2SD below 10 year average)
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