Singapore Strategy 2H12

Transcription

1 Singapore Strategy 2H12 Running In Circles Andrew Chow, CFA (65)

2 Key Highlights No resolution in sight for external uncertainties. Global GDP drifting towards slower growth and Singapore will not be spared. UOB-ETR recently cut 2013 GDP growth to 3.0% (from 4.3%). Range trading in 2H12. Trading range of 2,770-3,180 for FSSTI, based on discounts to long-term P/B mean of 1.72x. Worst case is 2,000 based on -2SD to long-term P/B mean but this is not our base case. Year-end 2012 FSSTI target of 2,830 based on 20% discount to LT mean P/B. Stock picking in 2H12 to outperform FSSTI. Be nimble and ready to accumulate on pull-backs. Key themes a) Premium for visible earnings/strong cash flow, b) yield compression, c) extreme valuations, and d) recovering CPO prices. BUY: DBS, Keppel Corp, CapitaLand, Ho Bee, Suntec REIT, CDL H-Trust, Ezion, Golden Agri and Bumitama. SELL: Tiger, Cosco, SMRT, SIA. 1

3 Life In The Slow Lane Global GDP drifting to a slower growth period. Singapore will not be spared! Singapore s external trade is about 3x of GDP. UOB ETR forecasts 2012 and 2013 GDP growth at 2.5% and 3.0% respectively. This compares to the long-term average of 6%. This is likely to translate to lower corporate earnings growth. UOBKH universe s corporate earnings growth forecast is 3.7% in 2012 and 11.5% in (%) Singapore GDP tracks global growth SG GDP Grow th World GDP Growth F JPM EM bond index vs FSSTI 5,000 FSSTI (LHS) 4,000 3,000 2,000 1,000 JP Morgan EMBI ,200 1,

4 Themes For 2H12 Themes that we believe could outperform are: a) Premium for good earnings visibility ST Engineering, SPH, Raffles Medical. b) Yield compression SPH, Suntec REIT, M1, Cache Logistics, CMT. c) Extreme valuations Olam, OUE, ComforDelGro. d) Rising CPO prices First Resources, GGR, Bumitama also offers strong volume growth. 3

5 Sector Weightings/Picks In 2012 OVERWEIGHT Plantations (rising CPO prices), Banks and Property (mixed prospects priced in), and oil services. UNDERWEIGHT Telcos SELL SingTel and switch to M1 on higher yield and laggard performance. MARKET WEIGHT Aviation and Land Transport (on regulatory risk). Top picks: DBS, M1, CapitaLand, Suntec, First Resources, ST Eng, CMT, Ezion, Keppel Corp, Raffles Medical. Sector Weighting Top Picks Aviation Underweight SELL SIA, Tiger Finance Overweight DBS Land Transport Market Weight ComfortDelgro Oil Services Market Weight Ezion, Ezra Plantation Overweight Bumitama, GGR Property Overweight CapitaLand, Ho Bee REITs Overweight CMT, Suntec REIT Shipping Underweight - Shipyard Overweight Keppel Corp Supply Chain Overweight Olam Telecommunications Market Weight M1 (%) (10) (20) Aviation Finance Plantation Oil Services Media Land Transport Healthcare YTD Performance FSSTI: +13.3% Property REITs Shipping Shipyard Supply Chain Technology Telecoms Others 4

6 EPS And GDP Weaker Than Asean Peers UOB-ETR forecasts 2012 GDP growth at 2.5% but recently cut 2013 GDP growth to 3.0% (from 4.3%). On a regional basis, Singapore s 2012/13 GDP growth is lower than ASEAN peers %. Singapore s 2013 consensus EPS growth of 7% is lower than ASEAN peers (ex Malaysia) 13-19%. EPS Growth (%) GDP Growth (%) Curr. Fwd. 2012F 2013F Japan Hong Kong (17.7) China Taiwan S Korea Singapore (48.3) Thailand Malaysia Indonesia Philippines (31.8) PSEI SET FSSTI NASDAQ SENSEX KLCI JCI DJIA HangSeng NIKKEI 225 FTSE 100 TAIPEX KOSPI SSE Regional Market YTD Performance (5.0) (%) 5

7 Weak Corporate Earnings Growth We estimate market EPS growth of 3.7% yoy in 2012 and 11.5% yoy in Earnings growth from banks and plantations; headwinds from shipyards. Potential for further EPS cuts if consensus GDP is revised downwards. Cautious ahead of 2Q12 reporting season as 1Q12 was a disappointment. Potential more consensus earnings cuts. UOB Kay Hian - Sector Core Earnings Drivers Aviation (47.9) Finance (0.4) Healthcare Land Transport (8.9) Media (20.0) (4.3) Oil Services (25.6) Plantation Property (20.5) (8.2) 31.8 (6.3) REITs 11.8 (1.6) Shipping n.a. n.a. n.a Shipyard 2.4 (9.3) (1.5) 6.3 Technology (16.9) Supply Chain (27.2) Telecoms 3.6 (2.3) Others OVERALL (MARKET WEIGHTED) (1.1) % 80% 60% 40% 20% 0% 40% Disappointing 1Q12 Results 21% 29% 27% 24% 21% 25% 31% 28% 34% 31% 38% 44% 58% 58% 60% 45% 48% 62% 52% 63% 44% 40% 27% 15% 18% 19% 30% 21% 10% 14% 19% 6% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 Above In line Below 6

8 Valuations Inexpensive But Limited Visibility Market is trading at 13.8x 2012F PE, at a 17% discount to the long-term mean of 16.5x. However, upside may be capped by limited earnings visibility and external drags. On a P/B basis, FSSTI is trading at 1.45x, or a 15% discount to its long-term P/B mean of 1.72x. (x) FSSTI PE Trading Band +2SD (26.6x) +1SD (21.6x) M ean (Excl 1999) 16..5x -1SD (11.5x) -2SD (6.4x) FSSTI PB Trading Band (x) SD (2.5x) SD (2.1x) 2.00 M ean (1.7x) SD (1.3x) SD (1.0x)

9 Valuations In Past Crises Prefer asset valuation matrix on limited earnings visibility. P/B range of x in past crises. Base case is muddling through due to kicking the can down the road. Financial crisis could see FSSTI retreating to 2,000, based on -2SD to mean P/B (0.97x). This is NOT our base case. At P/B of 0.97x, valuation would be within historical crisis range of x P/B. FSSTI Trough Valuation in Past Crises Crisis PE (x) P/B (x) AFC SARS GFC FSSTI PE (x) P/B (x) Current Mean SD SD

10 Uplift from QE3? No more shock and awe factor FSSTI rose 40% after 6 months post QE but fell 2% 6 months post QE2 Market is hoping for QE3 by the next FOMC meeting in Sep but boost is likely to be short-lived. Commodities a stronger beneficiary. (%) FSSTI & Sector Perf after QE1 announced (%) FSSTI & Sector Perf after QE2 announced 50 0 (50) FSSTI Aviatio n Bank Land Health Media P ro p O&M Supply Trans po rt Chain Telco 10 0 (10) (20) FSSTI Aviatio n Bank Land Health Media P ro p O&M Supply Trans po rt Chain Telco 3-mo nth 6-mo nth 3-mo nth 6-mo nth 9

11 Top Stock Recommendations (Valuation And Financials) BUY: DBS, CapitaLand, Ho Bee, Suntec REIT, Ezion, Keppel Corp, CDL H-Turst, Golden Agri, Bumitama. SELL: SIA, SMRT, Tiger, Cosco. Price Target Last Net Profit EPS PE Yield ROE Market Price/ Company Ticker Rec 16 Jul 12 Price Year F 2013F F 2013F F 2013F 2013F 2013F Cap. NTA ps (S$) (S$) End (S$m) (S$m) (S$m) (cents) (cents) (cents) (x) (x) (x) (%) (%) (S$m) (x) Top Buys Bumitama BAL SP BUY / , CapitaLand CAPL SP BUY /11 1, , CDL Htrust CDREIT SPBUY / , DBS DBS SP BUY /11 3, , , , Ezion EZI SP BUY / GoldenAgri GGR SP BUY /11 1, , Ho Bee HOBEE SPBUY / Keppel Corp KEP SP BUY /11 1, , , , Suntec REIT SUN SP BUY / , Top Sells COSCO Corp COS SP SELL / , SIA SIA SP SELL / , SMRT MRT SP SELL / , TigerAir TGR SP SELL /12 (104.3) (14.2) n.a

12 THANK YOU 11

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