Professional Documents
Culture Documents
Singapore Strategy
Refer to important disclosures at the end of this report
Banks save the day. Earnings for the Banks were raised by 6.7%
and 7.4% respectively for FY14F and FY15F, mainly due to maiden
contributions from Wing Hang Bank boosting OCBCs growth. This
cushioned earnings cuts from the volatile sectors of oil and gas,
transport and consumer services, which were affected by a weak
global recovery. Ex-Banks, earnings would have been cut by 3.3%
for FY14F and 1.5% for FY15F. As a result, earnings growth for STI
companies still grow at a healthy rate of 7.6% and 8.7%
respectively for FY14F and FY15F.
Sum of moving parts. Last months 4.5% rise in the STI was
narrow, driven by banks and Telcos. With the earnings revision
trend stabilising, the STI should head for 3400 by year-end, based
on 13.76x (average) FY15 PE. For the STI to move past its average
PE into 2015, re-rating will need to come with a stronger global
recovery to offset rate hike expectations and bolster confidence
that the projected earnings growth of 8.7% can be achieved. With
several key moving economic variables the strengthening US$,
possible interest rate hikes, sliding oil prices and a nascent global
recovery, these factors could trigger volatility in the stock market.
Oils slippery ride. Sentiment in the oil and gas sector will remain
fragile till we see stability in oil prices. Hopes are for oil prices to
rebound after the 27Nov OPEC meeting, which could lead to a
rebound in oil & gas stocks. Leading the pack could be stocks
which are deeply oversold and trading below our bear case
scenario values. Our preferred pick is Yangzijiang, which has little
exposure to rigbuilding, is in a net cash position, and generates a
dividend yield of 4.4%. Transport companies are key beneficiaries
of the lower fuel cost. BUY SMRT.
Inflexion point for China property plays. The surprise rate cut
by PBOC will enhance the affordability of China properties, and this
will be a key inflexion point for moving sales and prices to support
sales recovery. Buy Capitaland, which has 40% of its assets in
China. Its corporate restructuring (privatisation of CapitaMalls Asia),
resulting in improved ROEs, will be catalysts to drive a further rerating in share price.
Stable yield plays Among domestic proxies with stable growth
and yield, we like OCBC, Sheng Siong, Singapore Post and
Singapore Telecoms. We like China Merchants Pacific which offers
a high 7% yield and 12% growth, driven by acquisition.
www.dbsvickers.com
Ed: TH / sa: YM
25 Nov 2014
STI :
3,345.32
Analysts
Janice CHUA +65 6682 3692
janicechuast@dbs.com
LING Lee Keng +65 6682 3703
leekeng@dbs.com
Key Indices
STI Index
FS Small Cap Index
USD/SGD Curncy
Daily Volume (m)
Daily Turnover (S$m)
Daily Turnover (US$m)
Current
3,345.32
518.58
1.30
1,346
1,093
841
% Chng 1 day
0.9%
0.8%
0.0%
EPS Gth
1.3
8.6
13.1
Div Yield
3.5
3.6
3.6
PER
17.1
15.8
14.0
EV/EBITDA
12.3
12.1
10.7
Buy Call
Capitaland
China Merchant Pacific
OCBC
Sheng Siong Group
Singapore Post
SingTel
SMRT
Yangzijiang
Fully Valued Call
Petra Food
SATS
SIA Engineering
Vard
Rcmd
3.270
0.990
10.470
0.655
3.84
1.42
12.70
0.78
Buy
Buy
Buy
Buy
1.925
2.12
Buy
3.920
4.28
Buy
1.645
1.86
Buy
1.200
1.62
Buy
3.670
3.02
FV
2.990
2.70
FV
4.180
3.80
FV
0.655
0.63
FV
Market Focus
Singapore Strategy
3Q13
Banking
2,351
2,698
3,108
Commodities Related
695
367
706
2%
92%
Consumer Goods
222
279
187
-16%
-33%
-16%
q-o-q
chng
32%
15%
Consumer Services
581
342
287
-51%
Financials
201
159
189
-6%
19%
34
42
34
-2%
-21%
-2%
Health Care
Industrials
618
722
706
14%
969
885
885
-9%
0%
Real Estate
611
1,203
662
-9%
-45%
REITS
714
796
809
8%
2%
73
76
75
3%
-2%
Telecommunications
1,005
973
1,181
17%
21%
Grand Total
8,074
8,543
8,828
9%
3%
Technology
Page 2
Market Focus
Singapore Strategy
Earnings revision after 3Q14
FY14
6.7%
FY15
7.4%
Commodities Related
-5.6%
-6.8%
Consumer Goods
-3.8%
-5.1%
Consumer Services
-9.4%
-2.0%
Financials
2.2%
-4.6%
Health Care
0.0%
0.0%
Industrials
-4.9%
-3.3%
-5.2%
-6.6%
Real Estate
-0.5%
8.4%
REITS
-0.2%
0.4%
Technology
-3.7%
-3.4%
0.0%
0.0%
Gra nd T ota l
-0. 7%
0. 9%
Ex Prope rty
-0. 7%
0. 0%
Telecommunications
2.0%
1.0%
0.9%
0.2%
0.0%
0.0%
-0.5%
-1.0%
-2.0%
-3.0%
-1.3%
-1.5%
-2.4%
-4.0%
-1.4%
-2.7%
-1.7%
-2.5%
-3.1%
-3.6%
-1.4%
-0.7%
-1.5%
-2.1%
-2.9%
-3.0%
-4.3%
-5.0%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Yr 1 Forecast
Yr 2 Forecast
CAGR
Div Yld
PER (x)
Sector
2014F
2015F
13-15
2014F
2015F
Banking
14.7
11.7
13.2
12.2
11.0
2013A
2.9
Consumer Goods
-2.2
9.5
3.5
16.9
15.4
2.0
Consumer Services
2.3
25.0
13.1
21.8
17.5
3.5
Financials
-5.3
4.4
-0.6
25.6
24.5
5.5
Health Care
17.7
12.5
15.1
39.5
35.1
0.7
Industrials
14.1
19.7
16.9
16.2
13.6
3.3
10.2
16.4
13.3
12.3
9.7
3.4
Real Estate
6.4
19.6
12.8
16.6
13.9
2.5
REITS
11.3
3.4
9.0
16.2
15.7
5.8
Technology
9.6
11.2
10.4
18.7
16.8
7.1
Telecommunications
6.3
6.5
6.4
16.6
15.6
4.4
DBS Co verage
8.6
13.1
10.8
15.8
14.0
3.5
7.6
8.7
8.1
14.5
13.3
6.8
8.2
7.5
14.6
13.5
Page 3
Market Focus
Singapore Strategy
For the STI to move past its average PE into 2015, re-rating
will need to come with a stronger global recovery to offset
rate hike expectations and bolster confidence that the
projected earnings growth of 8.7% can be achieved. With
several key moving economic variables the strengthening
US$, timing and magnitude of interest rate hikes, sliding oil
prices and a nascent global recovery, these factors could
trigger volatility in the stock market.
-0.25 sd
Avg 13.76x
+0.25 sd
13.02x PE
13.3 PE
PE
14.1 PE
3,216
FY14
FY15
2,969
3,033
3,138
*(+48)
(+35)
(+60)
(+48)
3,226
3,296
3,409
3,494
(+58)
(+45)
(+60)
(+49)
+2sd@ 16.71x
4,000
+1sd@ 15.23x
3,500
Avg@ 13.76x
-1sd@ 12.29x
3,000
2,500
2,000
1,500
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
1,000
Page 4
After rallying for the past few months, the Dollar could pause
for a breather soon. Still, there can be negative implications
for emerging markets and USD-denominated commodities as
well as positive for companies with USD revenue streams if
the currency continues to strengthen next year.
Market Focus
Singapore Strategy
US Dollar on a strengthening path
The USD has strengthened against major currencies in recent
months, as a result of the different monetary policy stances.
The USD Index that measures the strength of the USD against
USD Dollar Index (ytd)
major currencies has risen 10% since July. The USD has
strengthened by c.10% against the Euro and close to 15%
against the Yen over the same period. Against the SGD, it has
gained about 5%.
3.
Page 5
Market Focus
Singapore Strategy
Rec
Share
Price
(S$)
Target
Price
(S$)
Exposure
Positive
NOL
Hold
0.755
0.88
ST Engineering
Hold
3.34
3.80
26% of sales are to US customers and 29% of assets are in the US.
US$.
About 20-25% of sales are denominated in US
dollars. Each 1% gain in the US dollar vs Singapore
dollar could boost STE's bottomline by about 0.3%.
Venture
Buy
7.70
8.40
Hi-P
0.675
Buy
0.69
0.78
Olam
Buy
2.24
3.05
Negative
Super Group
Hold
1.155
1.15
Key raw materials are predominantly in US$ while sales are in various
Petra Food
FV
3.67
3.02
Cocoa beans are denominated in US$ and sales in Indonesia are made in
Yongnam
Hold
0.20
0.19
lifted, this could add to the supply problem. Should oil price
stay at its current low levels for a sustained period, this will
lead to more E&P projects being deferred. Petrobras added
fuel to the fire when investigations broke out last week,
implicating heavy construction companies OAS, Odebrecht
and Queiroz Galvao, which have contracts to build and supply
the US$18.5bn Abreu and Lima refinery, in the alleged
laundering and corruption case dubbed operation car wash.
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Page 6
Market Focus
Singapore Strategy
peers with 5- to 10-ppt higher margins (through better
newbuild prices, payment terms and efficiency as well as
active cash management) and deliver relatively stable profits
with upside potential from the recognition of the relocation
fees from government (Rmb720m and profits from disposal of
previously cancelled vessels c.Rmb600m). Including Held-toMaturity (HTM) investments, Yangzjiang is in net cash of 33
Scts per share or 26% of its NTA.
Beneficiaries of lower oil prices
Transport companies are key beneficiaries of the lower fuel
cost. However, SIA and NOL have yet to see a reversal of
fortunes for rates or yield recovery. Eurozone remains weak
while airlines continue to see intense competition from
budget and main carriers. Preferred plays are land transport
operators Comfort Delgro and SMRT. However, Comfort
Delgros valuation is not cheap, and the stock is near our
target price of S$2.71. We recently upgraded SMRT to buy
post-3Q results.
SMRT (BUY, TP $1.86): We see more efficient operations and
lower oil prices driving SMRTs earnings growth. In particular,
its bus segments losses are narrowing with lower opex, led by
staff, diesel, repair and maintenance, and depreciation
expenses. We expect the recent oil price correction to benefit
diesel and electricity costs opex going forward. Based on our
lower oil price assumptions (US$90-95/bbl), we are expecting
an earnings CAGR of 27% from FY14-FY17F on the back of
4% revenue growth driven by higher ridership. Current
valuation of 22x FY16F PE is attractive vis--vis growth
prospects, implying a PEG of 0.8x. Further upside to the stock
could come from better-than-expected earnings should oil
prices remain around c.US$80/bbl levels over the longer term.
Property companies to benefit from rate cuts in China
The surprise rate cut by PBOC will raise the affordability level
of property purchasers in China, and will be a key inflexion
point for moving sales and prices to support sales recovery.
% Exposure by asset value
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
CapitaLand
Others
Keppel Land
China Assets
FCL
Singapore Assets
Page 7
Market Focus
Singapore Strategy
locations where it is not represented. The stock is trading at
below average valuations of 21x FY15F PE in comparison to its
historical average PE of 23x and regional peers average of
25x.
Stock Picks
PE (x )
14F
15F
P/B (x)
14F
15F
Div Y ld
14F
15F
EPS / DPU
Grow t h
14F
15F
Buy
18.2x
17.8x
0.8x
0.8x
2.2%
2.3%
45%
3%
44%
Buy
11.5x
10.3x
1.1x
0.9x
7.2%
7.2%
(3%)
12%
12.70
21%
Buy
11.2x
10.4x
1.3x
1.2x
3.8%
3.9%
23%
8%
0.78
19%
Buy
20.1x
21.0x
4.0x
4.1x
4.5%
4.3%
16%
(4%)
1.925
2.12
10%
Buy
25.4x
22.2x
6.0x
5.6x
3.3%
3.4%
1%
14%
48,080
3.920
4.28
9%
Buy
16.1x
15.1x
2.5x
2.4x
4.7%
5.0%
7%
7%
1,926
1.645
1.86
13%
Buy
26.8x
22.5x
2.9x
2.7x
2.0%
2.2%
51%
19%
3,538
1.200
1.62
35%
Buy
6.1x
6.7x
1.1x
0.9x
4.4%
4.4%
15%
(10%)
Petra Food
1,725
3.670
3.02
-18%
FV
34.4x
30.1x
5.8x
5.3x
1.7%
2.1%
(16%)
14%
SATS*
2,569
2.990
2.70
-10%
FV
18.7x
17.8x
2.3x
2.2x
4.3%
4.3%
(3%)
5%
SIA Engineering*
3,605
4.180
3.80
-9%
FV
24.4x
20.1x
3.6x
3.4x
3.8%
4.3%
(28%)
21%
595
0.655
0.63
-4%
FV
16.4x
8.7x
1.0x
1.0x
1.8%
3.4%
(32%)
87%
Mkt
Cap
(US$m)
Price
(S$)
21- Nov
T arget
Pric e
(S$)
10,713
3.270
3.84
18%
791
0.990
1.42
32,107
10.470
758
0.655
Singapore Post*
3,146
SingTel*
SMRT *
Yangzijiang
Company
Buy Call
Capitaland
China Merchants
OCBC
Sheng Siong Group
%
Upside Rc md
V ard
Page 8
Market Focus
Singapore Strategy
Highlight
Banks
Overweight
Consumer
Overweight
Neutral
growth
Robust asset quality indicators
Well-controlled costs
Plantation
Underweight
Page 9
Market Focus
Singapore Strategy
Highlight
Property
Neutral
REITs
Neutral
Telecoms
Overweight
supporting mobile
Increased price competition in
fixed broadband
Regional markets increasing
contribution to bottomline growth
Transport
Neutral
Page 10
Market Focus
Singapore Strategy
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.
ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies
and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation
was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is
published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities
recommended in this report (interest includes direct or indirect ownership of securities).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (DBSVS), their subsidiaries and/or other affiliates do not have a
1.
proprietary position in the securities recommended in this report as of 30 Sep 2014 except OCBC, Singapore Post, SingTel, SMRT,
Thai Beverage Public Company, Yangzijiang Shipbuilding, SATS, Neptune Orient Lines, ST Engineering, Venture Corporation ,
Hutchison Port Holdings Trust, UOB, Ezion Holdings, Indofood Agri Resources, Wilmar International, CapitaLand, Mapletree Greater
China Commercial Trust, Cache Logistics Trust, StarHub, M1, Yangzijiang Shipbuilding, ComfortDelgro, Sembcorp Marine, SPH,
Keppel Land, Cosco Corporation, Hyflux, Genting Singapore, Jardine Group.
2.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common
equity securities of Mapletree Greater China Commercial Trust as of 30 Sep 2014.
Page 11
Market Focus
Singapore Strategy
3.
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This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
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DBS Bank Ltd.
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E
Page 12