Market: STI was up 0.5% in June. We remain Neutral. Our STI target is unchanged at 3270 (15x PE FY17e). June was an eventful month in terms of macro events. Both US Treasury yields and US dollar traded at year lows, while oil prices suffered a breakdown. The market is navigating under four macro considerations: 1) weak inflation data in the US has dragged down US Treasury yields to year lows, despite the Fed raising rates and threatening to unwind its balance sheet. The Fed views the low inflation rate as transient and the tight labour market as a more reliable predictor of higher inflation in the future; 2) Macron’s overwhelming majority in the French Parliament perhaps wiped out political risks in Europe and even brought it a step closer to the fiscal union dream; 3) softer economic momentum in the US and nervousness over politics are pressuring the US dollar lower, and 4) a breakdown in oil prices is raising the spectre of another spike in credit risks and a further collapse of capital spending. It is under such a scenario which we build our strategy. Lower inflation and interest rates made us overweight yield stocks and underweight banks. The decline in US dollar will be beneficial for selected emerging markets, namely China and Indonesia. Softer oil prices may trigger further provisioning by the banks, albeit modestly as most of the lumpy issues were written off last year.
Recommendation: Our key BUYs remain stocks with attractive sustainable yield such as Asian PayTV and Mapletree Industrial Trust. We have removed Croesus Retail following its takeover-offer. Keppel DC REIT has also been taken out, as its share price has far exceeded our target. We included Mapletree Industrial for the stability of its yields which is sourced from almost 90 properties. We initiated a Trading BUY on Wheelock Properties. The company boasts a net cash pile of S$800+m, pays 3% yield and is only valued at 0.7x book. Other key property picks are CapitaLand, Chip Eng Seng, and Sinarmas Land. Worth highlighting is our bearish technical read on the US dollar. We believe there is a 30% downside to the currency. Fundamentally, we think the US dollar faces the twin headwinds of slower growth and political uncertainties.
Sector/Corporate: The main corporate news was the takeover of Croesus Retail. The offer price was aggressive at 27% above NAV. REITs were the best performing sector this month, with some trading at all-time highs. This can ignite a self-reinforcing loop where the high share prices allow REITs to make yield accretive acquisitions, which in turn push up share prices further. We remain upbeat on property sector. Demand is rising (+50% YoY), against a weak supply stock, which is at 10-year lows. Separately, we are less optimistic on healthcare. The latest patient admission data in Singapore is sluggish. Construction is another sector in the doldrums, with demand down 51% this year.
PHILLIP SINGAPORE SECTOR UNIVERSE
Best performing sectors in June 17 were: REITs Others, REITs Hospitality and Telecommunications. The gains in REIT Others were from Croesus Retail (+16%) and Hutchinson Port (+6%). REIT Hospitality gains were broad-based but the major movers were Ascendas Hospitality (+5.8%), Far East Hospitality (5.5%) and OUE Hospitality (+4.9%). The rise in telecommunication sector was predominantly due to the 3.5% increase in SingTel. The Top 3 gainers in our coverage this month were iFast (+22.8%), Croesus (+16.3%) and HMI (+11%).
Worst performing sectors in June 17 were: Shipping, Commodities and Industrial. In Shipping, Ezion (-9.6%) and PACC Offshore (-6.5%) suffered the largest declines. For Commodities, Golden Energy (-5.9%) and Wilmar (-5.4%) were the largest losers. Industrial registered large declines from AEM (-20.4%) and Venture (-6.8%). The Top 3 losers in our coverage this month were Ezion, Singapore O&G (-5.1%) and Cogent (-4.5%).
SUMMARY OF SECTOR AND COMPANY VIEWS
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.
