Market: STI maintained its momentum in November, climbing 1.8%. Our target is unchanged, at 3,450. Macro indicators for 4Q17 remain on an uptrend globally. Industrial production, consumer confidence and PMIs are at multi-year highs, if not decade highs. There are some pockets of weakness, in particular, China losing some momentum. Another observation is the slower exports out of Korea and Taiwan. Nevertheless, we expect global growth to perform well in 4Q17. This makes us keep our overweight stance on cyclical sectors such as property, banks and electronics. Headlining the news cycle has been US tax cuts and Chinese bonds yields. Tax cuts appear to be a near certainty. This could give the market another leg up, as consensus earnings in the US do not appear to have incorporated them. The spike in China’s 10-year sovereign-bond yields together with the further clamp down of wealth-management products just weeks after the Party Congress, suggests the authorities are still looking to curb leverage in the financial system. Any deleveraging will understandably be weak for the economy. Interestingly, SHIBOR has been flat, implying wholesale funding remains open to banks.
Recommendation: Our overweights are unchanged, property, banks and electronics. Property is taking a breather especially after MAS warning of an overheated market. We still believe there is a trade on property stocks as supply remains tight and we expect encouraging take-up rates in new launches. Our target price for DBS has been upgraded after pricing in higher ROE. On electronics, the vibrant global environment will, at the minimum, propel another quarter of strong earning. Another sector enjoying spiralling earnings are SGX listed coal producers. Production is surging whilst prices have been stable as China curtail production. However, regulatory noises out of Indonesia has created unnecessary volatility in share prices. Stock that still offer attractive yield are AsianPay TV and Ascendas REIT. Our laggard overweight is consumer, as we are expecting the strong external pick-up to percolate to domestic consumption, through better wage growth and employment trends.
Sector: Data from the banking sector has been improving. Loan growth is re-accelerating and SIBOR surging to a 20-month high. Healthcare and construction demand have also started to rebound. Still disappointing is retail spending. Property demand is also softer in the primary market – or maybe just fewer launches – though secondary sales are holding up well.
PHILLIP SINGAPORE SECTOR UNIVERSE
Best performing sectors in Nov17 were REIT-Office, Finance and Transportation. The gains in REIT-Office were borad based, led by CapitaLand Commercial Trust (+8.9%) and Keppel REIT (+7.2%). Finance gains came from all 3 banks – DBS (+7.2%), UOB (+6.4%) and OCBC (+4.6%). Transportation due to SATS (+12.6%) and SIA (+4.6%). Under our coverage the biggest gainers were SATS (+12.6%), Micro-Mechanics (+23.8%), CapitaLand Commercial Trust (+8.9%) and DBS (+7.2%).
Worst performing sectors in Nov17 were Commodities, Shipping and Conglomerates/Utilities. Commodities suffered selling across all stocks, worst hit were Golden Energy (-14.9%), IndofoodAgri (-13.3%) and Geo Energy (-13.3%). Shipping fell due to SembCorp Marine (-4.1%). Conglomerates/Utilities weakness came from Yoma (-14.5%) and SembCorp Industries (-7.6%). Major decliners under our coverage include Golden Energy (-14.9%), Geo Energy (-13.3%) and Banyan Tree (-8.1%).
SUMMARY OF SECTOR AND COMPANY VIEWS
RESULTS COMMENTARY
COMMODITIES
CNMC Goldmine (Target px: S$0.29 / NEUTRAL)
Golden Energy and Resources (Target px: S$0.59 / BUY)
Geo Energy Resources (Target px: S$0.44/ BUY)
CONSUMER
Fraser and Neave (Target px: S$2.83 / Upgraded to ACCUMULATE)
Thai Beverage (Target px: S$1.18 / Upgrade to BUY)
Old Chang Kee (Target px: S$0.98 / BUY)
FINANCE
DBS Group Holdings Ltd (Target px: S$29.30 / BUY)
United Overseas Bank Ltd (Target px: S$25.22 / Upgrade to ACCUMULATE)
HEALTHCARE
Health Management International (Target px: S$0.83 / BUY)
Singapore O&G Ltd (Target px: S$0.62 / Downgrade to ACCUMULATE)
INDUSTRIALS
800 Super Holdings (Target px: S$1.43 / BUY)
Cogent Holdings (Target px: S$1.12 / REJECT THE OFFER)
Nam Lee Pressed Metal (Target px: S$0.56 / BUY)
PROPERTY
Banyan Tree Holding (Target px: S$0.71 / Downgrade to ACCUMULATE)
CapitaLand (Target px: S$4.19 / ACCUMULATE)
Chip Eng Seng (Target px: S$1.21 / BUY)
City Developments (Target px: S$12.10 / ACCUMULATE)
Ho Bee Land (Target px: S$2.98 / ACCUMULATE)
Centurion Corporation Limited (Target px: S$0.59 / ACCUMULATE)
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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.
