Today’s Focus
Singapore Strategy - Buy stocks with potential earnings
upside, stay in high dividend yield stocks
Although 4Q13 reporting season saw further downward
earnings revisions, the impact is limited at 1.3% and came
primarily from Real estate and Technology sector. Stocks
under our coverage grew 13% q-o-q in 4Q13 earnings. We
now expect earnings growth of 12% and 9% for FY14F and
FY15F, respectively.
Recent economic data releases out of US have been weakerthan-
expected while that out of China is mixed. Add these to
the latest geopolitical uncertainties to hit Eastern Europe, we
advocate a selective stance while awaiting clearer indications
that the current weak US data spell is just temporary, due to
the weather. Against this backdrop, STI is likely to be capped
at a margin below its average 12-mth forward PE of 13.9x.
We expect the index to move pass 3150 only beyond
1QCY14, with a potential to reach c.3250-3300 by the end
of 2Q14. The impetus may come from a US ‘spring revival’ as
economic activities there warm up again with the end of the
cold winter.
We believe the key to re-rating Singapore equities will come
from an end to the earnings downgrade cycle. Singapore’s
GDP growth of 4% this year should underpin earnings
growth momentum. Sectors which could provide upside
earnings surprises are Banks, small cap oil and gas services,
Plantation, and REITS but downside could come from
Property, Consumer goods, Transport, Construction, Offshore
and Marine.
This quarter is a good time to position into stocks which
provided bumper final dividend yields from the latest results –
M1 and China Merchant which surprised on dividend payout.
Other high yield stocks are Comfort Delgro, ST Engineering
and Venture.
Earnings growth for Singapore equities can be fluid, with
varied earnings risks coming from a weaker than expected
US/global recovery, geopolitical uncertainties, changes in
weather conditions and rising cost pressures in Singapore. We
search our coverage universe for stocks that could
US Indices Last Close Pts Chg % Chg
Dow Jones 16,421.9 61.7 0.4
S&P 1,877.0 3.2 0.2
NASDAQ 4,352.1 (5.8) (0.1)
Regional Indices
ST Index 3,129.2 12.5 0.4
ST Small Cap 533.0 2.8 0.5
Hang Seng 22,703.0 123.2 0.5
HSCEI 9,673.0 11.0 0.1
HSCCI 4,247.3 79.3 1.9
KLCI 1,838.7 9.6 0.5
SET 1,352.2 0.6 0.0
JCI 4,687.9 28.7 0.6
PCOMP 6,516.8 60.7 0.9
KOSPI 1,975.6 4.4 0.2
TWSE 8,713.8 80.9 0.9
Nikkei 15,134.8 237.1 1.6
STI Index Performance
Singapore
Total Market cap (US$bn) 572
Total Daily Vol (m shrs) 2,272
12m ST Index High 3,454
12m ST Index Low 2,960
Source: Bloomberg Finance L.P.
Stock Picks – Large Cap
Rec’n Price (S$)
6 Mar
Target Price
(S$)
ComfortDelgro Buy 1.955 2.19
Global Logistic Properties Buy 2.810 3.31
Keppel Corp Buy 10.590 12.60
Yangzijiang Buy 1.125 1.45
Stock Picks – Small /Mid Cap
Rec’n Price (S$)
6 Mar
Target Price
($)
Ezion Holdings Buy 2.210 3.26
Goodpack Buy 1.895 2.25
China Merchants Buy 0.960 1.32
Pacific Radiance Ltd Buy 0.980 1.05
Nam Cheong Buy 0.330 0.43
Source: Bloomberg Finance L.P., DBS Bank
Singapore
Wired Daily
Page 2
outperform with potential earnings upside – SIIC, Ezion,
Bumitama, Centurion, Yangzijiang, Nam Cheong and
Pacific Radiance.
HongKong Land’s FY13 results largely in line with
expectations. Final DPS increased 9% to US$0.12, which
came as a pleasant surprise. This takes the full-year DPS to
US$0.18. (FY12: US$0.17). Hongkong Land continues to
step up its land bank expansion in Asia, while China
reported stellar project sales. Maintain BUY with US$7.48
target price.
FY13 results for Dairy Farm were slightly ahead of our
expectations. Food Business saw decline in profit despite
increase in sales. Health & Beauty, Home Furnishing and
Restaurants reported record profit, but their contribution is
less significant (33%) to the group compared to Food
Business (66%). Hold recommendation and US$9.46 target
price under review pending briefing today.
Centurion has done a vendor placement to Lian Beng
Group and other private investors. Centurion Properties
and Mr. David Loh, who collectively own c.66% of the
Group, have sold 70m shares and 10m shares respectively,
equivalent to 10.58% of total shares capital of the Group.
This deal with reduce the vendors' effective stake to
55.40%. Lian Beng purchased 38m shares at S$0.57 per
share from Centurion Properties, translating to an effective
stake of 5.026% in the Group, whilst other private
investors took up 42m shares, or c.5.6% of total shares
capital. This represents c.7% discount to last closing price.
Just as a recap, Centurion Group currently has a 45%/55%
JV for with Lian Beng for Westlite Mandai, comprising (a)
6290 dormitory beds which were completed last year, and
(b) 141 units of ramp up industrial space which has since
been sold.
We are positive on this news. We see this vendor
placement as more of a strategic move than a cashing out
by the majority shareholder. This exercise will improve the
market liquidity of Centurion, as well as ensure the
alignment of interests of the Group and Lian Beng with
regard to Westlite Mandai, which we estimate will
contribute c.15% of the Group's pretax profit for FY14.
After this placement, Centurion Properties and other
parties related to Centurion Corp will own an aggregate
66.3% of the stock, compared to c.77% previously. The
new shareholding structure will increase free float to 29%,
up from 24%.
Rex International reported its first offshore oil discovery in
the east of Oman after more than 30 years of exploration
activities. The Ministry of Oil and Gas of Oman, has also
granted Masirah (64% indirectly owned subsidiary of Rex’s
JV) the concession extension to proceed with the Second
Phase of work programme for Block 50 Oman.
JES International, has signed an option for the construction
of a further 4 Newcastle Max bulk carriers worth
US$212m, in addition to its recent contract wins of
approximately US$240m. The option is signed with the
same European customer that granted the recent contract.
The delivery of the vessels under the option, if exercised, is
expected to take place after 2016.
Ho Bee has entered into a sale and purchase agreement
with Nomura Properties to acquire a freehold property
known as 1 St Martin’s Le Grand, London, for ￡171m. The
property is located in a prominent island site in the western
core of the City of London. The acquisition price reflects a
nett yield of 5.5% with total annual rentals of more than
￡9.9m. Fixed uplift on over 50% of the passing income at
the 2019 rental reviews will improve the running yield
further.
The Singapore Tourism Board (STB) has forecast visitor
arrivals to grow to between 16.3m and 16.8m this year,
and tourism receipts to be in the range of $23.8 bn to
$24.6 bn. It also expects companies to remain cautious in
their business travel expenditure this year. Last year,
Singapore welcomed 15.5m tourists, 7% more than in
2012. They spent $23.5bn, 2% more than the year before.
The projection by STB is in line with our expectations. We
believe that 2014 will be a better year for hoteliers, with
higher visitor arrivals numbers likely to be driven by higher
volumes of business travelers in 2014 on the back of a slew
of MICE events. The opening of the sports hub in Jun'14
will also add an additional dimension to the product
offering that Singapore offers to visitors.
The overall median cash-over-valuation (COV) for resale
HDB flats hit ground zero last month, for the first time in
nearly a decade, compared with $3,000 in January, as
demand for resale public homes softened. Almost two in
five HDB deals close below valuation. Flash estimates by
Singapore Real Estate Exchange (SRX) also showed HDB
resale prices marking a sharpest month-on-month fall of
1.8% since prices began declining in April 2013, while
resale volume dropped 20% from a month ago to 734
deals.
US stocks rose while ended off session highs after weekly
jobless claims fell to 323k (consensus 336k), the lowest in
3 months, ahead of the release of February jobs numbers
tonight. Consensus expects non-farm payrolls of 149k with
the unemployment rate holding steady at 6.6%. Factory
orders, however, fell more than expected in January (actual
-0.7%, consensus -0.5%), adding to signs of a recent
slowdown in manufacturing activity.
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