Singapore announced its budget last week. Small-caps are likely to feel the pressure from rising business costs and a labour shortage. Foreign worker levies, especially for unskilled workers, will be raised and the dependency ratio will also be reduced.
Construction, offshore marine and the services industry will be negatively hit. Productivity improvements and innovations will gain urgency. However, the government is taking a calibrated approach and businesses will have time to adapt. Healthcare small-caps such as Raffles Medical will heave a sigh of relief as the government will allow foreign healthcare manpower to increase.
Yongnam’s 4Q/FY12 profit was in line. Order book remains strong. A key catalyst is Yongnam’s involvement in a consortium that will be bidding to build and operate a new international airport in Myanmar. We understand that the tender closes in late-April. Given the renown of the partners in the consortium and Yongnam’s proven track record with airport construction, they stand a good chance of winning the contract. Maintain Outperform and target price of S$0.36. Parkson Retail Asia and Del Monte Pacific also offer exposure to Myanmar.
We downgraded ARA Asset Management, Pan-United but upgraded Ezion to Outperform. CWT, our high conviction small-cap pick, reported in-line results.
Earnings have normalised at Eratat although stronger sales growth will depend on further realignment of its distribution network. Trade receivables remain the key risk.
BBR should benefit from the strong construction demand and earnings over CY13/CY14 will be buttressed by its property development project, Bliss@Kovan. We also highlight Jadason for its attractive dividend yield. Other stocks with potential are Del Monte Pacific Limited, Banyan Tree and GuocoLeisure. (Read Report)