Singapore Strategy 2H15 - Harvest time

Limited upside; take profit and wait for entry levels. Our year-end FSSTI target of 3,660 implies an upside of only 8%. Hence, we would advocate selective top-slicing and a shift towards selected undemanding blue chips. Inexpensive and quality mid caps with catalysts could add to returns but we would be very selective.

Earnings lacking visibility. 1Q15 earnings were poor with more negative surprises as 42% came in below our expectations. We see potential downside risk in the next few quarters given continued pressure on top-line and margin. Our 2016 EPS growth forecast is 8.6% but there could be downside risk.

Better sentiment in 2H15 from SG50; watch for regulatory shift. Sentiment should be buoyed by the 50th birthday celebration in August. An event to watch out for is a potential early election in 2H15. This could have implications for the property and land transport sectors. The telecommunications sector could see the emergence of a fourth mobile operator, which could heighten competition.

Investment themes for 2H15.

Investment themes we favour include:
a) regional growth beneficiaries,

b) regulatory changes,

c) sold down stocks with yield, and

d) compelling business models.

Investors should stay defensive and position ahead of rising interest rates.

Your money-making picks

Large-cap BUYs include CapitaLand, DBS, Sembcorp Industries, SATS, SingTel, CCT and First Resources

Mid-cap picks include Ezion, Wing Tai, Riverstone and Sabana REIT

Key SELLs include StarHub, SIAEC, IHH and Nam Cheong. OSV stocks could still see downward pressure ahead of an expected weak 2Q15 results. (Read Report)

Source : UOB KayHian Research