■ STI – Passed inflexion point, climbs wall of worries in a choppy recovery underpinned by banks & SingTel
■ MERS – Base view is disease can be effectively contained and its spread halted should it reach Singapore
■ SIA – Moderate weakness to between $10 and $10.20 is a good buying opportunity
Stocks are likely to start the week lower amid concerns about Greece’s ability to repay its debt and the MERS outbreak in South Korea. STI’s rebound off the 3295 low last week is in line with our view for an inflexion point at 3270-3300. Valuation touched 13.02x (-0.5SD) 12-mth forward PE, which is an attractive level even as one factors in the low single-digit EPS growth of 1.6% to 3.2% this year. Expect index heavyweight banks and SingTel to underpin the STI. Our year-end objective for the STI is pegged at 13.76x (ave) FY16 PE, currently at 3650.
Market choppiness and some volatility cannot be ruled out even as the STI recovers off last week’s low. The Singapore market has to climb a “wall of worries” towards its yearend objective over the next few months. These uncertainties include shifts to US rate hike timing, concerns about Greece’s ability to repay its debt and a potential pullback in the China A-share market.
Hospitality and airline stocks underperformed the broad market last week on concerns that MERs, which has spread to South Korea, could also reach the shores of Singapore. Given that Singapore is more prepared and the public more informed now than before, our base view is that even if MERS hits Singapore, the disease can be effectively contained and its spread halted.
SIA is an earnings recovery play riding on fuel cost-savings while Tiger Airways is a turnaround play. We view price weakness as temporary, in stocks such as SIA that fell 2% last week. Technically, SIA shares at $10-10.20 provide an excellent entry range should the stock further weaken moderately.
For CDL HT and FEHT, their recent price weakness was also due to the rise in the MAS 10-year bond yield to 2.7% and expectations that yields will be underpinned going forward as the FED's first rate hike draws nearer. Hoteliers are also pressured by a 6% y-o-y increase in new hotel supply versus an estimated 3% increase in tourist arrivals, even without taking MERS into consideration. We are avoiding both stocks. (Read Report)
Source : DBS Group Research