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Singapore Monthly Strategy - Take a break, enjoy the game

Shared By Stock Fanatic on Thursday, May 3, 2018 | 3.5.18

■ More rate hikes and strengthening USD ahead

■ STI year-end target raised to 3850 but expect a breather in the next two months, support at 3500

■ Transiting to mid- to late-cycle plays

■ S-REITs could continue to underperform if FED signals June hike

■ Companies in net cash can better weather rising rate environment

More rate hikes and strengthening USD ahead. The FED is expected to hold rates steady at this week’s FOMC meeting but may guide for a June hike. We expect four hikes this year and the next. Higher interest rate outlook and rising inflation underpins the USD. Technically, the USD Index can head for 94.2 (currently 92.3). Ceteris paribus, a strengthening USD is negative for EM equities.

STI year-end target raised to 3850. We lift our YE objective to 3850 (prev. 3715) pegged to 13.89x (+0.25SD) FY19F PE on the back of recent strong earnings upward revision boosted almost solely by banks. Near term, good 1Q results for banks are priced-in with the STI currently trading above 13.51x (average) 12-mth fwd PE.

But market to take a breather first. World Cup and stocks do not mix well. STI fell by an average of 8.6% in the two months between end-April and end-June during the past six tournaments. Trading activity tends to slow starting May. A healthy consolidation with the best market re-entry time in beginning July if history repeats. STI near-term resistance at 3650, support at 3500.

Transiting to mid- to late-cycle plays. We continue to favour mid- to late-cycle plays such as capital goods, basic materials, commodity-related, consumer services and consumer goods stocks. Our picks are Wilmar and Thai Bev for consumer goods; Genting, Dairy Farm and SIA for consumer services; Keppel Corp, SCI and SMM for O&G.

S-REITs could continue to underperform if FED signals June hike. S-REITs can continue to underperform if the FED signals for a June hike. Technically, long bond yields can rise a further 30bps if the FED turns hawkish with the US 10-year yield heading to 3.3% and the MAS 10-year yield heading for 2.84%. S-REITs with FY18F/FY19F DPU growth of less than 1% and absolute yield less than 5.5% are Keppel REIT, Suntec REIT and CCT.

Companies in net cash. Ceteris paribus, companies in a net cash position can better weather a rising borrowing cost environment. For our coverage, stocks with zero debt or net cash, BUY recommendation, market cap >S$1bn and at least 10% upside to TP. Besides lenders UOB, OCBC and Hong Leong Finance, other stocks that fit the bill are Genting Singapore, Yangzijiang, Sheng Siong, SIA Engineering and SingPost. (Read Report)

Source : DBS Group Research


Posted on Thursday, May 3, 2018 | 3.5.18
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