CFA Society Singapore
SINGAPORE (Nov 28): With the Singapore market being dragged down this year by events such as Brexit and the US presidential elections, OCBC Investment Research expects the lacklustre sentiment to continue at least into 1H17 as corporate earnings and economic outlook remain subdued.
A full-blown recession is unlikely for Singapore’s economy, says OCBC analyst Carmen Lee in a Monday report. This is because while the research house thinks overall earnings growth is likely to be in the single-digit range in 2017, it will still fare better than the estimate flat growth for 2016.
Lee is also certain that the latest surge in companies being privatised is a reflection of under-valuation in the market, as premiums of offer prices over last-traded prices ranged from 6-39% excluding Eu Yan Sang.
The analyst believes more privatisations to come with several likely candidates in the mid-cap space, especially in the oil and gas (O&G) as well as property sectors.
“While the outlook for several key sectors is soft, lacklustre share prices have already more than discounted the weak and cautious outlook ahead. As such, share prices should find good support at current levels, pending no drastic decline in global economic outlook.”
Hence, OCBC is sticking with its current stock-picking strategy of a diversified portfolio with core earnings and decent stable dividends.
The research house’s top “buy” rated picks for next year include Sheng Siong Group, with a fair value estimate of $1.15, for its consistent revenue performance despite keen competition as well as sustainable margins.
Global Logistics Properties (GLP) has an estimated fair value of $2.37. Lee believes GLP is a good “buy” as a logistics market leader in China with “conservative capital allocation and a robust balance sheet”, and expects its percentage of assets managed in funds to increase as the company moves towards an asset-light management model.
As for the medical sector, OCBC thinks Raffles Medical Group’s growth will remain intact in the long run, buoyed by various expansion plans both locally and in the region. The group has been given a fair value estimate of $1.61.
OCBC likes SingTel for its exposure in developing economies and growing presence in the cyber security segment through its recently-acquired company, Trustwave. Lee believes SingTel, which has been given a fair value of $4.27, will be least affected by the threat of a fourth mobile entrant in the telco sector.
At a fair value of $3.68, CapitaLand has also been rated “buy” as OCBC believes its recurring income from total assets provides strong income visibility in the medium-term. OUE is yet another undervalued high-end developer as it stands to benefit from the potential relaxation of additional buyer stamp duties, says Lee. OUE has an estimated fair value of $2.17.
Singapore REITs (S-REITs) notably enjoyed good gains in 2016, observes Lee. In this sector, the analyst has picked Ascendas REIT (AREIT) and Keppel DC REIT (KDCREIT) with the respective fair values of $2.67 and $1.35.
Frasers Centrepoint Trust (FCT) and Frasers Logistics & Industrial Trust (FLT) have been given estimated fair values of $2.33 and $1.10 respectively. The former is expected to stay resilient despite headwinds facing Singapore’s retail scene; the latter has been underscored as a choice defensive play given its minimal leasing risks in the near-term, in addition to its large portfolio with positive attributes.
Shares of Sheng Siong, GLP, Raffles Medical and SingTel closed at $1.02, $1.46 and $3.77 respectively.
Property developers CapitaLand and OUE closed at share prices of $3.02 and $1.78.
Units of AREIT, KDCREIT, FCT and FLT closed at $2.29, $1.21, $1.27 and 92.5 cents respectively.