SINGAPORE (Nov 21): UOB Kay Hian has set a modest 2017 year-end STI target of 3,000 in anticipation of “another challenging year ahead”.

The research house has forecast 2017 earnings per share (EPS) to recover 7.7% y-o-y after two years of recession, with 2017 gross domestic product (GDP) growth ranging slightly higher than 2016’s 1-2%.

In a Monday report, lead analyst Andrew Chow says such an estimation is a reflection of weak global demand as well as structural issues, as the external environment remains mixed while volatility is likely to remain elevated, pointing to a “buy” on weakness and stock-picking strategy.

Investment themes that could drive outperformance in 1H17 could include new economy beneficiaries; scalable companies; earnings visibility and yield; and stock-specific catalysts, he shares.  

“Given the lacklustre recovery and moderate valuations, we are selective on blue chips, favouring laggards with earnings visibility and dividend yield,” says Chow, who goes on to highlight OCBC and SingTel as top “buys” in this bucket.

These stocks have been given target prices of $10.45 and $4.53 respectively, and are projected to offer a 2017 dividend yield of 3.8-5.4%, says the analyst, who also opines that their value prices are “reasonable”.

He adds that Venture is another compelling “buy” with a target price of $11, as its gradual shift towards new growth areas has also resulted in sustainable margin improvements with a dividend yield of more than 5%.

Additionally, UOB has identified mid-cap gems including China Aviation Oil (CAO), United Engineers (UE), and Duty Free International (DFI) which have target prices of $1.90, $3.06 and 57 cents respectively.

The research house has “sell” ratings on M1, SIA Engineering and StarHub at respective target prices of $1.76, $3.30 and $2.40.

As at 4pm, shares of OCBC, SingTel, Venture, CAO, UE and DFI are trading at $8.80, $3.67, $9.87, $1.34, $2.74 and 40 cents respectively.

Shares of M1, SIA Engineering at StarHub are trading at $1.91, $3.45 and $2.79.