SINGAPORE (March 9): The basket of shares under Maybank Kim Eng’s coverage for the quarter ending December 2016 performed poorly, but the brokerage believes selective stock-picking can still yield decent returns this year.

In a Thursday report, analyst Neel Sinha says revenues for stocks under Maybank’s coverage fell for the fifth straight quarter by 2%, EBITDA fell  8% while core profit fell 7%. Overall margins were also down both y-o-y and q-o-q especially with banks and telcos adding to the bleak outlook.

In comparison, the benchmark Straits Times Index has fared better with negative 4% core profit decline and a modest 3% growth if the Jardine group of companies were excluded.

Nonetheless, the analyst sees bright spots as the broader market crawls towards a recovery, recommending six stocks to buy based on low earnings cyclicality, cash flow stability, dividend sustainability and low balance sheet risk to rising interest rates.

Top picks for the brokerage include CapitaLand Commercial Trust, Keppel REIT, Venture Corporation, Raffles Medical Group, United Overseas Land and Bumitama Agri.

Meanwhile, four stocks, namely OCBC, Keppel Corp, M1 and StarHub, are rated “sell” due to the market possibly underestimating and mispricing their business risk, explained Sinha.

For sector-driven portfolios, he prefers overweighting property REITs, healthcare, and agri-commodities while underweighting the technology, media and telecom (TMT) and industrials sectors. He is maintaining a neutral stance on property financials and on consumer and gaming.

A sluggish earnings recovery outlook and high external vulnerability of the market has not been a compelling enough rallying call for the market, says Sinha.

“Hence our key 2017 stock picks have a defensive bias and a preference for secular over cyclical drivers,” he concludes.