SINGAPORE (Aug 21): CIMB has highlighted  CapitaLand, Wilmar International and Sembcorp Industries (SCI) among its top “add” picks while noting that Singapore’s corporates are now increasingly being disrupted by asset-light, lower-cost new economy disruptors.   

In a report issued last Wednesday, analyst Lim Siew Khee says while were more misses than beats in 2Q17 season, she nonetheless sees a net +2% q-o-q earnings upgrade to CIMB’s forecasts for FY17 and FY18 due to the results outperformers.

Capitaland has been added as a laggard property play among the developers with a target price of $4.21. Furthermore, Lim believes there are opportunities for the group to reallocate its portfolio from City Developments (CDL) given the change in the latter’s CEO, as it may take time to convince the market that its execution of strategy remains on track.

The research house is also expecting Wilmar International – which has a target price estimate of $4.52 –  to report a doubling of 2H17 net profit to US$768 million ($1.05 billion) from US$350 million in 1H, on seasonally higher sales volume in the half-year quarter to come.

Lastly, Lim notes that SCI recently reported stronger 1H17 earnings from its Singapore and India utilities, and identifies these as the group’s key potential re-rating catalysts. A rationalisation of the group’s non-core assets following its strategic review could also lift overall profits, says the analyst, who has given the counter a $3.47 price target.

Meanwhile, the research house maintains “overweight” on Singapore’s gaming, manufacturing and property sectors; “neutral” on the capital goods, commodities, financials, consumer/healthcare and REITs; and “underweight” transport and telcos.

“The disappointment of the quarter award goes to the capital goods sector, especially small-caps with no turnaround in sight and increasingly being forced to restructure. We think this may have some repercussions on banks’ 2H17 performance as the pressure on asset quality and credit cost remains,” comments the analyst in terms of individual sector performance.  

Lim remains positive on the gaming sector on the belief that its earnings are on track to recovery, but less so on the consumer sector as she sees the risk of de-rating in the event of worsening operating leverage.  

Notably, the analyst observes that property and tech/manufacturing stocks have done well in the year to date, and are less overpriced than others.

The research house is also expecting strong order backlog for these companies with more alpha from smaller caps, and expects mergers and acquisitions (M&A) to propel the tech and manufacturing sectors.

Telco and transport on the other hand, have been kept “underweight” by CIMB on unattractive valuations against multi-year earnings decline for the former, while the latter remains as what the analyst calls an “unloved sector”, with Comfort Delgro (CDG) expected to face more earnings pitfalls ahead.

As at 9.52am, shares in CapitaLand, Wilmar and SCI are trading at $3.74, $3.10 and $2.95 respectively.