SINGAPORE (Dec 24): Although macroeconomic uncertainties remain, RHB Research remains optimistic on a “broad-based earnings recovery” which will see all sectors report y-o-y earnings growth. 

As such, the research house has highlighted six large cap stocks which it reckons could be key beneficiaries of an improved economic outlook. 


On the property front, RHB anticipates 2020’s market to be largely similar to that of 2019, with volumes staying resilient coupled with little upside to property prices. Yet, the brokerage appears to favour heavyweight CapitaLand on the back of its “well-balanced portfolio”. 

According to analyst Vijay Natarajan, this would allow the group to deliver superior returns across market cycles from all asset classes and markets. 

In particular, Natarajan highlights CapitaLand’s recurring income base from fund management and lodging sectors, as well as its asset recycling strategy, should drive future returns on equity (ROE). 

“We expect fee income earnings to grow steadily at high single digits over the next five years on assets under management (AUM) growth, and the steady completion of assets under the lodging segment,” says Natarajan in a Thursday report. 

“Although its yield of 3.8% is sustainable, we believe that there is room for further growth in dividend payouts,” adds Natarajan. 

RHB is maintaining its “buy” call on CapitaLand, with a target price of $4.20.  As at 11.33am, shares in CapitaLand are trading flat at $3.73. 

Keppel Corp

Keppel’s trump card lies in its offshore and marine (O&M) business, which has booked orders worth $1.9 billion thus far in 2019, ahead of the $1.7 billion in the whole of FY18. 

Lead analyst Leng Seng Choon notes that LNG and renewable-related projects account for 60% of these order wins. 

Although Leng acknowledges that the Keppel has had a “dismal 2019”, a turnaround is on the horizon. 

For a start, the group is poised to reap improvements in earnings on the back of an outstanding orderbook worth $5.1 billion, which exceeds end-Dec 2018’s orderbook of $4.3 billion. 

“We expect the ramp-up in O&M orders to be sustained in 2020 on the expected stability in crude oil prices,” says Leng. 

“Prior to the O&M earnings pick-up, net profit from its property business should support overall profitability and dividend payments,” adds Leng. 

In addition, Leng highlights how Keppel and Sembcorp Marine’s settlement agreements with Sete Brasil over the construction of six semisubmersible drilling rigs will pave the way for construction completion of some rigs and drill ships, which would translate into additional income for the group. 

Temasek’s partial share offer is what Leng terms a “precursor to an impending business restructuring”, particularly of the group’s O&M arm. 

“This could lead to significant value-unlocking for the company,” says Leng. 

RHB is keeping its “buy” call on Keppel with a target price of $7.80. As at 11.33am, shares in Keppel are trading three cents lower, or 0.4% down, at $6.72. 

ST Engineering

On the whole, ST Engineering has had a good year, outperforming the Straits Times Index (STI) by 7.1%. 

The group amassed outstanding orders worth $15.9 billion - an all-time high for the group. According to Leng, this could provide the group with revenue visibility for the next 2.5 years. 

The group’s order wins for the year has totalled $5.4 billion, surpassing $5.2 billion back in 2018. 

Leng attributes ST Engineering’s success to a combination of its double-digit profit growth outlook for FY20-21, a positive free cash flow (FCF) generation capability, reasonable yield and an ability to undertake accretive acquisitions. 

In particular, Leng notes that the group could thrive on earnings contributions of its acquisition of Belgium-based satellite communications company Newtec, as well as continuing order wins. 

RHB has a “buy” call on ST Engineering with a target price of $4.55. As at 11.33am, shares in ST Engineering are trading one cent lower, or 0.3% down, at $3.94. 

Suntec REIT

For 3Q19 ended September, Suntec REIT had posted a distribution per unit (DPU) 2.37 cents, down 5.1% from 2.49 cents in 3Q18. 

Yet, Natarajan remains optimistic on the REIT. “The stock has been a laggard, as we believe the market focuses on the headline DPU declines,” he says. 

Natarajan notes that the stock is trading at 0.8 times it’s price-to-book value (P/BV) ratio, with a 5.7% yield - both of which are “highly attractive”. 

“We think the key is to take note of the improving operational DPUs, which are sustainable,” notes Natarajan. 

While Suntec REIT has had a poor quarter, Natarajan highlights how an earnings turnaround is in the pipelines, and will be aided by positive rental reversions, the completion of three development assets by 1H20, as well as higher income contributions from its latest acquisitions. 

RHB is keeping its “buy” call on Suntec REIT with a target price of $2.08. As at 11.33am, shares in Suntec REIT are trading one cent lower, or 0.6% down, at $1.82. 


As far as the banking sector is concerned, RHB cautions that the ongoing US-China trade tensions are a major deciding factor. 

On one hand, banks’ earnings could rise sharply in tandem with stronger economic growth for Singapore if the trade war is resolved quickly and smoothly. Yet on the flipside, an exacerbation of trade tensions could weaken global growth, which would in turn increase the non-performing assets of Singapore banks. 

Although expectations of flat earnings prevail amid macroeconomic uncertainties, the brokerage prefers UOB for both its attractive valuations, as well as a higher level of protection against asset quality deterioration. 

Leng notes that UOB has the smallest percentage in terms of loan exposure to Greater China, compared to other banks such as DBS and OCBC. 

“Given the global macroeconomic uncertainties and concerns over a sharp slowdown in Greater China – including Hong Kong – the risk of asset quality deterioration remains elevated,” notes Leng. “We believe UOB is more cushioned in this respect than its peers.”

Apart from its 5.3% yield and growth in its wealth management business, Leng notes that UOB’s valuations are “attractive”. The bank’s current FY20F P/BV ratio is 1.1 times lower than its 6-year average of 1.22 times. RHB also estimates UOB’s FY20F target P/BV to come in at 1.26 times. 

RHB is maintaining its “buy” call on UOB with a target price of $29.50. As at 11.33am, shares in UOB are trading nine cents lower, or 0.3% down, at $26.24. 

Wilmar International

Year to date, Wilmar International’s share price has surged 30.7% to $4.09. And according to analyst Juliana Cai, this is unlikely to abate anytime soon. 

“We continue to expect its share price to rerate in 2020 post-China subsidiary IPO (Yihai Kerry) on the Shenzhen Stock Exchange,” says Cai. 

“The IPO still a key driver to its share price. Wilmar has responded to the first set of queries sent by the China Securities Regulatory Commission and is now waiting for the approval or follow-up questions,” she notes, adding that the management is targeting for the listing to happen in three to four months. 

Although the IPO is still in its early stages, Cai remains bullish on the prospects of this - given Wilmar’s strong brand name in China. 

Cai adds that operationally, the group’s tropical oils segment should remain strong on increasing demand and tighter supply. 

“While the oilseeds & grains segment should still see some negative impact from the African Swine Flu (ASF), it should also see y-o-y improvements due to 1H19’s low base effect,” says Cai. 

The brokerage is keeping its “buy” call on Wilmar, with a target price of $4.75. As at 11.33am, shares in Wilmar are trading three cents lower, or 0.7% down, at $4.07.