DBS Group Research analysts Yeo Kee Yan, Chung Wei Le and Janice Chua have recommended investors to accumulate ComfortDelGro (CDG), Dairy Farm and Singapore Telecommunications (SingTel) at bargains as these “laggard large caps”, as the team led by Yeo calls them, offer recovery potential and trade over 15% below their February 2020 price levels.

The way the team sees it, CDG stands to benefit from more workers returning to their offices, as more commuters are expected to use trains from April 5.

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The team also sees Dairy Farm offering a compound annual growth rate (CAGR) of 18% on its earnings per share (EPS) over FY2020 to FY2022 with its transformation plan well underway and its share price at an attractive -1.5 standard deviation (s.d.) of historical mean price-to-earnings (P/E).

“For SingTel, we prefer a pullback in May to accumulate as June and July are seasonally positive months for the stock. Its potential catalysts are the resumption of earnings growth, sharp rise in Bharti’s share price and divestments of non-core assets,” they write in a report dated April 5.

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The team has also projected Singtel’s FY2021/FY2022 dividend per share (DPS) to be at 10.9/11.5 cents based on a payout ratio of 100%/90%.

To this end, Yeo and team have rated “buy” on CDG, Dairy Farm and Singtel with target prices of $1.99, US$5.02 and $2.75.

The team has also recommended that investors top slice their positions in SATS, Singapore Airlines (SIA), Genting Singapore (GENS) and Oversea-Chinese Banking Corporation (OCBC), as they have reached prices within 10% upside to their target prices, or have recovered close to or above their pre-Covid-19 levels ahead of earnings.

The act of top slicing means exiting majority of your positions upon reaching your target price, and leaving the rest of your capital in to capture further upside if any.

“Some pandemic recovery beneficiaries have done exceptionally well recently, as countries prepare to resume international travel via travel bubbles and the use of vaccine certifications and passports. While we are positive on the recovery, we think that the market has priced in too much optimism for a recovery that will take time,” says the team.

Shares in SIA rose some 35% in the past two months are now hovering around 10% below their February 2020 levels.

The team also noted that shares in GENS have recovered to their pre-Covid-19 price levels in January 2020, while SATS shares have recovered to the “Code Orange” levels.

OCBC and UOB shares have risen by 8% and 5% respective month-to-date,

underpinned by rising bond yields and inflation expectations.

“OCBC shares currently trade around 5% above their pre-Covid January 2020 levels while UOB shares have recovered to the ‘start of pandemic’ February 2020 levels,” says the team.

“We see limited near-term upside for US 10-year Treasury yield with the technical resistance at 1.87%. Further near-term upside potential for both bank stocks appears limited,” it adds.

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Back to Code Orange

As the economy looks forward to a return to pre-pandemic levels by early 2022, the team notes that a “good number of” cyclicals have already recovered to their respective levels before the Covid-19 pandemic.

The Straits Times Index’s (STI) high of 3,200 in March matches that of its February 2020 levels before the Singapore government raised the outbreak alert to Code Orange.

“Our view is for STI to swing sideways in the coming months with support at 2966- 3056 and resistance at 3200-3300. This should continue until investors start to focus on post-pandemic growth rather than Covid-19 recovery,” writes the team.

REITs to gain from pullback in yields

As Singapore REITs (S-REITs) recovered in the recent weeks amid rising yields, the team sees that investors could be positioning ahead of an anticipated pullback in the US 10-year yield from 1.87% to 1.5%.

The pullback, says the team, could be positive for REITs.

On this, they have identified Mapletree North Asia Commercial Trust (MNACT) as one of their top picks as a proxy to Hong Kong’s reopening, Prime US REIT as a proxy in anticipation of the return to offices in the US, as well as Far East Hospitality Trust (FEHT).

Travel bubbles and vaccine certificates

As Singapore is in the midst of discussions with Australia and Malaysia on the mutual recognition of vaccine certifications and establishing travel bubbles, the team sees the development as positive for aviation and aviation-related counters, as well as hospitality counters with exposure to Singapore and Australian properties such as SIA, SATS, ST Engineering, FEHT, CDL Hospitality Trusts and Frasers Hospitality Trust (FHT).

The STI closed 2.11 points lower or 0.07% down at 3,207.63 on April 6. Shares in CDG, Dairy Farm and Singtel closed $1.78, US$4.34 and $2.48 respectively, while shares in SIA, SATS, OCBC and UOB closed $5.64, $4,38, $11.88 and $26.08 respectively on the same day.