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Avoid stocks like AEM, SIA, UOB, PropNex and APAC Realty given uncertain outlook and limited or no upside to TPs: DBS

Felicia Tan
Felicia Tan • 3 min read
Avoid stocks like AEM, SIA, UOB, PropNex and APAC Realty given uncertain outlook and limited or no upside to TPs: DBS
The STI is expected to end the year at 3,485 points, says the DBS team. Photo: Bloomberg
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Following a disappointing earnings season for the FY2023 or for the latest quarter ended Dec 31, 2023, DBS Group Research analysts Foo Fang Boon and Yeo Kee Yan have lowered their estimates by 5.4% in FY2023 and 1.6% in FY2024. The lowered expectations were led by drags in the real estate, industrial and telecommunication (telco) sectors while banks remained stable.

These revisions also mean that the earnings growth in the benchmark Straits Times Index (STI) are expected to decelerate to 3.5% in FY2024 and 2.6% in FY2025.

That said, the analysts saw pockets of positive revisions to FY2024 earnings in companies within the industrial and technology sectors.

For the time being, the index is expected to trade rangebound between 3,030 points to 3,300 points, although a recovery may be seen towards the higher end of the range possibly ahead of the index stocks going ex-dividend. The STI is expected to end the year at 3,485 points, which is pegged at 11.3 times FY2025 P/E or -1.5 standard deviations (s.d.).

At present, the analysts see immediate technical support at 3,115 points.

“The STI’s attractive valuations and over 5% dividend yields are factors that offset a muted earnings growth outlook,” says the team in a March 13 report.

See also: Brokers’ Digest: Pan-United, Yangzijiang Shipbuilding, Raffles Medical Group, Frencken, Japfa, Oiltek, CDL, AEM, DFI

Looking ahead, the team prefers companies within the industrial and tech sectors for their earnings visibility. “We seek out opportunities in stocks with average FY2024/FY2025 earnings growth of above 10%,” they write.

With that, they like Yangzijiang Shipbuilding (YZJ), Singapore Technologies Engineering S63 -

(ST Engineering) for their earnings visibility on robust orderbooks; Keppel and ComfortDelGro C52 - (CDG) for their positive earnings revisions on improving earnings bases; and UMS Holdings 558 - and Venture Corporation V03 - for their improving industry outlook.

The analysts are also recommending investors stick to REITs as the US Fed pivots.

See also: PhillipCapital initiates ‘buy’ call on CSOP iEdge S-REIT ETF with TP of 87 cents

“We see the recent pullback in Singapore REITs (S-REITs) as an opportunity to add, with our thesis intact,” say Foo and Yeo.

“Our REIT analysts’ preference for ‘value’ through retail > office > hotels and industrials is validated by better-than-expected FY2023 showings and operating outlooks. Our preferred picks include retail (Frasers Centrepoint Trust, Lendlease Global Commercial REIT JYEU -

), office (CapitaLand Integrated Commercial Trust), hospitality (CapitaLand Ascott Trust), and industrials (Frasers Logistics and Commercial Trust, Mapletree Logistics Trust M44U - and Digital Core REIT),” they add.

Stocks to avoid

On the other hand, the analysts are recommending investors avoid AEM, Singapore Airlines C6L -

(SIA), United Overseas Bank U11 - (UOB), PropNex and APAC Realty CLN - for the time being due to their uncertain outlook or lack of catalysts. Earnings cuts, hold/fully valued calls, as well as limited or no upside to their target prices are also other reasons to avoid these counters.

As at 10.23am, the STI is trading 2.23 points lower or 0.07% down at 3,170.73 points.

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