DBS Group Research analysts Yeo Kee Yan and Janice Chua have lifted their 12-months target for Straits Times Index (STI) to 3,700 from 3,600 previously on the assumption of slower growth and no technical recession.
The analysts note that Prime Minister Lee Hsien Loong’s recent message that Singapore is able to avoid a recession has debunked some economists’ warning of one. “STI should not trade below 3,300 again in the foreseeable future as this level coincided with ‘recession valuation’,” they add.
In anticipation of the slew of 4QFY2022 results announcements, Yeo and Chua expect stocks under their coverage to deliver 20.8% earnings growth in FY2022. This will be led by banks, reopening beneficiaries and selective technology stocks.
Meanwhile — with regards to the upcoming 2023 Budget statement release — the analysts point out that any additional support packages to alleviate higher cost of living should benefit grocer Sheng Siong Group and suburban retail REIT, Frasers Centrepoint Trust.
There may also be measures to support jobs and businesses with the slowing economy and a continued push towards longer-term priorities. This includes SG Green Plan 2030, of which Singapore Technologies Engineering and City Developments (CDL) are possible beneficiaries.
Reopening beneficiaries are not the only companies that should report good earnings. The analysts highlight five stocks with positive identifiable drivers, the first being Yangzijiang Shipbuilding which is poised to meet its 2022 target of 70 deliveries.
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CDL has strong presales, operational recovery and capital gains from collective sales, while USM holdings benefit from lower taxes and new customer contributions. Lastly, banks such as UOB and OCBC benefit from net interest margin upside, benign asset quality and potential for dividend potential for dividend surprises.
Conversely, there may be earnings and net asset value erosion risks for US offices and European SREITs — namely Prime US REIT, Keppel Pacific Oak US REIT and ARA US Hospitality Trust — due to their increasingly challenging outlook, the analysts add.
Yeo and Chua also highlight lesser-talked-about stocks that would benefit from China and Hong Kong’s policy shift. For one, China’s shift to pro-growth and away from zero-Covid-19 is positive for companies with significant operations there such as Nanofilm Technologies and Aztech Global, even as demand and uncertainties persist near-term.
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Port and logistics names such as Hutchison Port Holdings Trust (HPHT) and Mapletree Logistics Trust should also benefit. The reopening of China and Hong Kong’s borders, coupled with the latter’s attempt to revive its financial hub status is positive for Hongkong Land. An end to the social unrest in 2019 also provides a much more stable backdrop.
Among these five, DBS’s preferred picks are HPHT and Hongkong Land.