DBS Group Research is choosing to focus on resilience and recovery in their 2023 regional equity strategy outlook.
The team comprising analysts Yeo Kee Yan, Moxy Ying, Maynard Priajaya Arif, Janice Chua and Chanpen Sirithanarattanakul, as well as DBS’ regional research team, say that they will be looking beyond “known uncertainties” next year. “The good thing about 2023 is that the markets are forward looking, having priced in the bulk of interest rates hikes and recessionary fears in 2022,” says DBS.
“China’s shift away from zero-Covid, easing inflation and interest rate woes, the anticipated recovery for Hong Kong and China, mostly resilient Asean economies, and positive US stock market performance are all potential drivers,” adds the team. “While economic slowdown, inflation, and geopolitics remain risk factors, 2023 may well turn out to be the year where investors look beyond these to focus on the themes of resilience and recovery.”
Top ten regional picks
Off the back of China’s reopening, Singapore Airlines (SIA) and CapitaLand China Trust (CLCT), as well as Hong-Kong-listed Trip.com and Budweiser APAC have made DBS’ top ten picks for 2023. The team’s target prices (TPs) for the regional equities are $6.60, $1.45, HKD295 ($51.46) and HKD31.63 respectively, representing upsides of 21%, 39%, 44% and 54% from current prices.
Chinese reopening is expected to be a key catalyst for SIA, with passenger yield and load factors uplifted by robust travel demand, while CLCT is also seen to benefit with added resilience through “new economy” exposure. Trip.com is a leading online travel agency globally, riding on robust online travel spending and Budweiser APAC is seeing earnings recovery on easing of Covid restrictions as well as premiumisation efforts in key markets, says DBS.
In terms of resilient earnings, Thai Beverage (ThaiBev) is seeing resilient demand for alcohol consumption in its key markets of Thailand and Vietnam, and also makes DBS’ top ten picks with a TP of 87 cents, representing an upside of 38% from its current price.
Meanwhile, NYSE-listed SEA stands to benefit from the US Federal Reserve pivot after surprising with an earlier-than-expected loss reduction and the possibility of an early ebitda breakeven in 3QFY2023. DBS’ TP for SEA is US$100.00, representing an 84% upside from its current price.
On the environmental front, Hong-Kong-listed China Longyuan and Geely Auto stand to gain traction. China Longyuan is aligned with the Chinese government’s carbon neutrality plan as China’s largest wind farm operator, while Geely Auto is moving faster into electrification across brands and is continuously expanding in battery and charging for electric vehicles (EVs). DBS has assigned TPs of HKD16.60 and HKD21.00 to the stocks, representing upsides of 78% and 117% respectively.
Jakarta-listed telecom XL Axiata is seen as an undervalued stock, with its focus on high-end subscribers and extraction of synergies with Link Net seen to be catalysts. DBS’ TP for XL Axiata is IDR3,600 (31 cents), representing an upside of 63%.
Rounding up DBS’ top ten picks is Kasikorn Bank, the leading bank in Thailand, which is expected to be augmented by strong earnings growth momentum on loan and net interest margin (NIM) expansion. Its TP of THB202 represents an upside of 40%.
DBS is recommending “buy” for each of its top ten picks.
DBS is positive on Singapore, which it says continues to be a “safe haven” with the corporate and household sectors proving resilient to macro financial shocks. Meanwhile, sustained recovery in the service sector should offset the slowdown in manufacturing. Its Straits Times Index (STI) year-end target for 2023 is 3,600 points.
It is also positive on Hong Kong and Thailand, and is anticipating an economic and earnings turnaround for the former. DBS believes the Hang Seng Index (HSI) FY2023 price-to-earnings growth ratio (PEG) of 0.6X is attractive, with a yield of 4% over the next two years. DBS’ HSI 2023 year-end target is 21,700 points.
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For Thailand, DBS is projecting that the country’s 2023 GDP growth should improve to 3.8%, boosted by strong tourism and domestic consumption heading into an election year, which offsets weakening exports. Its Stock Exchange of Thailand (SET) Index for 2023 year-end target is now 1,800 points.
On the other hand, DBS says it is neutral on Indonesia due to a risk of profit-taking in early 2023 before a potential recovery in 2H2023, ahead of the presidential election. It is also negative on the Philippines due to slowdown uncertainties in 2H2023.
For Indonesia, its FY2023 earnings growth forecast should slow to 5.4% on a high base effect, with a Jakarta Composite Index (JCI) 2023 year-end target of 7,700 points, while its FY2023 earnings estimate for the Philippines is 8.3% below the consensus, with a Philippines Stock Exchange Index (PSEi) 2023 year-end target of 6,700 points.