After quarters of being buffeted by the pandemic, the earnings recovery trend is normalising in the Singapore market, say DBS Group Research analysts Yeo Kee Yan, Janice Chua and Woon Bing Yong.
“The positive earnings revision trend in 4QFY2020 and 1QFY2021 has halted. 2QFY2021 saw a -2.9% q-o-q earnings cut for FY2021F and flat for FY2022F for stocks under our coverage as the reintroduction of Covid-19 restrictions dealt a blow to stocks which would have benefited from reopening,” note the analysts in an Aug 27 note.
The trajectory of Singapore’s y-o-y GDP recovery is likely to peak at 14.7% y-o-y growth in 2QFY2021 and should normalise going forward, say DBS Group Research.
“Our economist’s long-held 6.3% y-o-y GDP growth for 2021 remains intact, but this also implies 2HFY2021 growth recovery will be slower than 1HFY2021 due to slower manufacturing growth momentum, a manpower crunch for foreign labour-dependent sectors like construction and a continued drag on tourism-related sectors,” say the analysts.
Likewise, the STI’s sideways trend since April should continue in the weeks or months ahead, amid the normalising earnings recovery trend and developing uncertainties, they add.
See: S-REITs outperform STI in 2Q21 with acquisitions: SAC Capital
AEM, City Developments, ComfortDelgro, SingTel and Suntec REIT have either underperformed or market perform year-to-date. “We expect prices to turn the corner as the outlook improves and stock prices retreat to a valuation trough,” says DBS Group Research.
The analysts highlight the following stocks:
AEM’s operations will ramp up from September; the stock trades at a 33% discount to peers.
CityDev will ride on the strong Singapore residential market and hospitality recovery as the worst of Sincere’s uncertainties have passed.
ComfortDelgro and Suntec REIT are beneficiaries of Singapore’s move towards the Covid-19 endemic.
SingTel’s operations in Singapore and Australia as well as subsidiary Bharti are all turning up.
The DBS Group Research analysts maintain a preference for domestic over international-border reopening beneficiaries as Singapore begins its calibrated shift towards an endemic state.
“ComfortDeglro is our top pick, as the most consistent beneficiary of every easing of restrictions. This is followed by Suntec REIT and then Mapletree Commercial Trust (MCT), Starhill Global, and Koufu,” they note.
The recovery of travel/aviation stocks that hinges on the reopening of air borders remains more uncertain despite the introduction of vaccinated travel lanes (VTLs), say the analysts. “Compared to domestic reopening, we think it’ll take longer before travel/aviation stocks recover to pre-Covid price levels.”
As at 12.20pm, shares in the STI are trading at 25.57 points higher, or 0.83% up, at 3,106.37 points.