SINGAPORE (Sept 2): Unsurprisingly, the recent Zika outbreak in Singapore is expected to send shockwaves across local markets, especially with the rapid acceleration of virus cases. The number of infections within the republic stands at 151 as of Thursday.

The question is: Which stocks and sectors will be exposed to the fallout, and to what extent?

In a Friday report, UOB Kay Hian analyst Andrew Chow says sectors facing potential implication include hospitality, aviation, gaming, retail and healthcare. The impact will depend on the severity of the Zika cases as well as the period of the travel advisory warnings and alert levels declared as a result, he adds.

Chow has picked out the following stocks which he thinks may potentially be impacted by Zika:

• SATS more at risk than SIA in Aviation “Given the recent steep rise in stock price, we recommend top slicing SATS and switching into other defensives,” asserts Chow. The analyst believes there is more downside risk for SATS due to the higher expectations of the stock. Earnings, flights handled, pax handled and unit meals are all at risk with any “further erosion”, he adds.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/brokers-digest-wing-tai-holdings-keppel-dc-reit-del-monte-dfi-retail?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Broker's Digest: Wing Tai Holdings, Keppel DC REIT, Del Monte, DFI Retail, ComfortDelGro</a>

While SIA is also likely to be impacted by weaker traffic, UOB not expect a steep decline in its stock price as expectations of earnings recovery are already muted. Still, any sustained decline in traffic will still impact the stock adversely, cautions Chow.

Both SATS and SIA have been rated “hold” by UOB with target prices of $10.20 and $4.45 respectively.

• Hospitality plays & S-REITs may suffer Given the travel warnings to Singapore which have been issued by five countries, UOB prefers industrial over hospitality plays for now, especially with the Formula One event around the corner.

(See <a href="http://www.theedgemarkets.com.sg/sg/article/singapore-zika-outbreak-concern-formula-one" target="_blank">Singapore Zika outbreak a concern for Formula One</a>)

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/cdg-cdl-dbs-keppel-sembcorp-cgs-cimbs-esg-top-picks-list?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>CDG, CDL, DBS, Keppel, Sembcorp in CGS-CIMB's ESG top picks list</a>

Chow highlights that the impact on hospitality plays could be “severe” should the Zika virus “spiral out of control”. As such, geographically-diversified REITs are favoured by UOB over Singapore-centric ones such as CDL Hospitality Trust (CDREIT) in the hospitality sector.

CDREIT has been kept at “hold” with a target price of $1.55.

• Only ‘initial knee-jerk reaction’ from GENS In the gaming sector, Genting Singapore (GENS) may be moderately impacted by lower tourist arrivals, but Chow says he only foresees an initial “knee-jerk fall in casino patronage” as he believes Malaysian tourist patronage will be “quickly clawing back”. Meanwhile, he does not foresee Zika bringing about any impact to VIP and local patronage.

GENS has been kept at “buy” with a target price of 84 cents.

Looking back historically, Chow says Singapore’s markets are less likely to be adversely affected in comparison to the severe acute respiratory syndrome (SARS) and H1N1 pandemics in 2003 and 2009 respectively.

“We believe the impact from SARS and H1N1 is likely more serious due to higher fatality rates and the declaration of these diseases as a pandemic by World Health Organization (WHO),” he notes.

However, Chow says he remains “selective” on the Straits Times Index as “earnings outlook continues to be challenging, valuations appear fair, and catalysts are lacking”.

As at 4.05pm, shares of SATS are trading 1.94% higher at $4.74; SIA is down 0.09% at $10.61; shares of CDREIT are trading flat at $1.38; and GENS is down 0.69% at 72 cents.

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