CFA Society Singapore
SINGAPORE (Jan 4): Phillip Capital is maintaining its Straits Times Index (STI) target of 3,400 in Oct 2019 – which pegs the market at 13.5 times, or around its ten-year average valuation – as the research house advocates a lower-beta equity portfolio for the year, with an emphasis on dividend-paying stocks.
In a Friday report, head of research Paul Chew opines that the Singapore market is currently cheap on a historical basis, as the STI currently trades at 1 SD of its 10-year historical valuations on a forward P/E of 12 times, or P/B of 1 times.
Phillip Capital’s top “buy” picks for 2019 include United Overseas Bank (UOB) for its attractive dividends as well as SGX due to its rapidly-growing derivatives business. These stocks have been given target prices of $32.52 and $9.01, respectively.
Within Singapore REITs (S-REITs), the research house opts for Ascendas REIT (A-REIT) for its stable dividends; CapitaLand Commercial Trust (CCT) considering the attractive demand-supply dynamics for the office market; and Keppel DC REIT (KDC REIT) for the structural growth of its data centres.
All three REITs have been rated “accumulate” with the respective target prices of $2.78, $1.90 and $1.45.
In terms of growth stocks, the research house has selected Geo Energy as it anticipates a coal production recovery in 2019; Sheng Siong for the group’s increasing market share and plans to roll out record new stores; and China Sunsine on expectations of healthy earnings growth as supply is constrained by China’s strict environmental regulations.
China Sunsine and Geo Energy are rated “buy” at target prices of $1.68 and 24.5 cents, respectively, while Sheng Siong has as “accumulate” rating at $4.
Going forward, Chew expects a key driver to returns to be a reversal of portfolio outflows back to Asia and Singapore, with a roll-over of US data on the back of US growth on steep fiscal stimulus from the Trump tax cut.
While the head of research is anticipating more turmoil in US politics and continued loan growth despite quantitative tightening, the “final puzzle”, in his opinion, lies in the impending outcome of trade negotiations between China and the US.
“We expect a negotiated truce. We are assuming Trump is not dogmatic but deal-driven. He has reversed many hard stances before, from Iran sanctions to war with North Korea. As we approach 2020 US elections, the last thing needed is a disruption to the economy or financial markets, either from a further implosion of global trade or higher consumer product prices,” says Chew.
“Another interested party to resolve the dispute with China will be the largest donor to the Republican party and Trump 2016 campaign. He has casinos in Macau,” he adds, presumably referring to Las Vegas Sands founder and CEO, Sheldon Adelson.
As at 11:12am, shares in UOB, SGX, Geo Energy, Sheng Siong and China Sunsine are trading at $24.24, $7.18, 17 cents, $1.07 and $1.19, respectively.
A-REIT, CCT and KDC REIT are trading at the respective unit prices of $2.59, $1.79 and $1.37.