Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Singapore
Spinning the wheel
With the market’s near term upside capped at 2800, we
expect interest to rotate from early cyclical recovery plays
into large cap laggards with potential for earnings
upside, and undervalued yield plays. Our yield picks
include REITS, SPH and M1. Laggards include the Banks,
and selected Consumer discretionary plays. We expect
integrated resorts beneficiaries to remain in focus, as we
approach the launch of Resorts World Sentosa.
Market is fairly valued, a correction is healthy. The STI currently trading at PE of
17.5x(09F) and 14.8x(10F) and price to book at historical average multiples of
1.4x. With valuations at mid-cycle levels, the market needs a healthy correction
as it awaits signs of a recovery follow through on the earnings front. Assuming
support at –1 standard deviation from the current PE, the STI could potentially
correct to 2275 (based on 2010 earnings).
Go for yield : SPH, M1, and REITS. With the index 5% away from our target of
2800, we would rotate into stocks which provide yield support, with upside to
underlying earnings. SPH is our top pick, which will ride on the economic
recovery and launch of integrated resorts, with potential dividend yield upside to
6.5%. M1 offers the highest yield, and is a key beneficiary of the National
Broadband Network. Despite its sterling performance recently, we expect
potential upside from SREITS average yield of 6.5% via acquisitions and
stronger than expected organic growth, while the integrated resorts theme
provides an additional kicker to retail and hospitality reits.
Spearheading growth are Banks which will enjoy upside from buoyant capital
market activities and lower provisions, while Consumer Services’ spectacular
growth is driven by earnings recovery at SIA. SIA, has seen air traffic bottom,
and it will be a beneficiary of the global synchronized recovery and influx of
tourist arrivals with the launch of the integrated resorts. With the prospect of
weak US$ and rising commodity prices, we continue to like Olam and Noble.
Janice Chua . (65) 6398 7954 . janicechua@dbsvickers.com
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
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