Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
with NPLs and provisions stabilizing. Consumer Goods
earnings were bolstered by higher CPO prices for plantation
stocks listed on SGX.
Driven by topline growth and recovery in margins. Overall
sales showed a sequential improvement (+12%) over 1Q09,
led by Real Estate, Basic Materials, Oil and Gas and Financials.
EBIT margins recovered from 1Q09 lows to previous year’s
level of 15%, following cost cutting measures undertaken
and improvement in top line. Margin recovery was evident in
Healthcare, Industrials, Reits and Technology sectors.
Earnings revisions by sector
(S$m) Pre-Results Post-Result % Chng
Sector 2009 2010 2009 2010 2009 2010
Basic Materials 366 318 265 323 -27% 2%
Consumer Goods 2,753 3,046 3,197 3,569 16% 17%
Consumer Services 1,820 1,934 1,398 1,861 -23% -4%
Financials 5,196 5,865 5,253 6,374 1% 9%
Health Care 140 151 151 166 8% 10%
Industrials 3,860 3,806 4,118 3,858 7% 1%
Oil & Gas 591 582 621 604 5% 4%
Real Estate 2,671 3,037 3,280 3,293 23% 8%
REITS 1,427 1,427 1,477 1,501 4% 5%
Technology -158 -11 -5 45 nm nm
Telecommunications 4,223 4,687 4,310 4,707 2% 0%
DBSV Coverage 22,888 24,842 24,065 26,300 5% 6%
Source: DBS Vickers
Recovery in earnings
%
Negative earnings
50
growth most likely in
40
recession years, but
followed by sharp
30
rebound on recovery
20
10
0
-10
-20
Earnings growth
-30 GDP growth
-40
-50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F10F
Source: Datastream, DBS Vickers
More room for earnings upgrades. Earnings have bottomed,
in line with the economy and we expect the recovery
momentum to remain intact. We have raised earnings by 5%
and 6% for FY09F and FY10F respectively, led by Consumer
Goods (plantation stocks), Financials, Healthcare, Real Estate
and REITS. Currently, our EPS growth for STI stocks at 18%
for 2010 is a far cry from the recovery years of 1999 and
2003, where we saw earnings growth of >40%. We believe
there is potential upside to earnings growth for 2010, which
will underpin the longer term recovery plays.
Expect a better 2H09 - earnings upgrades across the board.
Unlike 1Q09 where upgrades were focused in the telcoms
and plantation sectors, we note earnings upgrades across all
sectors for 2010. We expect 2H09 to post a strong 26% yoy
growth, after the 29% yoy fall in 1H09, mainly due to the
low base in 4Q08, particularly asset based companies which
suffered from write down in value of investments.
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