Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Singapore Market Price / Book
P/BV
(x)
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
Source: Datastream, DBS
Singapore market recovery trades in previous crisis –
correction in the 3Q of recovery in 1998/1999 before
resuming its uptrend
240
220
200
180
160
140
120
100
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Correction in
3Q of recovery
Current 2009
profile
80
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
Months before and after market bottomed
1998 economic
recovery
1985
economic
recovery
2003: fiscal and
monetary
easing
environment
2001: tech
bubble recovery
STRATEGY
1. 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 from organic
growth. Appended below are a list of stocks with yields of
>5%, compared to the market’s average yield of 3%. SPH is
our top pick, we now expect Adex growth to rise from 2%
to 4% with economic recovery kicking in and an increase in
adex once the integrated resorts commence in 1Q10. In
addition, we expect upside surprise in its payout this quarter
when it reports its final results, raising dividend yield to
6.5%.
Among telcos, we prefer M1, which is a key beneficiary of
the National Broadband Network offering yield of 8%.
Sreits – acquisitions will spice up growth. SREITS have
outperformed over the past two months, average yield
hovering at its long term average of 6.5%. Despite this,
yield spread is decent at >300bp and DBS’ economists
expect interest rates to be low in the near term, before we
see the first sign of a rise in interest rates in 2Q10. Upside
for SREITS’ yield comes from acquisition potential as well as
improvements in operational performance. Indeed, the
recent re-rating was sparked off by stronger than expected
results in 2Q, demonstrating the resilience of these assets.
REITS which are primed for acquisitions are Fraser
Centrepoint, CDL HT, Parkway REIT and Mapletree Logistics
Trust.
Source: Datastream, DBS Vickers
Stock picks with div yields (>US$1 bn, > 5% yield and buys)
FYE Mkt Price Target ROE
Company Cap (S$) Price % PE (x) EV/EBITDA (x) P/BV (x) Div Yld (%)
(S$m) 17-Sep (S$) Upside Rcmd 09F 10F 09F 10F 09F 10F 09F 09F
Suntec REIT Dec 1,824 1.12 1.23 10% Buy 14.3x 18.0x 18.3x 18.7x 0.5x 0.6x 9.5% 4%
A-REIT Mar 3,385 1.81 1.84 2% Buy 12.5x 14.0x 15.6x 15.6x 1.0x 1.1x 8.4% 8%
StarHub Limited Dec 3,700 2.16 2.50 16% Buy 11.7x 11.7x 6.6x 6.4x 31.4x 29.6x 8.3% 280%
MobileOne Dec 1,593 1.78 2.05 15% Buy 10.9x 10.2x 5.9x 5.5x 6.4x 5.7x 7.6% 66%
Singapore Post Mar 1,772 0.92 1.05 14% Buy 12.0x 11.7x 9.1x 9.0x 7.1x 6.4x 6.8% 65%
Venture Corporation Dec 2,526 9.21 9.40 2% Buy 15.3x 14.1x 9.5x 8.7x 1.3x 1.3x 5.4% 9%
SPH Aug 5,907 3.71 4.21 13% Buy 14.9x 13.3x 10.2x 9.6x 2.9x 2.7x 5.4% 19%
Source: DBS Vickers
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