Sectoral outlook :
Banks: We remain bearish and last month’s cut in earnings estimate brought us significantly below consensus estimates. While valuations have appeared cheap for a long time, we still don’t see a re-rating trigger, especially in view of a deteriorating macro environment. UOB (O-PF) is our preferred pick in the sector due to an attractive dividend yield and capital re-engineering angle.
Conglomerates: The offshore & marine industry is benefiting from strong order inflows and margins for Keppel Corp (Buy) and SCI (O-PF) are expected to expand due to better pricing power. Earnings for 2005, 2006 and partially 2007 are locked-in by current order book. ST Eng (O-PF) has defensive attributes due to its steady earnings stream and predictable dividends.
Telcos: SingTel (O-PF) is our top pick that combines growth and defensive attributes. We remain extremely bullish on growth prospects from associates in fast growing Asian markets. Dividend yield is attractive at 4.8% and can get better due to strong cashflows and a management committed to improving the ROIC. M1 (UPF) and Starhub (U-PF) also offer attractive dividend yields.
Transport: Earnings of transport companies like SIA (O-PF) and NOL (U-PF) are cyclical and vulnerable to global economic slowdown. However, they will benefit from any decline in oil prices. ComfortDelgro (U-PF) is richly valued and its growth prospects are constrained in the domestic market.
Property: Momentum in the Singapore property market remains positive. Strong offtake in the residential physical property market is a likely precursor to price increases. Expectations of significant hike in interest rates from current levels have moderated, which favours mortgage borrowers. While slowing macro environment may be a sentiment dampner for potential buyers, our analysis shows poor correlation between GDP and property indices. City Dev (O-PF) and Keppel Land (Buy) are our preferred picks in the sector.
Technology: The rally in tech stocks is low quality trade, as it is not supported by fundamental improvements. Venture (Buy) is the only exception with earnings expected to strongly rebound in the current year and downside supported by high dividend yield. As risk aversion rises, investors should switch to companies with earnings resilience and high dividend yield.
Disclaimer : Above Materials are Meant to be used for Reference ONLY. It does not represent a recommendation from any of us
6 comments:
The numbers looks a little different from what I have.But I think its telling me to sell my UOB and buy DBS :D
Hi TC, if the number is different from your. Maybe you should post your number and share with us.
My mistake, actually these are 2005 'forward looking' numbers.
If computed from 2004 and expected growth, its close.
Also I am only looking at the banks because, these "top picks" have oready rose quite a bit recently.
I will sell UOB, take profits and buy DBS.
Yo TC, look like you are targeting bank counter nowsday.....Woh..... UOB, DBS and OCBC....;)
WEll, the other stock that slipped right under my nose was UTAC. I have been supporting them ever since I joined A. IPO'ed at about 83cents. Last year it was operationally profitable. Then they bought UTC, Nomura put a $1.53 target price.
When it dropped to 50cents I talked to the engineers there about Nomura's bullish exuberance, they tell me "U Siao ah !!". WELL, now its 70++ cents and rising ...
Alamak, we are actually thinking of asking you to follow up on UTAC after the bank stock as you are closly related to this industry. But too bad. If you look at the UBS report on our previous post, they are recommendin UTAC as one of the small cap company that they are recommending.
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