Tuesday 10 December 2013

Strategy for 2014

OCBC on 29 Nov 2013

While the Singapore stock market is likely to end 2013 flat, the economic outlook for 2014 could mean Asian and Singapore equities are worth a re-look. We expect developed markets’ issues which dominated global headlines in the last two years to remain, largely centering on slowing economic growth, debt and high unemployment. However, the recent 3Q corporate results in Singapore point to a cautious optimism for 2014, and this could mean high single-digit earnings growth for the benchmark STI stocks. We continue to have an OVERWEIGHT for the Banking and Oil & Gas sectors, and are selectively positive on certain Property stocks and REITs. The Straits Times Index (STI) is currently trading at undemanding valuations of 13.7x FY14 earnings, 1.35x book and with decent dividend yield of 3.3%. Our stock picks for 2014 in the big cap space CapitaLand, CapitaCommercial Trust, DBS, Ezion Holdings, Keppel Corporation, Keppel Land, Sembcorp Marine, Starhill Global, Suntec REIT and UOB. In the mid-cap space, our stock picks are KSH, Nam Cheong and Sheng Siong Group.

Singapore market failed to hold on to May’s gains in 2013
As the year draws to a close, some of this year’s blockbuster movies titles aptly capture the mood for the Singapore. It is almost a Hunger Game as the “starving” Singapore market kicked off the year well and hit a recent high in May 2013, but the market lacked an Iron Man’s will to hold on to the gains. Key developments in the US, including Fed tapering and the debt crisis, captured headlines and equities fell in Singapore.

Improving outlook for 2014
While there are larger global issues, mainly from the developed markets, which will continue to dominate headlines in 2014, we believe that the outlook is slowly and gradually improving. The recent 3Q13 corporate results in Singapore also point to a cautiously optimistic guidance from companies and high single-digit earnings growth is likely for 2014. Banks surprised on the upside in 3Q13 and we are expecting the stronger balance sheets to place banks on firmer footing entering into 2014. For Property, the residential subsector was affected by cooling measures and we expect prices for mass-market units to drop by 5%-15%. However, developers with strong balance sheets and diversified exposure to the region should be able to differentiate and also tap on business or land banking opportunities during a slowdown. The Oil & Gas sector has consistently been on our favourite list and is entering 2014-2017 with robust order books, especially for the bellwethers Keppel Corporation and Sembcorp Marine.

Fundamentally, the STI is well supported by undemanding valuations
The Singapore market, based on the benchmark Straits Times Index (STI), is currently trading at 13.7x FY14 earnings and we believe this is reasonable. The recent historical PER (2007-now) ranges from as low as 9x during the 2008 financial crisis to as high as 18x, but the average is hovering slightly above 14x. In addition, price-to-book is not demanding at 1.35x and average dividend yield is decent at 3.3%.

Stock picks strategy preferred
Our big cap stock picks for 2014 are CapitaLand, CapitaCommercial Trust, DBS, Ezion Holdings, Keppel Corporation, Keppel Land, Sembcorp Marine, Starhill Global, Suntec REIT and UOB. In the mid-cap space, our stock picks areKSH, Nam Cheong and Sheng Siong Group.

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