Friday, July 20, 2012

Singapore Strategy: Four themes to beat the index (DBSV)

Singapore Strategy
Four themes to beat the index
• 2Q results to reflect weak quarter
• 2013’s 14% earnings growth on weak footing
• 4 themes to beat range bound index

Macro uncertainties persist. The Eurozone crisis is far from resolved and could get worse before getting better. The US economy is slowing down. Against such an uncertain macroeconomic backdrop, Asian economies have shown great resilience in the past 9 months with Asia-10 GDP actually picking up on a q-o-q basis in 4Q11 and 1Q12. For Singapore, 2Q GDP’s advanced estimates were below expectations, contracting 1.1% q.o.q. Despite this, our economist held on to his 3.5% GDP growth forecast for 2012 while noting that downside risk has emerged.

2Q earnings outlook, weak pillars of growth in 2013. FY13’s earnings growth of 14% is largely driven by rebounds in cyclical sectors where growth is dependent on external economies. With expectations of more downgrades in the upcoming 2Q reporting season, this could derail earnings growth for 2013. Upside could come from banks, airlines if oil price weakens while cuts in earnings could come from Real estate, technology on destocking trend, gaming, supply chain managers, offshore and marine on margins concern and shipping. We believe it’s too early to turn positive on cyclical sectors with global exposure – shipping, supply chain managers, and technology. Recent rebound trades in NOL, Olam and Venture offer opportunities to top slice these names.

Raising the bar till capitulation. We have raised the trading range for STI by rolling forward the valuation peg to FY12/13 earnings. We expect the STI to range trade from 2800 (-1 SD blended FY12/13F PE) to 3100 (-0.5 SD blended FY12/13F PE) for 3Q12, with re-rating potential towards the average blended FY12/13F PE level (STI target of 3300) only if macro uncertainties ease.

Four themes to beat the index. 1. High conviction growth stocks with highly visible, sustainable earnings growth of at least 10% and minimal risks to earnings downgrades. These are stocks with growth backed by medium term charters (Ezion), or earnings at inflexion point from past investments (Bumitama and CMA), companies with steadily growing businesses – OCBC and SembCorp Industries. Stocks riding on Asian consumption theme are CMA, Capitaland, OCBC, and SembCorp Industries. 2. Beneficiaries of China’s fiscal stimulus– Hyflux, Sound Global and Midas. 3. Steady and sustainable yield plays with growth. Yield plays have outperformed. We are now more selective in picking yield stocks, focusing on those which generate growth(>5%) and offer dividend yield of at least 6%. 4. Unloved fallen angels. We spot deep value stocks (Midas, Tiger, China Fishery and BIG) which have fallen out of favour with upcoming catalysts to spur recovery.

Market Outlook
Good thing for Asia, there’s Asia
The Eurozone crisis is far from resolved and could get worse before getting better. The US economy is slowing down. Against such an uncertain macro-economic backdrop; Asian economies have shown great resilience in the past 9 months with Asia-10 GDP actually picking up on a q-o-q basis in 4Q11 and 1Q12.

In response to the worrying macro-economic trend, Asia central banks have cut rates 4 times, a far cry from the 48 times that rates were raised in 2010 and 2011. 48 hikes versus 4 cuts - Asian central banks have much more flexibility to implement monetary easing policies in response to the present global realities.

For Singapore, the retail and tourism services segments that ride on the domestic and Asian consumption strength continued to put up a fairly resilient performance during 2Q in the face of the current global uncertainty even as the manufacturing, wholesale trade, transportation and financial services sectors moderated. Our economist stands pat on his long-held 3.5% GDP growth forecast for 2012 while noting that downside risk has emerged.

The going is far from smooth but clearly, Asian economies are more resilient and in a much better position to face the uncertainties ahead compared to the US and Europe.

Eurozone crisis may get worse before getting better The Eurozone crisis is far from resolved - 19 EU summits later. The latest EU summit in early July saw Eurozone leaders agreeing on a number of steps to stabilize the region’s credit markets and strengthen the banking system. Once again, financial markets adopted a buy-in-anticipation and sell-on-news attitude to that outcome. Month-to-date, the EUR-USD cross rate gave back its June rebound and more. At 1.225, the EUR-USD currency-cross sits at a 2-yr
low. The 1.55 EUR-SGD cross rate is at its lowest level in more than a decade. Meanwhile, bond yields of the key Eurozone nations of Spain and Italy have stayed elevated.

Clearly, investors remain unconvinced that the dark clouds will clear anytime soon. You don’t have to dig far to realize why. David Carbon, our chief economist notes that with one-fifth (i.e. €100bil) of the ESM used for Spanish banks recap, the remaining €400bil is clearly insufficient to ‘ring fence’ €2800 of Spanish and Italian sovereign debt. The only way out, it seems, is for the ECB to roll the presses. However, this remains a long shot. Meanwhile, yields stay elevated and are rising. Whether higher yields ultimately bring political solutions (new laws / constitutions) or an end to the euro remains to be seen.

Meanwhile, growth in Europe is negative and getting more so by the month. Production is falling for both Italy and Germany and, somewhat surprisingly, running sideways in France. Eurozone unemployment is running at 11.1%.

Asia more resilient in the event of a Eurozone contagion compared to 2008
If the ECB has got to be dragged to or even over the cliff’s edge before they act, than the Eurozone crisis will likely get worse before it gets better. Eurozone contagion risks continue to rise but pinning a timeline on when it finally unravels is anyone’s guess. Still, our economist notes that the consequence, when that chaotic moment comes, does not necessarily spell a Lehman style market melt-down.

Not when people have had the past 2 years to think about and prepare for it. In addition, the real economic impact from a Eurozone contagion event is not a major worry for Asia because Europe has not contributed much to Asia’s growth since 2009. Instead, Asia’s own strong domestic demand growth had powered the region, which no longer relies on G3 as it once did. The risk of a credit crunch is also lower. Central banks now implement policy measures ahead of the curve and unlike in 2008 whereby complex
derivatives were the culprit, the issue of sovereign bond exposure is on balance sheet and easy to quantify.

US economy is slowing
No question about it. David Carbon thinks CY2Q12 headline GDP growth probably fell to 1% (QoQ, saar) from 2% in CY1Q12 and 3% in CY4Q11. The auto sector is the culprit as the post-2011 Japanese Tsunami pent-up demand dries up. Domestic consumption demand probably grew at a 1.6% pace in 2Q, down from 2.3%, on average in the past 2 quarters. At the same time, core capex orders have not improved in the past 10 months. The unemployment rate is expected to rise from an already high level of 8.2%. With US growth running at half of its potential, DBS Economics team has recently lowered its forecasts for 2013 growth to 2.2% with more downside risk.

Asia’s growth still picking up, not slowing down
Asia continues to grow at a reasonable pace despite the Eurozone uncertainties and growing indications of a US slowdown. Once again, David points out that Asia’s slowdown started way back in early-2011, hit bottom in 3Q11and accelerated modestly in the past 2 quarters. Barring further shocks from the Eurozone, he expects growth will continue to move back towards the c.7.8% average over the coming 2-3 quarters.

The downturn in Asia’s industrial production, arguably the best single indicator of the economic cycle; began in early 2011. This coincides with the sharp slowdown in China’s GDP in 2Q11 and in Asia’s GDP more generally about the same time. But over the past six months, production in Asia has done pretty well, in spite of the troubles in Europe.

China, which plays a key role to Asia’s import/export, sees its exports running at a steady 10% (saar) rate between May11 and March of 2012. Exports even turned noticeably North in April as growth accelerated to 13.3% y-o-y on the average in May and June.

Finally, unlike the FED and ECB, Asian central banks have much more flexibility to implement monetary easing policies in fine tuning with present global realities. Asian central banks had raised interest rates (or tightened currency regimes in the case of Singapore) 48 times during 2010 and 2011. China raised the RRR by 600bps over the same period. Asia has now given back 4 rate cuts and China has reduced the RRR by 150bps. 48 hikes versus 4 cuts. Asia’s strengthening sequential growth against the slowdown in US and recession worries for Europe. Asia central bankers can sleep more peacefully at night.

Singapore GDP - Standing pat on 3.5% growth even as downside risks emerged
2Q GDP advanced estimates contracted 1.1% QoQ saar (consensus +0.6%). While last week’s headline figure was worse than consensus estimates, the stock market hardly reacted for 2 reasons. Firstly, a pullback in GDP is expected after the strong 1Q surge of 9.4% QoQ saar. Next, the weak monthly manufacturing data across the globe through the second quarter had placed the expectations bar at a very low level. The GDP figure is a lagging indicator after all. Still, it highlights the vulnerability of small open economies such as Singapore to fluctuations in the global economy.

The manufacturing sector, being more affected by weak external demand, was the main culprit behind the weak GDP figure as the sector contracted 6.0% QoQ saar (3.0% YoY). The services sector put up a mixed performance with the retail and tourism segments staying fairly resilient as both continued to ride on the strong domestic and Asian demand. Understandably, the wholesale trade, transportation services and financial services are moderating given the external headwinds.

Our economist stands pat on his long-held 3.5% GDP growth forecast for 2012 as the weak 2Q headline GDP figure offsets the strong 1Q number. He expects 2H GDP to improve while noting that downside risk to forecast has risen given the still developing Eurozone crisis and a weakening US growth.

2Q Earnings outlook
Earnings growth for Singapore is expected to rebound to 14% in 2013, after two years of negative and flattish growth. However, weak global economic outlook threatens to derail growth, which is the same issue we struggle with for 2012’s growth. Downgrades over the past 6 quarters saw growth diminishing to only 5% for 2012.

Weak growth pillars in 2013
While FY12 earnings could stabilize at current levels, FY13’s earnings growth of 14% is largely driven by rebounds in cyclical sectors which hit a low this year – Basic Materials, real estate, industrials and consumer goods – where growth is dependent on external economies. With expectations of more downgrades than upgrades in the upcoming reporting season, we expect downside for earnings, especially 2013. Upside could come from banks, oil and gas and transport sector(on lower fuel cost). Cuts in earnings could come from :
Real estate - slower sales and lower ASP Technology - unreeling from destocking trend Gaming - lower than expected rolling chips, Supply chain managers- swing by volatile commodity prices, Healthcare and Aerospace sector - rising cost Offshore and marine – lower than expected margin Shipping - peak season shipments could disappoint.

Against the backdrop of risks to earnings, we have factored a 2% earnings downgrade in the upcoming 2Q results season. We peg an STI range from 2800 (-1 SD blended FY12/13F PE) to 3100 (-0.5 SD blended FY12/13F PE) for 3Q with re-rating potential towards the average blended FY12/13F PE level only if macro uncertainties dissipate. We said that STI should be capped at 3086 (average FY12F PE) and likely to head for 2700 (-1SD FY12F PE) in our previous Singapore Strategy update dated May 21st as macroeconomic risks build up. Like clockwork, the index declined to 2700 by early June and has since embarked on multi-week rebound that lifted it back towards 3000.

In the post 2008 GFC recovery period, STI’s 12-mth forward PE as well as P/B tended to trade between -1SD to average valuation. There were times when STI moved beyond this band but these have so far been temporary in nature. Heightened Eurozone contagion fear had triggered spikes below the -1 SD 12-mth forward PE valuation level but last minute actions by the ECB and Eurozone financial leaders have ensured that these were temporary in nature and actually provided good buying opportunities for a
subsequent rebound trade.

As the year crosses its mid-point, we roll forward to using blended FY12/13F instead of just FY12F PE. Eurozone contagion fears have subsided in the short-term following the early July EU summit that saw Eurozone leaders agreeing on a number of steps to stabilize the region’s credit markets and strengthen the banking system. This should enable STI to trade above its -1 SD (12.4x) blended FY12/13F PE, that is until the next Eurozone contagion trigger surfaces. Assuming a modest 2.5% blended FY12-13F earnings downgrade in the upcoming 2Q results season places STI support at 2800.

The Eurozone crisis and slower global economic growth cloud earnings visibility. Yet, STI’s current FY13F earnings growth still remains at the double digit 14%. Taking these factors into consideration, we see reduced chance for the

STI heading back to the 14.13x (average) blended FY12/13F level of 3294. A mid-point strike to the -0.5SD (13.26x PE) blended FY12/13F PE level of 3091 is achievable. There is rerating potential towards the average blended FY12/13F PE level only if macro uncertainties dissipates.

Yield plays dominate
Since March, we had highlighted yield plays as the key sector that investors should hunt for. Indeed, yield plays and stocks with high dividend yields have outperformed on 3-6 month basis. In DBS Vickers’ Pulse of Asia Conference held in early July, REITS attracted the highest level of interest among investors, indicating that yield plays are still in favor. Our yield picks featured in a May report, ‘Back to yield plays’ –Cache Logistics, CMT, CDL HT and Hutchison have outperformed.

Resilience in banks, Asian consumption names
Banks outperformed, and stand out as the only sector with earnings upgrades in 1Q. The sector is insulated from the Euro crisis woes, given minimal exposure. Stocks which we highlighted to benefit from Asian footprint performed well, including Comfort Delgro, SIA Engg and Singtel. We downgraded Singtel recently, taking profits after its 8% outperformance vs STI in last 6 months and ahead of a weak set of 2Q results. We are concerned with tariffs cuts and intensifying competition in India, and the weak Rupee which may affect Bharti’s performance.

Not ready to turn positive on stocks with global exposure except for STX OSV and ART
Conversely, stocks with global exposure particularly Europe continued to underperform – including NOL, SIA, Olam, Hi P , Cosco, Yangzijiang, STX OSV and Ascott Residence Trust. We believe concerns over global growth outlook will continue to cast a pall on these stocks, with the exception of STX OSV and ART. STX OSV has been securing contracts over the last two months, at the heat of the Euro crisis despite the fact that 80% of its clients are from Europe. It now sits on an order book and book to bill of 1.5x, putting the group in a more comfortable position in the event contracts slowed. We subsequently upgraded Ascott Residence Trust to BUY on the group’s planned restructuring exercise to sell Somerset Grand Cairnhill site to Capitaland for redevelopment while buying 2 properties in China and Singapore from its parent. The deal will be accretive to ART, raise its exposure to Asia and reduce its reliance in Europe.

Renewed interest in beta names
While we underweight properties, we see renewed interest in selected diversified big caps in Real estate, as investors bargain hunt on low valuations of these stocks, many of which were sold down to offer discounts of 40% of its RNAV. As a result, property stocks outperformed last month.

Four themes to beat the index .
The STI has been resilient despite being vulnerable to the global slowdown. With the broader market likely to range bound till we see capitulation, we offer four themes to beat the index. 1. High conviction growth stocks. 2. Beneficiaries of China’s fiscal stimulus. 3. Steady and sustainable yield stocks with growth and 4. Fallen angels. Appended below is the valuation table of stocks selected under each theme.

THEME 1: High conviction growth stocks and Asian consumption theme In an environment where uncertainties prevail and downside risk to earnings persist, our high conviction growth stocks are stocks with highly visible, sustainable earnings growth of at least 10% and minimal risks to earnings downgrades.

These are stocks with growth backed by fixed medium term charters (Ezion), earnings coming on stream from past planting or investments (Bumitama and CMA), and steadily growing stable businesses – OCBC and SembCorp Industries. Asian consumption theme is here to stay. Asia continues to grow at a reasonable pace in spite of the weak US and Europe. We continue to hunt for names with Asia exposure, stocks with decent upside are CMA, Capitaland, OCBC, and SembCorp Industries.

Bumitama Agri (BUY, TP S$1.35)
We continue to recommend Bumitama Agri (BAL SP) for 26% upside to our TP of S$1.35. The group is expected to deliver strong 3 year FFB production of 29%; driven by young tree profile (averaging 5 years old) and aggressive planting activities since 2004. The robust underlying output volume growth thus provides leverage and resilience facing changes in CPO prices, relative to peers. Trading on a FY12 PE of 12.8x versus 3 year earnings CAGR of 29%, we believe the counter remains undervalued.

CapitaMalls Asia (BUY, TP S$2.06)
We like CMA for its leadership position in the Asian retail real estate sector. With the gradual completion and commencement of operations of its properties as well as the ramping up of its ongoing operations, we believe earnings and NAV growth should be sustainable. With 70% of its portfolio already completed and in operation, the ramp up to a stabilised state in the first rental cycle over the next few years would mean that rental rates would rise and underpin earnings growth. In addition, with recent investments into new projects, earnings visibility is further extended. Our TP of $2.06 is based on 20% discount to RNAV of $2.57 and offers 26% upside.

Capitaland (BUY, TP S$3.39)
Capitaland is a diversified property conglomerate with 39% of assets in China, the stock offers attractive valuations at a 44% discount to asset backing of $5.21. The group's reinvestment strategy in recent years into some $11b worth of new projects group-wide would enable it to reap gains when these developments are completed over the next few years. While we do not buy the stock for earnings, we like it for its pan-Asia exposure and deep discount to RNAV.

Ezion (BUY, TP S$1.35)
Ezion is our top pick in oil and gas sector, backed by high earnings visibility and strong FY11-13 EPS CAGR of 36%. Growth is driven by projects coming on stream from July 2012. Its strategy of entering into long-term vessel charters or logistics services underpins earnings stability, with c. 86%/92% of our FY12/13 earnings backed by secured contracts. As its focus is to support the development/production phases of the oil and gas field instead of exploration, this will insulate it from the volatile or weak oil prices. Share price correlation to oil price is the lowest in our coverage at 0.10. At our S$1.35 TP, we see upside potential of 43%.

OCBC (BUY, TP S$10.50)
We forecast 11% loan growth for OCBC over FY12 and FY13. We expect NIM to remain stable in FY12 and gradually move up into FY13 as we impute its ability to price up loans. Its regional presence in fast growing markets – Indonesia, China and Malaysia will augment growth. Going forward, we believe OCBC could build up its wealth management business in China as well. OCBC's operations in Malaysia have been on positive traction despite intense competition in the Malaysian banking landscape. Based on preliminary indications, OCBC should not face hurdles in continuing its operations in Indonesia without the need to pare down its stake in OCBC NISP (OCBC owns 85% of OCBC NISP) as the ownership regulations changes would not be retrospective.

Sembcorp Industries. (BUY, TP S$6.00)
We remain positive on Sembcorp Industries (SCI SP) for 14% upside to our TP of S$6.00. We expect the group's Utilities to outperform market expectations, driven by strong power spreads and gas expansion in Singapore. Profits from overseas are also accelerating at 22% CAGR (2010-2014) with organic growth and acquisitions. The Utilities business is not only resilient, the robust underlying energy demand in Asia also provides growth. SCI's Utilities in China and MENA are estimated to post 47% and 56% surge in FY13 earnings. Trading at sub valuation of 7x FY12/13 PE, SCI's Utilities business is undervalued compared to regional peers of 12x PE.

THEME 2: Beneficiaries of China’s Fiscal Stimulus
Chinese Premier Wen Jiabao rekindled fiscal stimulus hopes when he said that promoting investment growth is the key to stabilizing China’s economic expansion. Our HK/China economist believes increased signs of economic slowdown in China should be countered by active fiscal policies specifically targeted at certain industries, particularly in energy-efficiency, environmental protection and primary infrastructure in rural areas. In addition, unlike the actions taken during the 2008 GFC, monetary loosening will not be aggressive this time round and stringent restrictions on the property market will remain.

Clean water scarcity remains an acute issue for China. The country shifted its environmental focus to water in its 12th 5-yr plan that began 2011. From 2011 till 2015, China will spend a total of USD536bil on water purification and waste water treatment plants, flood control projects and irrigation systems. Water related stocks with China exposure stand to benefit.

Hyflux (BUY TP S$1.66)
Having the track record in building the largest membranebased desalination plant in Tianjin, Hyflux is well-positioned to benefit from continued development of water infrastructure in China, particularly in membrane-based wastewater treatment and desalination plants. China accounted for 26% of sales in 1Q2012. Hyflux still has some S$270m worth of municipal water projects in various stages of development. We see good potential for Hyflux to win new contracts in China next year after the new leadership settles down. Near term, catalyst for stock gain would be new orders win possibly, the project in Oman.

The stock currently trades at 17x FY12F and 14x FY13 PE, about -0.5 SD from its historical mean PE of 23x. In view of the steady earnings this year and good visibility going forward backed by its strong and growing orderbook, we recommend to take advantage of market and price weakness to accumulate Hyflux. In fact, the company has been buying back shares continuously in the past few months. Hyflux has accumulated over 30m shares or close to 4% of market cap to date and this represents 30%of its share repurchase mandate.

Sound Global (BUY TP S$0.86)
Sound global is a leading water company in the PRC. It is the first water company to move into water projects in rural China and hence, positioned the company well for more development of water infrastructures in the rural areas, a key focus of China's infrastructure programme. Currently, SGL earnings visibility remains supported by its Rmb2.5bn order backlog, which covers 1.3x FY12F sales. We believe our forecast of 12% EPS growth for FY12 is conservative and see room for earnings upside if the company speeds up execution of its orderbook. Our TP of S$0.86 based on 14.5 FY12F PE.

Midas (BUY TP S$0.49)
Besides water stocks, Midas is another potential beneficiary if China resumes orders for high speed passenger trains. This could happen in 2H this year. Midas’ current valuation of 0.75x FY11 P/BV is close to -2 SD to its mean. The share price can re-rate towards its book value of S$0.49 as high speed railway contracts start to resume in China.

THEME 3: Steady and sustainable yield plays with growth
SReits continue to be in favour as investors' appetite for yield remains. Despite the sector’s outperformance, current average FY12/13 yield of 6.2-6.4% still represents an attractive 470-490 bps over the risk free rate, one of the highest spreads in the region. We believe as global uncertainties remain, demand for stable recurring earnings entities offering growth potential will continue to be favoured. Post global financial crisis, SReits' balance sheets have remained healthy with gearing largely in the 35-40% range. In addition, the sector has been able to achieve earnings growth through organic rental reversions as well as asset enhancement activities. This is apparent in retail reits which are conducting asset enhancement activities to improve property productivity. In addition, the secular uptrend in the Singapore hospitality sector remains visible as visitor arrivals continue to post high single digit growth and hotel occupancies stay elevated in the 80+% range.

Among asset classes, we favour RETAIL REITS for their stability in earnings given that domestic consumption remains robust amid low unemployment rate while possessing ability to show income growth through assets enhancement activities. Suntec REIT, which offers 6% yield , is our preferred pick.

Given the pursuit for yield stocks, it is increasingly difficult to look for undervalued REITS. We are now more selective in picking yield stocks, focusing on those which generate growth (>5%) and offer dividend yield of at least 6%. Our picks are Suntec REIT, Mapletree Commercial Trust, Mapletree Logistics Trust, Frasers Commercial Trust and Hutchison Port. Frasers Commercial Trust (BUY, TP S$1.26) We continue to like FCOT’s pro-active efforts to reshape its portfolio since the beginning of the year. The recent refinancing of its high-cost Singapore loan resulting in a 100bps in interest savings (+10% increase in distributable income) should start to flow through to earnings in the coming year. In addition, we believe re-rating catalysts would depend on the deployment of Keypoint proceeds to the repurchase of CPPUs or share buyback, which should mean more upside to distributions in the coming quarters. TP of S$1.26 offers a potential total return of 21%, supported by growing FY12-13F yields of 5.7 - 6.9%.

Hutchison Port Holdings Trust (BUY, TP US$0.85)
We reiterate our BUY call on HPH Trust for secure yield of more than 8.5% at current prices and potential for capital appreciation and yield compression once market has more confidence in the Trust's ability to deliver steady cash flows amidst an uncertain macro environment. In spite of the EU debt crisis and slower US growth, we do not foresee another global credit crunch scenario, or any resultant negative trade growth as implied by current valuations. While it is true that FY12 DPU is boosted (about 5%) by deferral of growth capex, we see no danger to sustainability of dividends. The frontloading of cash flows only results in DPUs staying flat in FY13 at worst, as we continue to expect mid-single digit growth in throughput volume and earnings in FY13.
Distributable cash flows should be independent of growth capex plans, which were pre-funded at IPO, and hence we believe that HPH Trust can continue to pay steady dividends in future even without any additional capex deferral beyond FY12.

Mapletree Commercial Trust (BUY, TP S$1.12)
We like MCT’s defensive nature - VivoCity, which contributes c.70% of gross revenue, provides the trust with a resilient earnings base, while still providing strong organic growth via the GTO component from its exposure to growing tourist arrivals at Sentosa. At the same time, Alexandra Retail Centre’s opening should continue to boost PSA Buildings’s appeal, while Merrill Lynch Harbour Front Building is anchored by a long lease blue chip tenant, which should continue to ensure a steady income stream. Yields of 6.1- 6.5% are attractive given its strong sponsor links.

Mapletree Logistics Trust ( BUY TP S$1.14)
MLT remains attractive for its exposure in the resilient logistics warehouse sector, which has historically proven to see the least volatility and strong tenant stickiness compared to other property subsectors. MLT has been on an acquisition path in 1H12, acquiring close to S$400m in assets in the region which will start contributing to earnings in the coming quarters. The stock now offers an attractive dividend yield of 6.5-6.9%, and offers a total return of 22% to our TP of S$1.14.

Suntec REIT (BUY, TP 1.58)
Stock is one of the cheaper S-REITs, offering an attractive 0.7x P/BV and FY12-13F yields of close to 6.4-6.6% and a total return of 19%. As Suntec City Mall undergoes major renovations starting from 2Q12, we expect minimal downside risks to distributions, which should be partially mitigated from the recent tax savings from re-structuring their 1/3 stake in MBFC and from the proceeds from Chijmes, supported by continued positive rental reversions for their office towers. Moreover, the completion of phase 1 of the asset enhancement in 1Q13 should mean incremental earnings growth for the REIT, owing to the additional retail space that is expected to open progressively.

THEME 4: Fallen Angels
Fallen angels are stocks which have fallen out of favour with investors due to company specific reasons. These are the unloved, bombed out stocks which we believe are poised for re-rating. For each stock, we have provided the reasons for the fall, re-rating catalysts and valuation. Biosensors (BUY, TP S$1.57) (Andy SIM CFA +65 6398 7969 / Alfie YEO +65 6398 7957

What a bargain!
Recent share price correction on various concerns unwarranted.
BIG’s share price has fallen 31% from its peak of $1.80. We believe the correction was due to market concerns (outlined in the chart), particularly threat from a new product in the market – biodegradable heart stent - is overdone.

We believe FY13F 20-30% revenue guidance remains visible.
BIG remains a market leader despite increasing competition, contrary to market’s perception of increased competition. In our view, competitors would still need time to establish themselves as credible threats to BIG. Growth will primarily be fuelled by penetration into rural hospitals in China and 12 months of consolidation of JWMS’s and Terumo’s licensing.

Valuations at a steal. We think that BIG’s share price is a steal for a company with 30% earnings growth, strong competitive advantage, good market penetration and PE valuations priced at -2SD or 13x PE vs 0.6x PEG. Our S$1.57 TP provides a potential
return of 30%.

China Fishery (BUY, TP S$1.32)
(Andy SIM CFA +65 6398 7969 / Alfie YEO +65 6398 7957

Valuations are bottoming out
Stock has de-rated largely due to missed earnings expectations.
CFG share price suffered a de-rating in 2011 due to missed expectations which arose largely from lower harvest in South Pacific and an unexpected earlier closure of Anchovy fishing grounds in Peru.

Earnings growth expectations are now conservative with scope for outperformance. Following a series of missed expectations, we believe market has now revised forecasts to more realistic levels and cannot see earnings revise downward any further while fundamentals remain sound. We expect ASP to trend gradually upwards on the back of Pollock fillet and Surimi shortages in the market while sales volumes are expected to remain largely stable. Net profit growth is supported by further stronger fishmeal operations, and interest savings from senior notes refinancing. Furthermore, any bumper harvest from the South Pacific provides additional scope for outperformance.

Cheaply priced at below -1SD PE of 5.7x, for two year CAGR of 6.7% till FY14F. The stock is bottoming out in our view which presents outperformance opportunities. CFG’s share price has corrected to a compelling sub -1SD PE valuation of 5.7x. The stock is cheap at <1x PEG for our conservative earnings expectations and is capable of outperforming further if there is a bumper harvest.

Midas Holdings (BUY, TP S$0.49)
(Paul YONG +65 6398 7951
Orders should start to flow
Lack of order wins in 18 months has pummelled the stock. The dismissal of the Railway Minister in Feb ’11 and the year long investigation (in which new projects were suspended) following the Wenzhou train accident in July ’11 meant that no new high speed passenger railway orders have been handed out for over 18 months. Hence, Midas’ share price has declined by over 60% since Feb ’11.

Resumption of orders by MOR a potential catalyst. We believe it is a question of when, rather than if, MOR starts to resume orders for high speed passenger trains. Recent moves by the MOR to raise funds in the bond market (backed strongly by the State Council), points to the likelihood of high speed passenger railway projects resuming soon, which should hugely benefit Midas, which derives 40% or more of its sales from this segment.

Share price is bombed out at 0.7x P/B; BUY with S$0.49 TP based on 1x P/B. We see the share price as being bombed out at 0.7x P/B and with prospects looking better, the stock should rerate as more positive news emerge on the high speed passenger railway segment in China.

Tiger Airways (BUY, TP S$0.92)
(Suvro SARKAR +65 6398 7973
Look forward to a bigger roar
Temporary grounding of Australian fleet led to loss of confidence in stock. The Australian regulator’s decision to suspend Tiger Australia’s operations for 6 weeks in July 2011 over safety concerns led to the stock retreating almost 45% to a low of S$0.60 last year. Though Tiger responded with alacrity in satisfying the regulator’s concerns by restructuring its management and operations, it could only restart operations on a reduced network, leading to under-utilisation of fleet and heavy losses over the past few quarters.

But improving aircraft utilisation will lead to turnaround. The Australian operations are now operating from a second base (Sydney) from July and will scale up to pre-grounding levels by October. Most of the new aircraft coming in will be deployed to associates in Indonesia (Mandala) and Philippines (SEAir), reducing pressure on Singapore operations to absorb any more capacity and allowing demand to catch up with the significant capacity increase last year. This should shore up load factors and yields, and help the group narrow losses and potentially turn around by 3Q-FY13 (4Q-CY12).

Share price close to historical lows, reiterate BUY with S$0.92 TP based on 6x FY14 EV/EBITDAR. This translates to 11.5x PE. Despite the potential turnaround in earnings, Tiger Airways is trading at a forward PE of below 9x, at a discount to LCC peers
trading at an average forward PE of 11.2x.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 16/07/12

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Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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