S-REITs & consumer goods underperformed, banks outperformed
S-REITs are likely to underperform in the current environment where bond yields are underpinned by an impending cut in QE. Among the blue chips, bank stocks have outperformed as loan growth improves and NIM remains stable. Still, a pullback to consolidate recent gains is possible. We see support for UOB shares at $20.90 and that for OCBC at $10.22.
Among the SMCs, we look for recovery names that offer yield as well such as Venture Corp & Jaya. Venture Corp shares offer a 7% yield and 2H is expected to show improvement with new customer contributions. Our analyst is optimistic of Jaya’s transformation into a ship charterer from a builder. Revenue visibility is improving as the group has secured several chartering contracts in recent months. Stock offers 5.7% forward yield.
The chart below shows the relative performance of FTSE Sector Indices since July 12, the date when STI’s rebound from late June stalled and started to turn choppy. We note the following:
1. S-REITs have weakened again with investors becoming more fixated on the possibility that the FED will start reducing QE come September. US 10-year treasury yields have rebounded back to YTD high level at c.2.7%. The MAS 10-yr bond yield has also picked up from the recent low of 2.34% to the current 2.43%%. The technical rebound of the FTSE ST REITs Index from 718 fizzled out at 771 on July 24th. The index is currently at 733. The progress of QE tapering in coming months should continue to weigh on S-REITs.
2. FTSE ST Consumer Goods Index is the worst performing. The sector is weighed down by weakness in CPO stocks after most reported weaker-than-expected quarterly earnings. We have downgraded Wilmar International to HOLD from Buy as quarterly results disappointed and going forward, there is risk that refining margin may deteriorate even as CPO output recovery stays muted.
3. FTSE ST Telecommunications Index has started to underperform from August. We have HOLD ratings for all 3 telcos. We trimmed SingTel’s FY14F/FY15F earnings by 3.5% owing to the weak AUD and lower margins at Enterprise business. Given the low-single digit growth prospects & 4.5% yield, the stock is not cheap at +2SD of mean valuation.
4. FTSE ST Finance Index has outperformed, underpinned by bank stocks. Bank stocks are seen as resilient on the back of improving loan growth while NIM has stayed stable. Post results, our analyst upgraded the recommendation for both UOB (to Hold from Fully Valued) and OCBC (to Buy from Hold). Still, a pullback to consolidate recent gains is possible. We see support for UOB shares at $20.90 and that for OCBC at $10.22.
Publish date: 19/08/13