Thursday, November 21, 2013

Singapore Strategy - Looking up (DBSV)

Singapore Strategy -
Looking up
■ China turning positive, Europe bottoming
■ Accumulate for growth into 2014
■ Banks a proxy to GDP recovery – buy OCBC
■ Growth vs yield

Accumulate on base building
The combination of stabilizing economies for China, Europe bottoming with upside for recovery, attractive relative valuation and the possibility of a further delay to QE tapering beyond March 2014, form the ingredients for an uptick in interest for Asian equities going forward, Singapore included.

Asia valuation is attractive
Given the strong DM equities performance YTD, forward PE valuation for Asia is looking more attractive. At 15.1x 12-mth forward PE, the MSCI USA is trading at +1SD level, similarly for MSCI Europe currently at 13x. This compares to the MSCI Asia Ex-Jap’s 12-mth forward PE level of 12.1x, below its 10-yr average of 12.4x, which offers GDP growth of 6.4%. Singapore is not expensive, trading at average PE of 13.6x (FY14F).

Banks a proxy to GDP recovery
Our economist has raised Singapore’s GDP growth forecasts for 2013 to 3.8% and 4% for 2014. Growth outlook in the G3 economies is improving while China’s growth momentum is also picking up, underpinned by more concrete reforms to restructure the economy after the closure of the third plenum. We expect such growth momentum to persist into 2014. Our pick is OCBC for its strong banking operations, asset quality and regional exposure.

Growth stocks outperform
Top picks for growth stocks are Ezion, Osim and Goodpack. Ezion offers the highest growth of 63%, backed by new contracts, charter income and expansion in margins. With 55% of sales from North Asia, Osim benefits from rising consumption in China, and consolidation of TWG earnings will add 4% to earnings. Goodpack is a proxy to US/Europe recovery with almost half of its revenue from that region. Midas is a recovery play on expectations of more high speed bullet train contracts from China.

Bumper dividend crop
Our yield picks include stocks which pay a bumper year-end dividend crop, dividend yield ranging between 4%-6.8%. Of the list, China Merchant offers the strongest growth, driven by acquisitions, while Venture Corp will benefit from global recovery and a rebound in business capex. CSE could yield bonanza payout of 28cents once it completes the listing/divestment of its UK subsidiary. M1 offers the highest growth among telco stocks and Keppel Corp is riding on margin recovery and strong order wins, with potential to further outperform expectations once its series of contracts from Pemex is confirmed.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 20/13/13

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