Tuesday, January 7, 2014

Singapore Strategy 2014 - Recovery adds spice to growth (DBSV)

Singapore Strategy
STI Index 3,167.43
2014 Outlook
■ Earnings growth to accelerate on external recovery
■ Rotation from yield plays to growth to gain momentum
■ Focus on global proxies and China beneficiaries
■ Wave of opportunities in oil and gas sector

Recovery optimism tainted by Asean uncertainties
Singapore equities will be underpinned by the recovery momentum in the US, and the anticipated shift out of recession in the Eurozone. In Asia, China’s GDP slowdown should also stabilise in 2014. However, optimism will be capped by the extent of QE tapering and the weak market sentiment for ASEAN. STI is likely to range trade as sentiment gyrates between optimism in recovery in developed markets and uncertainties within ASEAN. We peg a STI range of 2950 to 3350 in the coming months, which coincides quite closely with 12.33x (-1SD) to 13.9x (Ave) blended FY14/FY15 PE.

Singapore should outperform Asean peers
While Asia markets will still be impacted by the progression of QE tapering in the coming months, we expect Singapore equities to hold up better compared to most of her ASEAN peers. The combination of a strong current account balance, resilient SGD and low political risk should enable Singapore equities to continue outperforming other ASEAN markets. We expect the companies under our coverage to enjoy earnings growth acceleration in 2014. We see earnings (before EI) jumping 12.8% in 2014F compared with just 0.5% for 2013F.

From yield plays to growth
Key themes for investment are centred around external recovery and global cyclicals, supported by earnings growth drivers in the industrial, oil and gas sectors. As QE tapering progresses, expectations of a steepening yield curve reduces investors’ appetite for yield stocks. The rotation from yield sensitive sectors to growth stocks will gain momentum. As such, we Overweight Banks, Industrials, Oil and Gas, Consumer Services, Underweight Consumer Goods and REITS, and Neutral on Property and Telcos.

All about Recovery
With Europe and US accounting for 23% of Singapore’s exports, this will lift Singapore’s GDP to its potential growth rate of 4.0% in 2014. Proxies to global recoveries are Hutchison Port, Goodpack and Venture. With China’s outlook stabilising, beneficiaries of China’s reform efforts are Midas, Global Logistics and Osim. Domestic recovery proxies are Genting Singapore, Courts and OCBC.

Turnaround plays in oil and gas sectors
Rate recovery in the OSV market will drive a re-rating for the sector, benefitting vessel owners like Pacific Radiance, while Ezion will continue to thrive on its niche product offerings. Turnaround plays to watch out for in 2014 are Ezra and Vard; resolving their execution issues and a sustainable recovery could see both stocks re-rating. Keppel Corp’s order wins have surpassed expectations with more potential orders in the offing, while margins are recovering.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 03/01/13

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