Seeking STI 'Compounders' for Top Picks

kimeng

Publish date: Thu, 14 Jun 2012, 09:59 AM

Warrants Highlight

Seeking STI 'Compounders' for Top Picks

Code	Name	Type	Expiry	Exercise Price
QP9W	STI 2750MBeCW120831	Call	31-Aug-12	2750
QE9W	STI 2850MBePW120831	Put	31-Aug-12	2850
PA7W	STI 3100MBeCW130131	Longer Dated Call	31-Jan-13	3100
PA8W	STI 2800MBePW130131	Longer Dated Put	31-Jan-13	2800
K2KW	SembMar MBeCW120903	Call	03-Sep-12	4.430
QR4W	SembMar MBePW121203	Put	03-Dec-12	4.20
QK4W	UOB MB eCW121001	Call	01-Oct-12	17.30
QR3W	UOB MB ePW121001	Put	01-Oct-12	16.40
QP1W	SakariMBeCW121203	Call	03-Dec-12	1.65

Positive at FSSTI index level…
Macquarie Equities Research’s (MER) FSSTI target of 3,366 implies 23% upside. The US-led recovery MER global team is calling for in the second half would be a key support factor, sustaining momentum in the OECD LI, to which the FSSTI is most geared regionally.

…but we must also brace for shorter, sharper cycles
The global team also foresees a period of volatility before the rally. MER’s regional strategy team sees shorter, sharper cycles as an ongoing, medium term trend. So MER seek to identify Top Picks that can best weather this thematic.

New Work: Unearthing Singapore’s “Compounders”
MER’s scoring framework favours what it calls “compounders”: Stocks that deliver value-enhancing incremental ROIC alongside high reinvestment over time. This leads to dependable, high quality growth through the cycle. FCF conversion is MER’s quality filter. MER also takes into account analyst conviction and catalysts

Top Picks: A Compounder-heavy group
Compounders should reward time in the market, rather than timing of the market. MER believes FSSTI compounders can outperform over 12 months and the medium term: Sembcorp Marine, Sembcorp Industries, Singapore Press (SPH), Golden Agri and CapitaMalls Asia (CMA). MER’s top financials pick is UOB.

Among Midcaps, MER likes compounders Osim, Genting HK, First Resources and Sakari. SREITs are not really compounders but the group’s valuation is attractive. MER likes CapitaCommercial Trust and Mapletree Industrial Trust.

Singapore domestic macro looks mixed
Singapore wants to raise productivity and reduce its dependence on foreign workers. With inflation risk to the upside, the S$ should remain on an appreciating path. The FSSTI is positively correlated to the S$. Consumer names like SPH can benefit from rising wages. Risks to the O&M space from new labour policies are far off, MER thinks. The risk of property cooling measures is ever present but MER does not expect any significant new ones in the near term.

Global themes are more relevant to most of MER’s Top Picks
MER’s outlook for healthier medium-term commodity prices supports the O&M and CPO names. MER’s non-consensus call for a soft landing in China would support CMA and Osim. The continued shift of market share in areas like trade finance from European to Asian banks is a clear tailwind for Singapore’s banks as well.

Singapore Market Wrap

Singapore shares join waiting game

Investors across Asia appear hesitant to do much ahead of this Sunday's Greek elections, resulting in Asian bourses trading in relatively tight ranges. Singapore was no exception, with the STI reverting to the same level it finished on Monday, relinquishing the 10 point gain it made in the last half hour on Tuesday evening.

The STI closed at 2,786.88, down 0.4% day-on-day (dod).

Call STI 2750MBeCW120831 (QP9W) exercise level 2,750.*
Call STI 2950MBeCW120831 (QE8W) exercise level 2,950.*
Put STI 2650MBePW120831 (QQ0W) exercise level 2,650.*
Put STI 2850MBePW120831 (QE9W) exercise level 2,850.*

Yanlord takes lead from Chinese market
Chinese property developer Yanlord soared 4.6% dod yesterday to its highest close ($1.14) since May 4, after seeing developer names gain 0.5% on the China Merchants Property Development in Shenzhen trading. The latter were boosted by lending prospects suggested by the 21st Century Business Herald report that said China may relax rules on lending to local government financing vehicles and developers in the near term. The report also indicated that financing for purchases of low-cost and small-sized homes may be encouraged.

Curiously, Singapore's property name CapitaLand, failed to take the cue from its Chinese counterparts, closing instead as one of the index losers yesterday following its 1.8% loss to $2.68. According to Bloomberg, CapitaLand's sales attributed to China constitutes approximately 22%. The property giant is aiming for this percentage to increase to 35 - 45%.

Call Yanlord MBeCW121203 (QR2W) exercise price $1.00.*
Call Yanlord MBeCW121002 (P8LW) exercise price $1.40.*

Call CapitalaMBeCW120903 (P0ZW) exercise price $2.582.*
Call CapitalaMBeCW120904 (QC5W) exercise price $2.979.*
Put CapitalaMBePW121203 (QR6W) exercise price $2.60.*

Overnight Market Wrap

US retail sales fell

The S&P500 fell 0.7% to 1,314.88 on disappointing retail sales figures. The Commerce Department reported that retail sales declined 0.2%, while producer price index fell 1.0%. The consumer price index will be released later tonight.

European indices ended mixed despite a rally in the Euro. The common currency rebounded to touch $1.26 last night. French President Hollande warned the Greeks ahead of their elections that if they do not respect the bailout deal, some Eurozone members may want Greece to be removed from the bloc.

Overnight Markets

Indices	Last	Change
STI	2786.88	-0.4%
HSI	19026.52	0.8%
DJIA	12496.38	-0.6%
S&P 500	1314.88	-0.7%
Nasdaq	2818.61	-0.9%

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