Industrials (Capital Goods) – Positive outlook

Robust O&M outlook continues with oil remaining at healthy levels. The rig-builders in our coverage registered YTD strong order book wins totaling 76% of PSR FY13F of S$10.6bn. Stocks in niche areas of business are also expected to do well, due to various competitive advantages. Most stocks in the sector remain reasonably priced.

Commodities – CPO price muted

High supply from higher production, availability of substitutes, coupled with weaker expected demand continues to reduce any potential for CPO prices to rebound. Upstream operators are therefore expected to register continued weak results.

Telcos – Positive on Data monetizing

Besides attractive dividends, we see continued growth potential. Growth is expected from data monetizing, including through higher excess data charges, and continued growth in customer base.

REITS and Property sector – Residential not favored Mammoth supply of residential properties (2H13: c.100,000 units), but buyers are scarce due to TDSR rules. Prices therefore are expected to correct further. Retail/Hospitality exposure therefore preferred. Yields on REITS remains unattractive, with further downside potential expected from the constant assessment by the Fed at every FOMC of when to taper QE in light of an improving US economy. Bottom picking of REITS with strong rental growth and stable margins advised.

Banks – 1H13 strong, 2H13 slightly weaker but positive NIMs have stabilized for 2 quarters after a lengthy decline. With strong double-digit y-y growth of Fees & Comm, and Loans growth in 1H13, 2H13 may be weaker from a high base on 3Q economic concerns, and FX weakness. We continue to be positive on strong growth traction, while banks stand to benefit from rising interest rates.

Update to Top Picks list – DBS and SingTel added With increasingly positive economic data from the major economies (US, China, Japan and Eurozone), we think that big caps will stand to benefit most in the near term, thus our change in focus. Keppel Corp remains our Top pick, as O&M outlook remains robust, dayrates and utilization rates are high, while O&M margins expected to improve y-y. DBS stands to benefit from rising interest rates, China exposure, and cheaper valuations vs local peers. SingTel to benefit from Healthy EBITDA growth in AU and SG, and growth potential from overseas assoc, Digital Life investments.

(New!) Deep Value Plays – Amara, Boustead, Courts We introduce our list of stocks with significant upside potential, not yet realized by the market. Amara Holding trades at a >50% discount to RNAV. Boustead SG competing in niche areas registered record order books of S$491m. Courts Asia is primed to benefit from rising credit demands from its unique in-house credit facilities.

Source: PhillipCapital Research - 20 Sep 2013