Today's Focus

2013 Outlook: Singapore to underperform the region; prefer companies thriving on external growth

Our investment themes for 2013 are centred on companies thriving on external growth. Singapore is expected to underperform the region. Reduced risk from Eurozone, ultra loose monetary policies and green shoots of recovery will tilt the balance towards risk and cyclical plays. However, Singapore's GDP and earnings growth pales in comparison to regional counterparts, as it struggles with restructuring pains.

Themes to drive performance: i) China offers the brightest spot, urbanisation is the buzz word. Beneficiaries riding on China's recovery are Midas, Capitamall Asia, Perennial China Retail Trust (PCRT), Sound Global, United Envirotech and China Merchants. ii) Hunting for yield + growth. Mapletree Commercial Trust, Far East Hospitality Trust and China Merchants. Hutchison and Religare offer the highest dividend yield with upside growth potential. Ezion stands out with the highest 3-year EPS CAGR of 41% in our universe, yet trading on undemanding PE of 10x. Petra should be re-rated as a pure consumer play with a leading market position in fast growing Indonesia, after divesting its cocoa ingredients business. iii) Cyclicals trading on bombed out valuations. NOL and Jaya are cyclical recovery plays while the worst is over for Wilmar. Noble's earnings will rebound on healthier commodity demand and margins normalization.

For the Property sector, after a stellar performance in 2012, we remain neutral on property developers on valuation grounds. The sector is trading at a 21% discount to RNAV vs the average of 18%. The large incoming supply from this year onwards is expected to limit price upside. We expect home prices to decline between 0-5%. We pick stocks for RNAV realization and resilience for outperformance. We prefer CMA
(BUY, TP: S$2.29) and Capitaland (BUY, TP: S$4.09) for their ability to monetize RNAVs. Wing Tai (BUY, TP: S$2.33) is our top mid cap pick for attractive valuations.

Singapore's purchasing managers' index (PMI) for December dipped 0.2 point from the previous month to 48.6 - its sixth straight month of decline. The contraction was attributed to further decline in new orders, new export orders and production output. A separate PMI for Singapore's electronics sector showed activity weakened to 46.6 in December from 47.4 in November.

CDL Hospitality Trusts has entered into an agreement with Banyan Tree Holdings for the sale and leaseback of Angsana Velavaru in the Maldives. Angsana Velavaru is to be acquired at US$71m at a pro forma annualised net property income yield of 9.6% for the nine months ended 30 September 2012. This is a unique opportunity for CDL Hospitality Trusts to participate in the buoyant hospitality sector of the exclusive Maldives market.

Roxy-Pacific Holdings has purchased a freehold residential site off Dhoby Ghaut/Selegie Road for $24.5m. This is Roxy-Pacific's third purchase in the vicinity in six months; the other two are Sophia Mansions at Adis Road and 7/9/11 Wilkie Terrace, which adjoins the newly bought land parcel. The latest site at 13/15 Wilkie Terrace has an estimated total land area of 9,324 sq ft and an existing gross plot ratio of 2.1.

STATS ChipPAC now expects higher net revenues for the fourth quarter 2012 to be approximately $475m to $482m, an increase of approximately 16% to 18% (vs previous expectation of 2% to 8% increase) compared to the prior quarter due to higher communications market demand and strong ramp in advanced silicon node wafers for high end smartphones and tablets.

CSE Global and its partner are working together to implement the new Oceano Patient Administration System (PAS) at the Queen Elizabeth Hospital in Birmingham. CSE Global has also been awarded a contract to supply a RiO Care Record System at a large Community Trust in the Midlands area. The total value of these projects is approximately S$5.6m, but this is spread over a number of financial years. These projects will have a positive impact on CSE's profit for the 2013 and 2014 financial years.


CNMC Goldmine Holdings announced that it has produced 740.82 ounces of gold dore bars at its new heap leach facilities. Production will go into full swing when the monsoon season ends next month. This would add about one million tonnes of processing capacity each year to the firm's current 60,000 tonnes.

In property news, demand for industrial property remains robust, going by the bidding activity for three plots of land in the Tuas area that closed on Wednesday, even though the offers were largely within market expectations. JTC Corporation launched a plot of land at Buroh Street and two others at Tuas South Street 6 under the Industrial Government Land Sales programme in November last year.

A growing number of investors have shifted money into Japan and other Asian equity funds in the final weeks of 2012. Spurred on by macroeconomic factors such as monetary easing in Japan, a recovery in China and a
compromise fiscal deal in Washington, such fund flows helped drive up the region's equity prices in the past two weeks. There are signs that investors are prepared to take greater risks as flows into Japan and the rest of Asia and other emerging markets have swung from negative to positive, according to EPFR Global, which tracks 45,000 traditional and alternative funds with US$17.5 trillion in assets. The fund data consultant estimated that flows into Asian equity funds excluding Japan amounted to US$13.6 bn in Q4, offsetting the negative flows of the previous nine months. The result was that inflows totalled US$4.7 bn in 2012, compared with outflows of US$23.7 bn in 2011.

China's official purchasing managers' index (PMI) for the non-manufacturing sector rose to a four-month high of 56.1 in December from 55.6 in November. The services sector index follows twin manufacturing PMI surveys that showed China's growth reviving in December.

Source: DBSV