Towards Financial Freedom
DBS Equity Research: Wired Daily 25 Nov 2014
Singapore Strategy - Seek stability in solid yield plays: OCBC, Sheng Siong, SPOST, SingTel and China Merchants Holdings. China's interest rates cut an inflexion point for China property plays - BUY Capitaland. BUY SMRT, beneficiary of lower oil prices.
Last month's 4.5% rise in the STI was narrow, driven by banks and Telcos. With the earnings revision trend stabilising, the STI should head for 3400 by year-end, based on 13.76x (average) FY15 PE. For the STI to move past its average PE into 2015, rerating will need to come with a stronger global recovery to offset rate hike expectations and bolster confidence that the projected earnings growth of 8.7% can be achieved. With several key moving economic variables - the strengthening US$, possible interest rate hikes, sliding oil prices and a nascent global recovery, these factors could trigger volatility in the stock market.
Sentiment in the oil and gas sector will remain fragile till we see stability in oil prices. Hopes are for oil prices to rebound after the 27Nov OPEC meeting, which could lead to a rebound in oil & gas stocks. Leading the pack could be stocks which are deeply oversold and trading below our bear case scenario values. Our preferred pick is Yangzijiang, which has little exposure to rigbuilding, is in a net cash position, and generates a dividend yield of 4.4%. Transport companies are key beneficiaries of the lower fuel cost. BUY SMRT. China's interest rates cut is an inflexion point for China property plays - Buy Capitaland, which has 40% of its assets in China. Among domestic proxies with stable growth and yield, we like OCBC, Sheng Siong, Singapore Post and Singapore Telecoms. We like China Merchants Pacific which offers a high 7% yield and 12% growth, driven by acquisition.
Singapore's 3Q GDP grew a stronger 2.8% y-o-y, thanks to stronger growth in the manufacturing and services sector. This beat both the initial flash estimate of 2.4% growth, and the market's expectation. This also means that after seasonal adjustments, and on an annualised basis, the Singapore economy grew 3.1% - better than the flash estimate of a 1.2% expansion. The Singapore government now expects the economy to grow by 3% this year - at the mid-point of its earlier official forecast of 2.5-3.5%, which had been kept unchanged since August. For 2015, the Singapore government expects the economy to grow 2-4%, as a pickup in external demand benefits externally-oriented sector but labour constraints continue to weigh down the construction, retail and food services sectors.
Sapphire Corporation plans to acquire a China-based Engineering, Procurement and Construction (EPC) business for RMB 360m (S$75.9m) as part of a new corporate and turnaround strategy to propel growth via railway infrastructure and engineering projects after disposing its loss-making steel business. It has entered into an agreement to acquire the entire share capital of the Hong Kong incorporated Ranken Infrastructure via issue of new Sapphire shares worth S$16.5m at $0.10 each and a subsequent capital injection of RMB 282m (S$59.4m). AAAcertified Ranken is China's second-largest privately owned integrated rail infrastructure company with significant contracts from state-owned enterprises in China, India and Bangladesh. Ranken recorded net profit of RMB19.4m (S$4.1m) for the six months ended 30 June 2014 and has a confirmed order book of RMB 2.1 bn (S$442.1m) to be delivered over 3 years. Sapphire intends to propel growth via Ranken through increasing rail project order book, participating in urbanization plans and partnering with state-owned enterprises and governments in long-term infrastructure projects.
Nan Fung International Holdings, one of Hong Kong's largest privately owned property developers, has raised its offer price for Forterra Trust to S$2.25 per unit from S$1.85. The higher bid price was after Nan Fung acquired about 53.89m units at S$2.25 apiece which took Nan Fung's stake to 51.76% of the total number of issued units and 51.26% of the maximum potential total units in Forterra. The respective stakes grew to 56.73% and 56.18% by 5pm on Monday.
Yuexiu Property proposed to issue HK$2.3bn 6.10% notes due 2029 under the US$2bn medium term note programme. The gross proceeds of the proposed notes issue will amount to approximately HK$2.3bn. The net proceeds are intended to be used by the Company for refinancing certain indebtedness and for general corporate purposes.
Singapore's headline inflation eased to 0.1% in October from 0.6% in September - its lowest since December 2009. At 1.7%, core inflation (although less than September's 1.9%) continues to diverge from headline inflation, as restructuring costs maintain a grip. The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said that this was "mainly on account of base effects associated with fluctuations in car Certificate of Entitlement (COE) premiums, as well as sharper declines in the costs of accommodation and oil-related items". October's headline inflation of 0.1% was lower than the market's expectation for a 0.6% y-o-y rise in the consumer price index (CPI).
The Dow and S&P 500 inched to new records last night ahead of a deluge of US economic data in advance of Thursday's Thanksgiving holiday. The US economic calendar was quiet on Monday, but sentiment was lifted by data showing a rise in German business confidence. The next two days will include third-quarter US economic growth, the Conference Board's index of consumer confidence and several other key reports on the US.
Source: DBS
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