DBS Equity Research: Wired Daily 25 May 2015

kiasutrader

Publish date: Mon, 25 May 2015, 04:13 PM

Singapore Strategy - Expect STI to be resilient, backed by valuation and liquidity. S-chips and China proxies to benefit from turbo charged HK/China markets

We expect STI to be resilient, backed by valuation and liquidity. With the likelihood for a further delay to the start of the US rate hike cycle, inexpensive valuation and positive spill over from HK/China equity markets, our year-end objective is 3,700 (7.6% upside) based on 13.7x 12-mth forward PE. Our preferred S chips and China proxies are China Merchant and Yangzijiang, Yanlord, Mapletree Greater China Commercial Trust and Midas.

We prefer stocks with specific catalysts to unlock value, and those able to engineer asset recycling initiatives to narrow their RNAV discount - Capitaland, Fraser Centrepoint Ltd or stocks with a diversified business model generating strong and sustainable cashflows - Global Logistics Properties. Other alpha picks are Amtek on earnings recovery, iFAST which offers growth and dividend yield and SIA which will benefit from lower jet fuel in coming quarters.

On the ASEAN Consumer sector, tracking recent results released in the consumer space, we saw a high percentage of misses of c.40% amongst our ASEAN regional consumer coverage. Collectively, we have trimmed FY15F & 16F topline and net profit forecasts for our regional consumer coverage by 0.5% to 2.2%. At this juncture, we are projecting a lower FY15F revenue and net profit growth rate of 12%/16%, down from 13%/18% forecasts a quarter ago. Going by the current outlook, we believe further cuts in companies' growth expectations are likely. We prefer stable plays. For SGX-listed F&B stocks, our pick is Dairy Farm.

Mapletree logistics Trustannounced the proposed acquisition of two properties - Mapletree Logistics Bac Ninh Phase 1 from its sponsor and a warehouse with in South Korea from Dakonet Co (Vendor). Total purchase consideration is estimated to be S$42.2m. We are positive on this deal as it will further deepen the trust's presence in the markets of Vietnam and South Korea, bulking up its exposures there. The initial yields for both transactions are expected to be accretive at 10% and 8% respectively.

The manager expects to fund these acquisitions with debt and gearing is expected to increase marginally to 34.9%, which is within manager's longer term gearing level of 40%.

Hiap Seng Engineering has been awarded contract worth approximately S$43m for the provision of mechanical works for the Mogas-Cogen Project on Jurong Island. The works have commenced and are scheduled for completion by September 2016.

Singapore Exchange (SGX) and Zhengzhou Commodity Exchange (ZCE) have signed a memorandum of understanding (MOU) to collaborate on efforts that jointly develop and expand the commodities markets in China and Singapore. The MOU will jointly explore areas of cooperation including development of new commodity derivative products, joint commodity-related events, information sharing, training, member and investor education programmes in both markets. Through the MOU, ZCE and SGX aim to strengthen mutual understanding and promote bilateral partnership.

In US, Federal Reserve chair Janet Yellen said the plan to raise interest rates this year was on track. Yellen said delaying a move to raise interest rates "would risk overheating the economy." However, she also warned that US economy continues to show weakness, with significant job market slack not reflected in the 5.4% jobless rate.

Source: DBS

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