Towards Financial Freedom
DBS Equity Research: Wired Daily 19 Oct 2015
STI - Near-term range 2950-3050, modest 'overshoot' capacity capped around 3100.
Airlines one rare bright spot in upcoming results season, drop in 3M SIBOR near-term positive for City Dev
Yanlord - Aug/Sep sales came in better than expected at higher ASPs
Attention today turns to the release of key Chinese data at 10am Singapore time. These include 3Q GDP (consensus +6.8% y-o-y), September retail sales (consensus +10.8% yo-y) and industrial production (consensus +6% y-o-y).
We peg a near-term range of 2950-3050 for the STI with a modest 'overshoot' capacity capped around 3100 as the recent sharp rise among index heavyweights tapers off. Market pullback over the next 2 weeks should be contained as prices are underpinned by the recent rebound in regional currencies. China's CPC meeting from 26-29 October whereby the 13th 5-year plan will be discussed should also underpin Asian equities in the near-term. But given the weak macro environment in 3Q, be selective as sentiment should turn more guarded as the 3Q results season gathers pace.
One rare bright spot is the airlines as the positive impact of lower fuel costs filter through after unwinding of their expensive hedge position. SIA is an earnings recovery while Tiger Airways is an earnings turnaround play.
The 3M SOR fell from 1.56% to 0.88% over the past month. The 3M SIBOR, which typically lags the SOR, tumbled 11bps to 1% on Friday. The pullback in the 3M SIBOR provides a short-term respite for Singapore residential property stocks. City Deveopments has the biggest exposure to Singapore residential properties at 27%.
Aug/Sep sales for Yanlord came in better-than-expected at 5-10% higher ASPs. New launches in Shanghai and Nanjing were well received. These may lead to an upside in its 2016/2017 earnings. The strong sales momentum is likely to extend into 2016. We believe i2016 sales growth will be supported by later phases of existing projects which have been selling well in 2015. Aberdeen has reduced its holding from 10.0% to 7.0% since last year. Although the overhang may affect near-term share performance, we believe its valuation is undemanding given its improving sales outlook.
Yanlord is trading at a 47% NAV discount, 7.2x FY16 PE and 0.5x P/BV (vs its historical 10.6x PE and 1.2x P/BV). We maintain our BUY rating with a TP of S$1.34 based on 9x FY16 PE, benchmarking its average PE since 2014.
US stocks rose following better-than-estimated quarterly profits from General Electric Co. But Honeywell International Inc. shares fell after its revenue missed expectations and the company trimmed its full-year sales forecast.
Soilbuild Business Space REIT - Acquisitions to drive earnings; as portfolio undergoes tenant churn. Conservative capital management offers comfort that REIT is shielded substantially from rate hikes in the immediate term.
Source: DBS
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