DBS Equity Research: Wired Daily 24 Mar 2016

kiasutrader

Publish date: Thu, 24 Mar 2016, 02:36 PM

Singapore Budget 2016 key event to watch today

STI - Pullback from 2900 started, keep view for 2720 to 2920 in weeks ahead, start bargain hunt only around 2770

ASEAN Consumer - Projecting 10% profit growth in 2016 but selective on stock picks. SGX-listed plays - Thai Beverage and Courts Asia

Singapore Budget 2016 is the key event to watch today. Amid an uncertain global outlook and challenging economic conditions, our Singapore economist says this year's budget will aim to help Singaporeans and local enterprises cope with slow growth. Enabling companies to navigate the difficult business environment and helping workers maintain their employability against the backdrop of a softening labour market will be the key focus. This will be a marked deviation from previous years' budgets, which focused mainly on addressing medium-term restructuring and social issues. For FY16, the point to note is that this is the first financial year of the new term of government. The chance is high that policymakers will aim for a modest surplus and keep its powder dry, particularly against the backdrop of the challenging economic environment.

Meanwhile, the movement in the STI is panning out exactly as what we had earlier expected. The index has started its decline from a high of 2906, which is within the 2900-2920 near term resistance. We keep our view for the STI to trade within 2720-2920 in the weeks ahead. Short-term traders should be a little more patient and start to bargain hunt only around 2770.

The rebound in the USD led to a decline in US stocks, oil/commodities as well as emerging market assets. The Dollar extended gains into a fourth day as officials signalled the Fed stands ready to raise rates at any meeting should economic data warrant tighter monetary policy. According to Bloomberg, St. Louis Fed President James Bullard joined a growing chorus of U.S. policy maker emphasizing evidence of an improving economy may mean rates have to be hiked sooner rather than later. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart made similar comments earlier this week, saying borrowing costs may need to be increased as soon as the April meeting.

The start to 2016 has been rocky for consumer stocks, as earlier expected, but 4Q15 earnings have largely met our expectations. We continue to expect 2016 to dish out better servings from companies under our coverage. Based on our surveys of companies' announcements on their outlook, we note that there was a fair mix, ranging from cautiously optimistic to optimistic. We are projecting a collective net earnings growth of 10%, up from 2% in 2015. That said, our projections are based on expectations that GDP should improve towards 2H. We note that valuations have moved up and our coverage is trading at +1SD above historical average, led by Indonesian consumer companies. We are still maintaining our view for improving consumer sentiment in 2016 but stock picks are selective given the recent outperformance. For SGX-listed plays, our picks are Thai Beverage and Courts Asia. We continue to like ThaiBev as a resilient and stable play, with an added catalyst from its corporate restructuring. Courts Asia looks attractive on its valuation, earnings bottoming-out, reasonable yield and a potential privatisation target as an added catalyst.

mm2 Asia has signed a non-binding memorandum of understanding (MOU) with StarHub to cooperate and collaborate on the production and distribution of original local productions. As part of the collaboration under the

MOU, mm2 Asia and StarHub are planning several projects which will be broadcast on StarHub's self-packaged TV channels and online platform. Both companies will work with advertisers and other partners to produce up to $25m worth of original local content productions over a three year period. StarHub has just acquired a 9.05% stake in mm2 Asia.

Perennial Real Estate Holdings will acquire an aggregate equity interest of 20% in Shenzhen Aidigong Modern Maternal and Child Health Management, a leading maternal and child health management company in China. The consideration for the transaction is RMB135.4m, after taking into account the business of Aidigong, which is valued at RMB650m and translates to about 9.7 times EBITDA for forecast FY2016. Perennial will fund the transaction via internal funds and external borrowings.

Singapore's real estate investment trust (Reit) market is set to consolidate as smaller vehicles merge to cope with rising regulatory costs, according to Cambridge Industrial Trust (CIT). Singapore has tightened rules that could raise costs and lower revenues for Reits, making mergers between such trusts the most viable option for them to thrive, CEO of CIT Mr Levinson said.

Consumer prices have fallen for the 16th straight month in Singapore. February's softer-than-expected -0.8% headline inflation rate came from cheaper cars and a softer housing rental market. However, almost all other categories registered a year-on-year increase in prices. Indeed, core inflation - which strips out the costs of private road transport and accommodation - actually edged up to 0.5% in February, from January's 0.4%. This was higher than the market's expectation for a 0.3% reading, and marked the third consecutive month of increase. The MAS and MTI reiterated their 2016 inflation forecasts at -1% to flat for overall inflation, and 0.5% to 1.5% for core inflation.

Source: DBS

ThaiBev (Y92)

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