Towards Financial Freedom
DBS Equity Research: Wired Daily 11 Apr 2016
STI - Maintain 2730-2920 range in coming weeks, support/resistance levels within at 2784 and 2850
MAS semi-annual monetary policy review - expect SGD NEED slope to flatten
ST Engineering - The smart bet, TP raised to $3.65 from $3.40
Equity Explorer reports - UMS Holdings and Spindex
We maintain our view for the STI to range within 2730 to 2920 in coming weeks with intermediate support/resistance levels at 2785 and 2850.
The 2 key economic events this week are the semi-annual monetary policy review by the Monetary Authority of Singapore (MAS) and the release of Singapore's 1Q GDP advanced estimates on 14 April. DBS Research expects the MAS to lower the slope of the SGD NEER to zero while 1Q GDP is seen increasing by 1.3% y-o-y (consensus estimates 1.6%). Unless there is a signification deviation from consensus estimates, we do not expect the GDP figure to sway the equity market.
The Singapore equity market heads to the 1Q results season trading at between 11.32x (-1.5SD) and 12.09x (-1SD) 12-mth fwd PE. This is reflective of the guarded tone given that companies remained in a state of 'earnings recession' with no signs yet to an end to the downward earnings revision trend. Companies releasing results this week include SPH, Capitaland Retail China Trust, M1, Keppel T&T, Keppel REIT andCapitaLand Mall Trust.
We raise the TP for ST Engineering to $3.65 from $3.40 previously. Visibility remains robust despite some slowdown in marine and land systems orders in 2015. The Electronics division is positioned to capitalize on the Smart Nation revolution in Singapore, with projects worth more than S$1bn likely to be tendered in the near future, according to our estimates. Meanwhile, the Aerospace division has started to reap benefits of investments in new growth areas. Maintain Buy.
We issue an Equity Explorer on Spindex Industries with a Moderate Risk rating and 12-mth potential target of $0.99. Spindex is an integrated solution provider of precision machined components. It has been growing steadily, with an 8-year (FY07-FY15) pretax profit CAGR of 13%. Pretax margin has also improved to 13.3% in FY15, from 7.7% in FY07. A strong net cash position of about S$22m would enable the Group to capitalise on business opportunities. At 6x FY16F PE, Spindex trades at a steep 50% discount to peer Innovalues of about 12x, and 53% discount to industry average of 13x. Applying a 40% discount on Innovalue's PE, given Spindex's much smaller market capitalisation, fair value works out to be S$0.99, offering potential upside of 32%.
We issue an Equity Explorer on UMS Holdings with a Moderate Risk rating and 12-mth potential target of $0.70 based on DCF. Expect weaker earnings in FY16F on flat demand for equipment and normalization of margins, but construction of new 300mm fabs by chipmakers provides early indication of a potential round of equipment spending at end-2017. Meanwhile, UMS has been paying 6-Sct dividends, representing an attractive 10.3% yield. Recent investment in aviation component business could also bear fruit.
Source: DBS
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