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Singapore Monthly Strategy Singapore Market Focus Singapore Monthly Strategy Refer to important disclosures at the end of this report DBS Group Research . Equity 5 Mar 2020 The only thing to fear is fear itself STI : 3,025.03 • Earnings cut on COVID-19 impact, STI YE target lowered to 3350 Analyst • Emergency rate cut put REITS back in focus, add pressure on banks’ Kee Yan YEO, CMT +65 6682 3706 NIM [email protected] • COVID-19 resilience list - AIMS, ESR REIT, StarHub, Netlink, AREIT, Janice CHUA +65 6682 3692 FCT, Sheng Siong and Thai Beverage [email protected] • China’s COVID-19 recovery and Singapore malls’ footfall recovery - Sunpower, Frencken, YZJ, CRCT, CapitaLand, CMT, MCT &Koufu Key Indices Current % Chng Another rate cut ahead? Global monetary and fiscal support continues STI Index 3,025.03 0.2% as COVID-19 was spreading across the globe over the past two weeks. FS Small Cap Index 338.16 0.8% On top of the 50bps emergency cut, consensus expects the FED to USD/SGD Curncy 1.38 0.0% lower rates by a further 25bps at the 18 March FOMC meeting. The Daily Volume (m) 1,631 drop in the US 10-yr yield below 1% is positive for REITs/yield stocks Daily Turnover (S$m) 1,911 while banks face NIM pressure. Downgrade UOB to HOLD, TP cut to Daily Turnover (US$m) 1,380 S$25.50. Source: Bloomberg Finance L.P. Earnings slashed on viral outbreak uncertainties. EPS growth for stocks Market Key Data (%) EPS Gth Div Yield under our coverage was cut by 3.4% and 1.9% for FY20F and FY21F 2019 2.1 4.4 respectively vs the previous quarter. The drag came from consumer 2020F 1.6 4.5 discretionary (Genting, Jumbo), consumer services (SingTel, SPH), 2021F 7.0 4.6 industrials (Keppel Corp, SCI, SMM, SIA, SATS) and banks (UOB, OCBC). On a positive note, Venture Corp, AREIT, UOL, Wilmar and (x) PER EV/EBITDA Sunpower saw upward earnings revisions. 2019 13.7 13.6 2020F 13.5 13.5 STI year-end target 3350. The COVID-19 situation in China has 2021F 12.6 12.5 improved tremendously over the past month even as more countries are affected. STI earnings are slashed by 6.3% and 5.6% for FY20F and STOCKS FY21F respectively, leading to almost zero growth for STI this year. We 12-mth Price Mkt Cap Target Performance (%) thus lower our STI year-end target to 3350 (from 3500) pegged to S$ US$m S$ 3 mth 12 mth Rating 12.89x (-0.25SD) FY21F PE. Technical support at 2960. COVID-19 playbook. We identify the five phases (fear, anger, AIMS APAC REIT 1.42 720 1.50 0.0 1.4 BUY relief/acceptance and finally recovery) of COVID-19 experience and the ESR-REIT 0.54 1,347 0.59 (1.8) (0.8) BUY StarHub 1.50 1,876 1.72 7.1 (5.7) BUY sector outperformers/underperformers. We believe that China has Ascendas REIT 3.33 8,688 3.45 11.4 20.7 BUY started its recovery phase, where sector outperformers are Thai Beverage manufacturing and domestic demand (F&B and retail). Singapore is at Public Company 0.79 14,224 1.04 (11.3) (1.3) BUY the relief/acceptance phase, and its sector outperformers are telecom Sunpower and domestic demand (F&B and retail). Group Ltd 0.52 302 0.84 (4.6) (12.7) BUY Venture 17.05 3,552 18.50 9.8 (10.7) BUY Two-pronged strategy. (1) COVID-19 resilience list - Stocks that are CapitaLandCorporation resilient to the supply chain disruption, sharp drop in consumer Retail China Trust 1.45 1,266 1.75 (7.1) (3.8) BUY discretionary spending and impact of travel restrictions. Our picks are CapitaLand 3.64 13,255 4.50 1.1 4.3 BUY AIMS, ESR REIT, StarHub, Netlink, AREIT, FCT, Sheng Siong and Thai CapitaLand Mall Beverage, (2) China’s COVID-19 recovery and Singapore malls’ footfall Trust 2.46 6,553 2.95 (1.2) 1.7 BUY recovery. Our picks are Sunpower, Frencken, Yangzijiang, CRCT, Koufu Group 0.71 284 0.84 (6.6) 8.4 BUY CapitaLand, CMT, MCT and Koufu. Others include Hi-P (HOLD) and MapletreeLimited Valuetronics (not covered). Commercial Trust 2.24 5,349 2.60 (3.5) 24.9 BUY Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 4 Mar 2020 ed: TH/ sa: DT, PY, CS/contributed by YWB Market Focus The Only Thing to Fear is Fear Itself March Market Outlook Nowhere to hide FTSE ST Indices’ relative performance for February ▪ STI stumbled 4.5% m-o-m to 3011.18 as the spread of YTD Return COVID-19 to Europe, Middle East and US ignited fear of a Energy -11.8 Consumer Discretionary -11.2 global recession even as the situation in China has Communication Services -10.3 Real Estate -10.0 improved significantly over the past month Industrials -9.3 Consumer Staples -8.9 ▪ Consumer goods outperformed buoyed by positive DBS Coverage -7.1 STI Index -6.7 earnings surprises from Thai Beverage and Wilmar Banks -6.3 Information Technology -4.6 International REITs -3.1 Utilities -2.9 ▪ Telecommunications underperformed after SingTel reported Financial -2.1 Health Care 3.5 much weaker-than-expected earnings -14.0 -12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 ▪ Consumer services stocks Genting, Singapore Airlines, Source: DBS Bank Jumbo underperformed on continued worries about the impact of COVID-19 on the travel and tourism industry Another rate cut on the cards March event calendar ▪ The annual meeting of the National People’s Congress Date Event Comments - Event has been postponed due to COVID-19 5 Mar Meeting of the Postponed due ▪ March FED Meeting (Postponed) National People’s to the COVID-19 Congress in China virus - FED cut rates by 50bps to 1.25% in an ‘emergency’ move 18 Mar FOMC Rate Consensus amid Covid-19 risk Decision expects another - Consensus expects a further 25-bp cut at the 18 March 25-bp cut to 1% FOMC meeting to 1% FED funds rate on COVID-19 - Positive for REITs/yield stocks (AREIT, AIMS, ESR REIT, uncertainties CRCT, Starhub - Negative for banks given NIM pressure (OCBC, UOB) Source: Bloomberg Finance L.P., DBS Bank Generous and far reaching Singapore Budget 2020 Singapore’s overall fiscal position ▪ Overall deficit of S$10.9bn (2.1% GDP), the deepest since 2009 GFC - Stabilisation and Support Package of S$4bn to help sectors affected by COVID-19 - Property tax rebates and temporary bridging loan programmes for the tourism sector (Genting Singapore, CDL HT, FEHT) - Rebates for the aviation sector (SIA, SATS) - Property tax rebates for qualifying commercial properties (e.g. Mapletree Commercial Trust, Suntec REIT) ▪ S$1bn over three years to build up government’s cyber and Source: DBS Bank data securities (Silverlake) ▪ S$1.6bn Care and Support Package (Sheng Siong, Koufu) Page 2 Market Focus The Only Thing to Fear is Fear Itself 4QFY19 results review A balanced quarter Earnings relative to expectations Sector Above Below In-line ▪ More companies beat earnings expectations compared to Banking 2 those that disappointed Comm. Svcs 1 3 ▪ Financials (Above): Results beat forecasts on strong growth in Consumer Disc. 2 2 fixed income, currencies and commodities volumes (SGX) and Consumer Staples 2 1 4 Energy 1 assets under administration (iFast) Financials 2 ▪ Industrials (Below): Write-offs and impairments dragged on Health Care 2 1 earnings (Keppel, SCI, SMM, SIA) Industrials 4 7 3 Info Technology 3 3 ▪ Information Technology (Above): Better-than-expected results Real Estate 4 1 4 due to higher orders (AEM) and improvements in operational REITs 7 4 20 efficiencies (Venture) Utilities 1 1 Total 25 18 43 ▪ Real Estate (Above): Higher earnings largely due to higher gains from asset recycling (CapitaLand) Source: DBS Bank ▪ Industrial REITs (Above): Earnings outperformed due to cost- control measures and past acquisitions (MINT) ▪ Commercial REITs (Above): Earnings surprise led by strong positive commercial rental reversions (OUECT) and earlier- than-expected opening of Festival Walk (MNACT) REITs a silver lining Earnings revision by sector (q-o-q) Current vs Previous Quarter ▪ Communication Services: Lower advertising expenditure (SPH) FY20 Chng FY21 Chng coupled with margin erosion in Australia consumer business Banking -3% -2% and weakness in enterprise business led (Singtel) to a 15% Comm. Svcs -15% -16% FY20F earnings cut Consumer Disc. -10% -4% Consumer Staples 0% 3% ▪ Consumer Discretionary: Earnings cut of 9% for FY20F due to Energy -2% 0% COVID-19 impact on tourism and consumer sentiment Financials 0% 3% (Genting, Jumbo) Healthcare 7% 1% Industrials -9% -5% ▪ Industrials: 9% cut in FY20F earnings on weak orderbook Info Technology 2% 2% (Keppel, SMM) and lower regional tourism (SATS, SIA) Real Estate 1% 0% ▪ Information Technology: 2% FY20F upward revision in REITs 3% 4% earnings due to higher revenue from increased Intel capex Utilities -13% -18% DBSV Coverage -3.4% -1.9% guidance (AEM) and new production introductions and partners (Venture) Source: DBS Bank ▪ REITs: Earnings to be boosted by larger acquisitions due to enlarged debt headroom from merger (ART) and new project completions (AIT) ▪ Banks : 3% (FY20F) cut in earnings on lower loan and fee income, higher provisions assumptions ▪ Utilities: -13% FY20F earnings revision due to change in depreciation policy (KIT) Page 3 Market Focus The Only Thing to Fear is Fear Itself STI’s EPS growth slashed Sector earnings and valuations Earnings Div Yld ▪ STI EPS growth slashed to just +0.2% (previously +6.2%) for PER (x) Growth (%) (%) FY20F 20F 21F 20F 21F 20F - Double-digit negative revisions for Genting, SingTel, Banking -4.4 5.0 10.0 9.5 5.1 Yangzijiang, Keppel Corp, SATS Comm.
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