Singapore Market Focus

Singapore Strategy Refer to important disclosures at the end of this report

DBS Group Research . Equity 6 Aug 2018

Trade war worries resurface in STI : 3,265.73

seasonally weak August Analyst Kee Yan YEO, CMT +65 6682 3706 • Trade war worries resurface; to subside in 4Q [email protected]

• STI to test 3220 in seasonally weak August, base case remains for Janice Chua +65 6682 3692 recovery to 3550 by year-end as trade war subsides [email protected]

• Banks back in focus – UOB upgraded to BUY. Stay with late Key Indices expansion/early contraction plays - Sheng Siong, SIA EC, , ST Current % Chng Engrg, Comfort Deglro, SATS, Thai Beverage. FS STI Index 3,265.73 0.1% FS Small Cap Index 367.85 0.3% • Investors are generally cautious, based on feedback from recent SGD Curncy 1.35 -1.5% marketing trips. Although cash levels are relatively high after the sell- Daily Volume (m) 1,729 down in May and June, there lacks a strong catalyst to add positions. Daily Turnover (S$m) 1,066 Daily Turnover (US$m) 791

Trade war worries surfacing again. Even as the US and China seek to Source: Bloomberg Finance L.P. restart talks to defuse trade tensions, news of the Trump administration considering a higher 25% tariff on US$200bn of Chinese imports have Market Key Data reignited trade war fears among Asian equities. The 25% tariffs on (%) EPS Gth Div Yield US$16bn Chinese imports could come into effect this month and the 2017 7.8 4.3 public hearing on the proposed 10% tariffs on US$200bn Chinese imports 2018F 13.0 4.1 is likely on 20 August, followed by enactment as early as September. 2019F 7.8 4.2

(x) PER EV/EBITDA The Ghost of August. The Singapore market has always ended August 2017 16.0 15.3 lower over the past 10 years with a median decline of 2.1% and average 2018F 14.2 14.9 drop of 4.2%. Short of a clear resolution to the US-China trade war, the 2019F 13.2 13.8

trend for a ‘negative August’ month is expected to continue this year, given trade war uncertainties, weak domestic driver post property measures, and a lack of positive catalysts. For the STI, we expect July’s rebound to be capped at 3340-3355 with downside risk to test 3220 this month. Our base view is that while trade war tensions could get worse during the August/September period, it should subside in 4Q heading STOCKS closer to the US mid-term elections with STI ending the year at 3550. 12-mth Price Mkt Cap Target Performance (%) S$ US$m S$ 3 mth 12 mth Rating Cash levels up but investors still cautious. In our recent marketing trips to HK, SG, Bangkok, and KL, investors are generally cautious. Although cash ComfortDelGro 2.27 3,600 2.59 3.2 (2.6) BUY levels are higher post-May/June sell down, investors are awaiting clearer Sheng Siong 1.09 1,201 1.26 7.9 16.6 BUY indications on the earnings’ growth outlook and for trade war’s tensions SIAGroup Engineering Ltd 3.05 2,501 3.92 (6.2) (14.3) BUY Singtel 3.18 38,041 3.70 (9.1) (17.2) BUY to clear up before taking a more aggressive stance. ST Engineering 3.35 7,655 4.10 (4.0) (12.3) BUY SATS Ltd 5.15 4,214 5.65 (5.7) 4.7 BUY Stay with defensive picks, prefer banks to property. We continue to Thai Beverage 0.78 14,349 0.94 (6.0) (17.5) BUY advocate a defensive stance, our picks are stocks that are less cyclical in UOBPublic Company 26.59 32,510 31.70 (8.5) 9.3 BUY nature with consistent dividend payouts in net cash with decent growth of near 5%. Banks are back in focus, after pulling a decent set of 2Q results, Source: DBS Bank, Bloomberg Finance L.P. backed by strong loan growth and lower credit costs, although trading Closing price as of 3 Aug 2018 income disappointed. We upgraded UOB To Buy on account of its sustained profit growth momentum, higher interim dividend and potential for higher full year dividend backed by strong capital levels.

ed: TH / sa:JC, CW, CS Market Focus Singapore Strategy

Market Outlook

Oversold July bounce within expectation FTSE ST Indices July performance ▪ STI ended the month 52pts (+1.6%) higher on oversold bounce as focus turned to corporate earnings while trade war worries temporarily subside ▪ The July rebound is in line with our expectations (refer to Singapore Strategy Report titled “Buckle up for a rough ride”) ▪ Sector leaders – Telecom lifted by Singtel’s shares ahead of ex-div date for its FY dividend – Consumer goods lifted by a rebound in Thai Bev’s shares – S-REITs AREIT, CMT, and CCT ▪ Sector laggards Source: DBS Bank – Residential property stocks fell on the worry that the surprise government measures will put the recovery to an abrupt halt – O&G dragged down by Marine following disappointing results

Trade war worries surfacing again What’s happening this month ▪ FED’s rate hike likely in September, not August Date Event Comment ▪ July was a peaceful month for global trade as US and EU struck Consensus expects the FED to hold a truce; both sides agreed not to impose new tariffs while rates steady this month at 2% with working together towards zero tariffs on non-auto industrial the next hike in September. We FOMC goods 02-Aug continue to expect two more hikes Meeting ▪ But US-China trade war worries likely to resurface this month by year-end that lifts the FED funds – Proposed 25% tariffs on US$16bn Chinese imports could come rate to 2.5% followed by another into effect this month four hikes next year to 3.5% – Public hearing on proposed 10% tariffs on US$200bn Chinese Timeline of US trade tariffs imports likely on 20 August – Proposed 10% tariffs on US$200bn Chinese imports could 24-25 Public hearing on proposed 25% tariffs on come into effect in September July US$16bn Chinese imports

Proposed 25% tariffs on US$16bn Chinese *Aug imports could come into effect

Public hearing on proposed 10% tariffs on *20-Aug US$200bn Chinese imports Proposed 10% tariffs on US$200bn Chinese *Sept imports could come into effect *tentative

Source: DBS Bank

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The Ghost of August Strong tendency to end lower in August ▪ Did you know that the Singapore market has ended the month STI of August down m-o-m without fail over the past 10 years? Year m-o-m ▪ STI suffered a median decline of 2.1% and average decline of End-July End-August change (%) 4.2% in August over the past decade 2017 3329 3277 -1.6% ▪ Odds are low that the US-China trade war will subside anytime soon 2016 2868 2820 -1.7% – Latest news: Even as US and China seek to restart talks to 2015 3202 2921 -9.6% defuse a trade war, the Trump administration is considering a 2014 3374 3327 -1.4% higher 25% (from 10%) tariff on US$200bn of Chinese imports 2013 3222 3029 -6.4% – Trump’s US$12bn aid package to US farmers and the EU’s pledge to increase purchase of US soybeans and LNG suggests 2012 3036 3025 -0.4% that Trump is prepared to escalate his trade war with China 2011 3189 2885 -10.5% ▪ Trend for a ‘negative August’ month is expected to continue 2010 2987 2950 -1.3% this year, given trade war uncertainties, weak domestic driver 2009 2659 2592 -2.6% post property measures, and a lack of positive catalysts ▪ We think the 10-year downtrend can only be broken if 2008 2929 2740 -6.9% headline news read, ‘War is Finally Over!’ Median -2.1% Average -4.2%

Source: DBS Bank Choppy 3Q with August a down month (Daily) ▪ Current rebound likely capped at 3340-3355, slightly below 12.76x (-0.5SD) 12-mth fwd PE ▪ Choppy 3Q with August a down month, STI to test 3220 ▪ Outcome of US-China trade war a key factor on how the stock market will end the year – Base view is that while trade war developments could worsen during next two months, it should subside in 4Q heading to the US mid-term elections with STI ending the year at 3550 – Bear case is an all-out trade war whereby a 10-25% tariff is imposed on all products that are traded between China and the

US with STI heading down to 2915 Source: DBS Bank

‘Caution in the air’: feedback from marketing trip Stocks in focus during discussions ▪ In our recent marketing trips in HK, SG, KL, and Bangkok, Property : City Devt, UOL, investors remained cautious. Although cash levels are relatively Banks: UOB, OCBC, high after the sell-down in May and June, there lacks a strong REITS : CDL HT, AREIT, catalyst to add positions. Mapletree Logistics, ▪ Of the 4 risks highlighted, i.e. strengthening US$ to S$1.40 by CCT, MINT year end, escalating trade war tensions, rising interest rates, Consumer Services : SIA, Genting SG, and domestic property cooling measures, trade war and strong Comfort Delgro, SATS US$ were the key concerns. Industrial : Hi-P, Venture, ST Engineering ▪ Most agree with our base case scenario on trade war tensions and looking to bargain hunt during the 2Q reporting season, Sectors which have been disappointing thus far. While we look for a Overweight Neutral Underweight better 4Q, we believe the STI has seen its top this year at 3614 Consumer Services REITS Property in May and project a lower year-end target of 3550. Offshore & Marine Banks Technology ▪ We advocate investors to reposition into defensive stocks, using Telco Healthcare

the rebound in July to pare exposure to cyclical names and to Source: DBS Bank accumulate banks after the 2Q results.

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Strategy meet at least two of these three criteria: 1) a consistent and satisfactory level of dividend payouts 2) net cash position 3) Stay with defensive picks decent growth of near 5% going forward. Our picks are Sheng Siong, SIA Engineering, Comfort Delgro, SATS, and ST We continue to advocate a defensive stance, given that the Engineering. trade war between US and China risks further escalation. Our picks are stocks that are less cyclical in nature and able to

Defensive picks 12 Net PER PER EPS EPS Div Price 31 mth Target Debt / P/BV 17 Company 18 19 Growth Growth Yield Jul Target Return Equity (x) (x) (x) 18 (%) 19 (%) 18 (%) Price 18 ComfortDelgro 2.370 2.59 9% 17.5 16.7 -2.8 4.8 4.4 4.5 cash Sheng Siong 1.070 1.26 18% 22.7 21.2 1.7 7.4 3.1 cash 5.9 SIA Eng 2.970 3.92 32% 19.0 17.4 -3.2 4.8 4.7 cash 2.2 ST Eng 3.420 4.10 20% 20.1 18.5 3.6 8.7 4.5 0.1 4.8 SATS Ltd 5.190 5.65 9% 21.2 20.2 13.5 5.0 3.5 3.7 cash

Source: DBS Bank

Late expansion-to-early contraction play could come into outperformers). Our picks are Thai Beverage, Sheng Siong, focus and SingTel. We think that the risk of the economy transitioning from the Banks put up a creditable set of 2Q results, with UOB’s net mid-expansion to the late expansion-to-early contraction earnings up 28% y.o.y while OCBC’s paled in comparison at phase will increase if the US-China trade war worsens. An all- 16%y.o.y. Earnings were driven by strong loan growth and out trade war, under which all goods traded between China higher fee based income but offset by lower trading income. and the US are subject to 15-25% tariffs, could possibly lower NIM was a tad disappointing, with flat to lower NIM q.o.q. Singapore’s 2018 GDP by 0.8% to 2.2% and 2019 GDP by This set of results should put the banks back in focus, the 1.5% to just 1.2%. The trend for rising interest rates that lift shares were pressurized by the government’s recent cooling borrowing costs and the recent round of property measures measures on residential properties. We prefer banks to by the Singapore government are also growth dampeners. property sector. Banks have also reported higher interim dividends and we expect UOB to be in a strong capital Against this backdrop, we continue to prefer the consumer position to declare higher full year dividends, generating >4% goods and services sectors (late-expansion outperformers) or yield. We have upgraded UOB to buy, TP raised to S$31.70, even the telecom and utilities sectors (early-contraction or 1.4x FY19 P/B. Late economic expansion-to-early contraction outperformers

12 mth EPS EPS Div Price Target PER 18 PER 19 Net Debt / Company Target Sector Growth Growth Yield 31 Jul Return (x) (x) Equity 18 Price 18 (%) 19 (%) 18 (%) Consumer Thai Bev 0.760 0.94 24% 20.0 16.9 -10.6 18.6 2.7 1.5 Goods Consumer Sheng Siong 1.070 1.26 18% 22.7 21.2 1.7 7.4 3.1 cash Services Singtel 3.210 3.70 15% Telco 15.7 15.0 -5.9 5.1 5.5 0.3

Source: DBS Bank

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Significant Reports Date Recent Title Sub Title Regional

02-Jul-18 Regional plantation companies Scope for CPO prices to rebound 05-Jul-18 Asian Insights SparX 2030 Energy Mix: Fossil fuels need not fret 11-Jul-18 Asian Insights SparX Asia Mega Cities in 2030: Rising stars lie in China Regional Automobile, Oil Metal Sectors: Asia leapfrogs in 17-Jul-18 Asian Insights SparX E-mobility 25-Jul-18 Asia 2030 Insight SparX Travel and Consumption: Live More, Work Less

Singapore

04-Jul-18 Singapore Monthly Strategy Buckle up for a rough ride 06-Jul-18 Singapore Property Hitting a roadblock 06-Jul-18 Singapore Banks Property cooling measures strikes again! 23-Jul-18 First Sponsor Group Eerste to the City of Freedom 26-Jul-18 AIMS AMP Capital Industrial REIT Demonstrating resilience Source: DBS Bank

Stock Name Current Previous Change Date APAC Realty FULLY VALUED BUY 06-Jul-18 Chip Eng Seng FULLY VALUED BUY 06-Jul-18 ComfortDelgro BUY HOLD 04-Jul-18 Dairy Farm HOLD BUY 27-Jul-18 Trus HOLD BUY 24-Jul-18 OCBC HOLD BUY 06-Jul-18 Roxy-Pacific FULLY VALUED BUY 06-Jul-18 UOB HOLD BUY 06-Jul-18 Source: DBS Bank

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DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

Completed Date: 6 Aug 2018 10:57:39 (SGT) Dissemination Date: 6 Aug 2018 13:17:49 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

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(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

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COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have proprietary positions in ComfortDelgro, Sheng Siong Group, Singtel, ST Engineering, SATS, Thai Beverage Public Company, UOB, Ascendas REIT, CapitaLand Mall Trust, CapitaLand Commercial Trust, City Developments, UOL Group, OCBC, CDL Hospitality Trusts, Mapletree Logistics Trust, Mapletree Industrial Trust, Limited, , Venture Corporation, Hutchison Port, recommended in this report as of 29 Jun 2018. 2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Ascendas REIT, CapitaLand Commercial Trust, CDL Hospitality Trusts, Mapletree Logistics Trust, Mapletree Industrial Trust, Hutchison Port recommended in this report as of 29 Jun 2018. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, DBSV HK or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of CapitaLand Commercial Trust, CDL Hospitality Trusts as of 29 Jun 2018.

Compensation for investment banking services: 5. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Singtel, Ascendas REIT, CapitaLand Mall Trust, CapitaLand Commercial Trust, City Developments, CDL Hospitality Trusts, Mapletree Logistics Trust, Mapletree Industrial Trust, Singapore Airlines Limited, APAC Realty Limited, Chip Eng Seng as of 29 Jun 2018.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Ascendas REIT, CapitaLand Mall Trust, CapitaLand Commercial Trust, CDL Hospitality Trusts, Mapletree Logistics Trust, Mapletree Industrial Trust, Singapore Airlines Limited, APAC Realty Limited in the past 12 months, as of 29 Jun 2018.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

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7. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Directorship/trustee interests: 8. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director / Chairman of SATS as of 30 Jun 2018. 9. Lim Sim Seng, a member of DBS Group Executive Committee, is a Independent non-executive director of ST Engineering as of 01 Jul 2018. 10. Peter Seah Lim Huat, Chairman & Director of DBS Group Holdings, is a Director / Chairman of Singapore Airlines Limited as of 30 Jun 2018.

Disclosure of previous investment recommendation produced: 11. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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