2021 Outlook and Strategy

Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Jan 2021

Wider Recovery Span STI : 2,843.81

• ’Vaccine-powered’ rally riding on recovery prospects, stable US-China Analyst Kee Yan YEO, CMT +65 6682 3706, [email protected] trade relations, fiscal support and low interest rate tailwinds Janice CHUA +65 6682 3692, [email protected] • STI target of 3180 supported by earnings rebound as recovery broadens • Themes - undervalued cyclicals, vaccine beneficiaries, M&A, yield plays Woon Bing Yong +65 6682 3704, [email protected]

2021 tailwinds We expect a strong recovery in 2021 to be underpinned by Key Indices wider vaccine availability, more stable US-China trade relations, stronger Current % Chng regional trade ties, continued fiscal support, lower-for-longer interest FS STI Index 2,843.81 -0.9% rates. FS Small Cap Index 301.8 0.1% Watch for headwinds While positive, we are also watchful of three key SGD Curncy 1.37 0.4% risks that may delay or derail a market recovery, such as property cooling Daily Volume (m) 1,213 measures and rising global debt levels. Risk of a rise in domestic COVID-19 Daily Turnover (S$m) 1,132

cases, virus mutation and low acceptance of vaccines are potential near- Daily Turnover (US$m) 829 term headwinds Source: Bloomberg Finance L.P. Cyclical uplift to STI 3180 Our end-2021 STI target of 3180 is pegged to 14.4x (+1SD) blended FY21/22F PE with strong technical support at 2670- Market Key Data 2740. We expect a solid 43.2% y-o-y FY21F EPS growth with 2Q21 being (%) EPS Gth Div Yield the strongest quarter. The earnings recovery trend should continue into 2020E -33.9 3.6 2H21, as the path to herd immunity gathers pace and borders reopen. The 2021F 42.8 4.1 current market rally led by banks/property should eventually expand to 2022F 13.4 4.5 industrials, capital goods, materials and construction as the recovery broadens. Laggard blue chips and SMC stocks should see better interest. (x) PER EV/EBITDA Cyclicals in focus We see opportunities in value names trading below 2020E 21.1 19.2 average historic valuations that have recovery potential post-COVID. Our 2021F 14.8 14.5

picks are OCBC,CapitaLand and AEM. We see focus eventually turning to 2022F 13.0 13.7 mid-cycle recovery outperformers as the economic recovery broadens. We like ComfortDelgro at 1.32x PB; Keppel Corp at 0.87x P/B and Yangzijiang STOCKS Shipbuilding at a low 0.55x P/B and below net cash of S$1.13/share. 12-mth Yield remains in favour Lower-for-longer interest rate stance by the Fed Price Mkt Cap Target Performance (%) should stay till end-2022 at least. S-REITs trade at an attractive FY21F yield S$ US$m S$ 3 mth 12 mth Ratin of 6.0%, which is at an FY21 yield spread of c.5.0% (+1SD), supporting g yield compression. Our SREITs picks (1) CapitaLand Retail China Trust, UOB 22.59 28,587 24.80 16.4 (14.5) BUY CapitaLand Integrated Commercial Trust, Lendlease Global and Frasers CapitaLand 3.28 12,885 3.70 19.3 (12.5) BUY Centrepoint Trust for retail (2) Mapletree Logistics Trust and Frasers ComfortDelGro 1.67 2,737 1.96 17.6 (29.8) BUY Yangzijiang Logistics & Commercial Trust being ‘vaccine plays’ for logistics (3) 0.96 2,800 1.40 (3.1) (14.7) BUY Mapletree Commercial Trust and Keppel REIT for diversified office. Banks Shipbuilding OCBC and UOB have strong CET1 ratios and offer FY21F yields of c.4.5%. CapitaLand Retail China 1.39 1,511 1.70 19.8 (13.7) BUY Vaccine beneficiaries. Aviation and hospitality sectors should benefit from a Trust reopening of international borders as global communities move towards CapitaLand Integrated 2.16 10,573 2.50 13.1 (12.2) BUY herd immunity. Singapore plans to have enough doses to inoculate the Commercial Trust entire population by 4Q21. Our picks are (1) Ascott Residence, CDL HT LendLease Global Trust and Frasers Hospitality Trust for hospitality REITs (2) SATS and China 0.73 650 0.90 5.8 (21.5) BUY Aviation Oil for aviation (3) Koufu, Lendlease and Frasers Centrepoint for Commercial REIT retail/F&B. Thai Beverage Public 0.74 13,954 0.93 23.5 (17.4) BUY Predator vs prey. The sharp plunge in valuations arising from the pandemic Company in 2Q20 led to a revival of M&A and privatisation deals in 2020. This trend AIMS APAC REIT 1.25 668 1.40 5.0 (12.6) BUY should continue into 2021 as valuations have yet to revert to pre-COVID SATS Ltd 3.98 3,372 4.50 34.5 (21.3) BUY levels. We see opportunities in the Technology, Property&REITS, Oil&Gas AEM Holdings 3.45 718 5.16 (2.8) 70.8 BUY Mapletree Logistics and Consumer sectors. Potential candidates are Spindex, Fu Yu, 2.01 6,280 2.35 (2.4) 15.5 BUY Trust Valuetronics, AIMS, Thai Bev, Delfi, SMM/Kep Corp, YZJ, HPHT, Tuan Sing,

Bukit Sembawang, Guocoland and Ho Bee. Source: DBS Bank, Bloomberg Finance L.P.

Closing price as of 31 Dec 2020

ed: CK/ sa: PY, CS Market Focus Wider Recovery Span

Four Equity Market tailwinds for 2021

Towards COVID-19 herd immunity Singapore GDP growth forecast trajectory vs STI Index ▪ Vaccines should cement a recovery in 2021 although the pace of recovery will be uneven across different industries ▪ 2021 outlook is one of growing optimism as vaccines get steadily distributed - Singapore 2021 GDP growth seen rebounding to 5.5% y-o-y from -6.0% in 2019 ▪ However, watch for three key risks that may delay or derail market recovery - Risk 1: Low vaccine acceptance or virus mutation - Risk 2: Singapore property cooling measures due to deviations in

property market and economy Source: DBS Bank - Risk 3: Rising global debt levels

Improving trade relations Some services and trade indicators are recovering ▪ US President elect Job Biden may forge better trade relations with China and potentially lower tariffs ▪ RCEP trade deal is positive for regional free trade ▪ Manufacturing sector to lead recovery, riding on the continued uptrend in the semiconductor cycle with the biomedical products industry an additional boost ▪ Mixed fortunes for services sector - Financial and ICT sectors remaining resilient - Aviation and hospitality sectors to recover from 2H21 ▪ Construction sector should continue to improve in the coming quarters amid the existing backlogs and strong pipeline of residential and infrastructure projects. Source: DBS Bank, CEIC, Department of Statistics

Twin focus in expansionary 2021 fiscal budget A record deficit to beat COVID-19 woes ▪ Upcoming budget to provide targeted fiscal support to respond to COVID-19 woes ▪ Projected FY20 deficit of S$74.2bn may not deter 2021 expansionary efforts as curbing the pandemic remains the focus ▪ Budget will likely continue the focus on countering near-term cyclical pressures brought about by the pandemic through measures that protect jobs and help companies manage financial pressures ▪ Long-term economic transformation to remain crucial part of budget with investments in skills, technology and research a key

focal point Source: DBS Bank, Ministry of Finance

Low interest rate environment here for an extended stay DBS SGD NEER and Policy Band ▪ MAS will stand pat on its accommodative exchange rate policy ▪ FED will likely hold overnight rates steady at 0.25% through 2022 ▪ Yield curve may steepen amid a stronger global recovery from 2H21 that should lift longer-term rates higher - SORA OIS 10-year rates to head for 1.1% (+15bps) by end-2021 - US 10-yr yield should rise to 1.3% by end-2021

Source: DBS Bank, Ministry of Finance

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Outlook and valuation

Good old-fashioned cyclical recovery Sector Valuation ▪ Expect a solid 43.2% y-o-y earnings growth for FY21F with 2Q21 the strongest due to the Circuit Breaker in 2Q20 ▪ Earnings recovery trend should continue into 2H21 as the path to herd immunity gathers pace and borders reopen ▪ Cyclicals and vaccine beneficiaries to lead the recovery ▪ Consumer discretionary sector expected to register strongest FY21F EPS recovery, boosted by Genting Singapore (+499% y-o-y) and Koufu (+61% y-o-y) ▪ Industrials sector to return to profitability led by Keppel Corp and SATS, strong recovery for ComfortDelgro (+254% y-o-y) and Fu Yu (+66% y-o-y) ▪ Energy sector’s 50% EPS growth for FY21F comes solely from CAO ▪ Index heavyweight banks OCBC and UOB to register y-o-y EPS growth of between 20% to 22% for FY21F ▪ Communication services sector underpinned by SingTel’s anticipated 17.2% y-o-y EPS growth ▪ Real estate sector is boosted by the strong earnings recovery of three heavyweights City Developments, CapitaLand and UOL ▪ SREITs EPU growth to be lifted by retail and tourism – Lendlease

Global leads charge with 281% y-o-y FY21F EPU growth followed Source: DBS Bank by Ascott Residence (+102% y-o-y) and CDL HT (+82% y-o-y)

Less room for disappointment with greater expectations Singapore market 12-mth fwd PE

▪ Singapore equity market trades at 14.4X 12-mth forward PE, near 19 Post GFC bull market +1SD of its 15-yr history 17 +2sd: 16.2x ▪ Above average valuation points to optimism for earnings recovery +1sd: 14.8x ▪ Similarities between now and post-GFC bull market in 2009 when 15 - Avg: 13.4x 13 PE valuations remained elevated as stock markets recovered -1sd: 12x - Phenomenon continued for a year until consensus earnings revision 11 -2sd: 10.6x caught up with the stock market rally - Above average forward PE valuation also means lesser room for 9

earnings disappointment 7 05 07 09 11 13 15 17 19

Source: DBS Bank, Thomson Reuters

Straits Times Index target of 3180 ST at various 12-mth fwd PE levels ▪ STI target of 3180 is pegged at slightly above 14.4x (+1SD) blended FY21/22F PE or about 13.8x (+0.5SD) FY22F PE ▪ Above average PE valuation target supported by the strong 51% y- o-y EPS growth forecast for FY21F ▪ Technical support on pullback is at c.2740 and stronger at 2670 ▪ Current rally led by early cycle outperformers (banks, property) should eventually expand to mid-cycle recovery outperformers (e.g. Source: DBS Bank industrials, capital goods, materials and construction) as the economic recovery broadens ▪ Laggard blue chips and small-mid cap stocks should also enjoy an uptick in interest

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Strategy

Stability and income return to the fore S-REITs spread by subsector ▪ Rates to remain low and stable and “will remain appropriate for some time” ▪ Short-term SORA OIS anchored near current levels through 2021, longer-term SORA OIS to follow longer- term USD rates higher with global recovery ▪ Singapore 10-year rates expected to rise to 1.1% (+15 bps) by end-2021 with 3M and 2-year rates unchanged ▪ Yield plays to reign in 2021: - Retail REITs: CapitaLand Retail China Trust, CapitaLand Integrated Commercial Trust, Lendlease Source: Bloomberg Finance L.P., DBS Bank Global, Frasers Centrepoint Trust - Logistics: Mapletree Logistics Trust, Frasers Logistics & Commercial Trust - Diversified office REITs: Mapletree Commercial Trust, Keppel REIT - Banks: OCBC, UOB

Cyclicals to go on a tear US semiconductor sales have passed its peak ▪ Pockets of opportunity remain with certain values names trading below historical valuation even as they are poised to recover ▪ Vaccine led recovery to cause a reversion to normalcy in the market with early cyclicals such as the banking and real estate sectors to outperform ▪ Strength in early cyclicals to spill over to other sectors such as industrial and capital goods ▪ Outperforming technology sector to witness continued uptrend, driven by the global economic recovery and continued semiconductor upcycle ▪ 2021 cyclical picks: OCBC, CapitaLand, YZJ Shipbuilding, Keppel Corp, ComfortDelgro, AEM Source: CEIC, SEMI, DBS Bank

Room to run for vaccine beneficiaries Singapore’s top inbound international visitor markets ▪ Vaccines to help support restriction relaxation efforts 4,000,000 and avoid a renewed tightening of restrictions 3,500,000 ▪ K-shaped recovery expected with F&B and retail sector 3,000,000 improvement being cemented by vaccine rollout 2,500,000 ▪ Hospitality and aviation sectors to lag but should have 2,000,000 bottomed in 2020 ▪ Vaccine beneficiaries: 1,500,000 - Retail REITs: Lendlease Global, Frasers Centrepoint 1,000,000 Trust 500,000

- F&B: Koufu 0 - Aviation: SATS, China Aviation Oil - Hospitality: CDL Hospitality Trust, Frasers Hospitality Trust, Ascott Residence Trust Source: DBS Bank, Ministry of Finance

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A Better Year Ahead

2020 saw the world devastated by a once-a-century pandemic administering of vaccines to achieve herd immunity in Singapore and the development of COVID-19 vaccines at record speed. As should cement the recovery of the construction, F&B and retail a result, our economist projected Singapore’s 2020 GDP to sectors and help avoid another circuit breaker. decline by 6.0% y-o-y. Publicly reported Singapore-linked vaccines The macro outlook for 2021 is one of growing optimism. The Organization Dosage Comments COVID situation and vaccination rate will play a big role in required Pfizer-BioNTech 2 c.95% efficacy reported, vaccine Singapore’s near-term outlook with our economist expecting to arrive by end-Dec 2020. 2021 GDP to rebound 5.5% y-o-y. While, the pace of recovery Moderna 2 c.94% efficacy reported, vaccine will be uneven, here are four reasons why we are positive about undergoing rolling review by the next year. HAS. Advance Purchase Agreement entered into. Sinovac 2 Advance Purchase Agreement Singapore’s GDP growth forecast trajectory entered into with HSA conducting review of vaccine Arcturus 1 Positive preliminary results Therapeutics/Duk reported. Phase 3 trials may begin e-NUS soon with a shipment target by 1Q21. The Economic Development Board has committed S$175m to pre-ordering vaccine

Source: DBS Bank, The Straits Times

Improved trade relations to underpin recovery Asia Pacific trade is set to get a boost from 2021 with the signing of the Regional Comprehensive Economic Partnership (RCEP) , potential for lowered tariffs and improved trade relations between the US and China.

Source: DBS Bank The RCEP will further promote China, Japan and South Korea’s

foreign direct investment (FDI) investment in ASEAN. US Vaccines to secure recovery President elect Joe Biden should set the tone for a more stable Currently, Singapore is in a fortunate but hard-earned position and improving US-China trade ties compared to the Donald of having prevented a second wave. The country has just Trump era. While Biden is unlikely to remove tariffs on China entered Phase 3 of its reopening. overnight, he is seen progressively easing them after consulting

with close allies of the US. This will trigger a similar response Progress on securing an effective COVID-19 vaccine has also from China on US imports. been made. The first shipment of Pfizer-BioNTech vaccine has arrived in Singapore and will be administered to frontline and Against this backdrop, the 2021 outlook for Singapore’s healthcare workers over the next two months. Singapore has manufacturing sector is expected to be sanguine. Global also advance purchase agreements with Moderna and Sinovac semiconductor shipments continue to rise, spurred by the vaccines, but their use have yet to be authorised. Arcturus adoption of digital solutions and electronic gadgets to Therapeutics/Duke-NUS’ vaccine candidate is also expected to overcome pandemic-related disruptions such as the work-from- ship by 1Q21. home trend. The biomedical products sector is also expected to

see strong demand in the coming quarters and will deliver a Singapore targets enough vaccines for everyone by 3Q21, with further boost to the manufacturing sector in 2021. vaccination being free for all citizens and PRs. At least 80% must be inoculated to achieve herd immunity. The successful

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Some services/trade indicators are recovering efforts to encourage investments in technology and skills upgrading of the labour force.

A record deficit to beat COVID-19 woes

Source: DBS Bank, CEIC, Department of Statistics

However, the services sector will face mixed fortunes in 2021. Financial and information and communications technology (ICT) Source: DBS Bank, Ministry of Finance services are expected to remain resilient. The recovery of domestic oriented industries such as F&B and retail will be Low interest rate environment here to stay cemented through widespread vaccinations. However, the Equity markets should benefit from an extended low interest hospitality and aviation sectors are expected to recover only rate environment. We believe MAS will stand pat on its from 2H21. Efforts to encourage domestic tourism and travel exchange rate policy by keeping the three parameters (slope, bubbles could provide some respite although a true recovery mid-point and width) unchanged. Moreover, the expected will only take place when travellers from major markets such as negative headline growth in 1Q21 and labour market slack China, Indonesia and India return. reinforces the MAS’s policy statement that this “accommodative policy stance will remain appropriate for some time”. Singapore’s top inbound international visitor markets 4,000,000 DBS SGD NEER and Policy Band 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

Source: DBS Bank, Singapore Tourism Board

Expansionary fiscal budget in the works Source: DBS Bank, Ministry of Finance

In 2020, Singapore’s total fiscal response amounted to almost Our interest rate strategist expects the short-term SORA OIS to S$100bn or c.20% of nominal GDP. This led to an overall be anchored near current levels through 2021 with the FED projected fiscal deficit of S$74.2bn and a drawdown of S$52bn likely to hold overnight rates steady at 0.25% through 2022. A from reserves. Revenue for 2021 is also expected to remain soft global recovery in 2H21 should see longer-term SORA OIS as both companies and workers continue their struggle. follow longer-term USD rates higher. As such, 10-year rates are

expected to rise to 1.1% (+15bps) by end-2021. Note that Despite these factors, we expect a targeted expansionary fiscal SORA is being used as a key benchmark for SGD interest rates budget in 2021 that strikes a balance between countering near- given the transition from SIBOR and SOR due to the impending term cyclical pressures and long-term economic transformation. end of LIBOR. Measures to mitigate job losses and help companies manage imminent financial challenges are expected to come along with

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Key Risk Factors flats appear to be the target, private residential properties may be vulnerable as well. SRX has reported that condominium While we are optimistic of 2021, we are watchful of three resale volumes in November rose 83.5% y-o-y and was 76.0% potential risks that could see bouts of market volatility. higher than the 5-year average November volume.

Vaccine hiccups, virus mutation Rising debt level Low vaccine acceptance rates or distribution delays due to DBS economics research notes that global debt levels loom production or logistical difficulties could prolong the economic large, and financial sector stability may be undermined if asset downturn in 2021. In Singapore, a survey by The Straits Times price valuations get much frothier. 2021 may be pleasing from a found that c.80% of those above 16 were willing to take the number’s perspective and there could well be a time to vaccine. However, vaccine acceptance appears significantly celebrate as the world begins to move past the pandemic. But lower in the US with only c.47% of people surveyed by the generational challenges to progress, financial stability and the Associated Press planning to get the vaccine and 27% unsure. formation of a global community based on mutual respect and less divergences will loom large. The emergence of a new COVID-19 strain in UK that is “70% more transmittable” also raises the risk of a resurgence in Global debt levels – 2007 vs Mar 2020 COVID-19 community transmission at a time when Singapore is poised to further ease local movement restrictions. Several countries have imposed new lockdown measures arising from the surge in in new COVID virus cases and the virus mutation. Closer home, Singapore reported a rise in new COVID community cases recently, which remains the key risk to a further ‘opening up’ of the economy.

New property cooling measures The Monetary Authority of Singapore (MAS) urged households to exercise prudence when taking up new debt or committing to property purchases in its annual financial stability review. A divergence in the Singapore property market and the economy has been observed. The URA private residential property index rose 0.8% q-o-q to 153.8 in 3Q20 despite the economic slump. Indeed, a record number of 72 above a million-dollar HDB flats were sold in 11M20. The defiant property market has prompted Source: CEIC, World bank, DBS Bank talk of restrictions on the resale of flats in prime locations. While

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Market Valuations and Outlook (+499% y-o-y EPS growth) and Koufu (+61% y-o-y EPS growth). The industrials sector will return to profitability, led by Good old-fashioned cyclical recovery Keppel Corp and SATS while ComfortDelgro is expected to Corporate earnings are expected to enjoy a solid mid double- register a solid 254% y-o-y EPS growth for FY21F, followed by digit percentage growth as cyclicals recover from the Fu Yu (+66% y-o-y EPS growth). The energy sector’s 50% EPS devastating COVID-19 pandemic. Expect the strongest y-o-y growth for FY21F comes solely from China Aviation Oil. recovery in 2Q21 due to the one-off unusually low base We expect index heavyweight banks (OCBC and UOB) to comparison from Singapore’s Circuit Breaker COVID-19 register y-o-y EPS growth of between 20% to 22% for FY21F, restrictions. The earnings recovery trend should continue into while the communication services sector is underpinned by 2H21 as the path to herd immunity gathers pace, borders SingTel’s anticipated 17.2% y-o-y EPS growth. The real estate reopen and the recovery to pre-pandemic level gathers sector is boosted the strong earnings recovery by the three momentum. heavyweights – City Developments, CapitaLand and UOL. Stocks under our coverage are expected to register a strong Leading the EPU growth for SREITs are the retail and tourism 43.2% y-o-y FY21F EPS growth while that for the STI is an related counters that will receive a strong boost from pent-up even more solid 50.8%. Cyclicals and vaccine beneficiaries demand as movement restrictions ease and borders reopen. should lead the recovery. Lendlease Global leads the charge with a 281% y-o-y FY21F The consumer discretionary sector is expected to register the EPU growth followed next by Ascott Residence (+102% y-o-y strongest FY21F EPS recovery boosted by Genting Singapore EPU growth) and CDL HT (+82% y-o-y EPU growth).

Sector valuation Earnings Div Yld CAGR PER (x) Growth (%) (%) 21F 22F 20-22 21F 22F 21F 22F Banks 21.2 13.6 17.3 11.4 10.0 4.6 4.9 Comm Services 12.5 8.1 10.3 18.9 17.5 4.9 5.3 Consumer 458.7 31.3 170.9 22.1 16.8 3.5 4.1 Discretionary Consumer Staples 6.1 8.9 7.5 15.2 14.0 3.2 3.5 Energy 49.8 -9.1 16.7 8.3 9.2 3.6 1.9 Financial -8.8 -3.2 -6.0 23.3 24.1 3.5 3.5

Health Care 26.5 1.0 13.1 33.5 33.1 1.2 1.1 Industrials nm 19.0 nm 19.0 15.9 2.6 3.6 InfoTech 9.3 7.6 8.4 14.0 13.0 3.4 3.6

Real Estate 70.2 21.7 43.9 10.7 8.8 3.8 4.1 REITs 21.4 7.5 14.3 17.4 16.2 5.7 6.2 Utilities 12.2 31.6 21.5 14.8 11.3 6.5 7.1

Grand Total 43.2 13.0 27.2 14.6 12.9 4.2 4.6 Ex Property 39.7 11.7 24.9 15.4 13.8 4.2 4.6 STI DBS forecast 50.8 13.3 30.7 13.8 12.2 3.4 3.6

Source: DBS Bank

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Less room for disappointment with greater expectations Equity markets do not move in a straight line up. The path towards global herd immunity will likely see twists and turns The Singapore equity market currently trades at 14.4X 12- before economies make a full recovery to pre-pandemic mth forward PE that is not far below the +1SD of its 15-yr levels. history. The PE recovery is driven by a combination of the steep earnings cut last year and the recent “vaccine- These may include slower-than-expected vaccine acceptance powered” rally. While this can lead to periods of market by the population and resurgence in community consolidation, we are not alarmed by the above average transmission and virus mutations to more transmittable or valuation so long as earnings do recover post-vaccine worse, vaccine-resistant strains. Rising global debt levels and rollout. Equity markets are forward looking. The stock the current optimism for a strong recovery this year could market is climbing a wall of worry. We see similarities easily give way to volatility if investors sense a major setback between now and the post-GFC bull market in 2009 when that pushes back the recovery timeline. PE valuations remained elevated as stock markets recovered. We lean towards the optimistic side that global economies This phenomenon continued for a year until consensus will continue to recover and pick up speed from 2H21 with earnings revision caught up with the stock market rally. the rollout of vaccines to the general population. We see the With greater optimism and anticipation comes lesser room recovery optimism in the past two months sustaining into for earnings disappointment. Investors want to get what 2021. they have paid for. 2021 is a year for strong earnings The stock market rally in the past two months was led by recovery. Anything less will be frowned upon. banks and property companies that are early cyclicals. We Singapore market forward PE see focus eventually turning to mid-cycle recovery

19 outperformers (e.g. industrials, capital goods, materials and Post GFC bull market construction) as the economic recovery broadens. Laggard 17 +2sd: 16.2x blue chips and small-mid cap stocks should also enjoy an +1sd: 14.8x 15 - uptick in interest. Avg: 13.4x 13 -1sd: 12x STI at various 12-mth forward PE

11 -2sd: 10.6x -1sd -0.5sd Avg +0.5sd +1sd +1.5sd 12x 12.6x 13.2x 13.8x 14.4x 15x PE 9 PE PE PE PE PE FY21 2,461 2,582 2,703 2,826 2,947 3068 7 05 07 09 11 13 15 17 19 FY22 2,788 2,925 3,062 3,202 3,339 3476 Avg Source: DBS Bank, Thomson Reuters 2,625 2,754 2,883 3,014 3,143 3,272 21&22

Source: DBS Bank Straits Times Index target of 3,180 Straits Times Index (Daily) Our benchmark index target of 3180 is pegged to slightly above 14.4x (+1SD) blended FY21/22F PE or about 13.8x (+0.5SD) FY22F PE. The above average PE valuation target is supported by the strong 51% y-o-y EPS growth forecast for FY21F. This translates to a 10.8% upside from the current level. Technical support on pullback is at c.2740 and strong at 2670.

Source: DBS Bank

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Strategy

Theme 1: Stability and income return to the fore Additionally, we prefer office REITS with a diversified portfolio that include Grade A and suburban business park assets. Above average yield spreads support yield compression The lower-for-longer interest rate stance taken by the Fed and COVID-19 has undoubtedly popularised work-from-home which other central banks is likely to remain till end-2022 at least. has created uncertainty in the office landscape. However, we While the yield curve (10Y-2Y) is expected to steepen in think Mapletree Commercial Trust and Keppel REIT are well 2021/2022 in line with stronger economic growth, we do not positioned to capture demand with their diversified portfolios if see this as a major hurdle for S-REITs given (i) its gradual such structural changes in office demand take place. steepening (25bps over two years) and, (ii) a lower base effect. As such, we think yield plays will remain an important theme in Don’t forget the banks the coming year. While MAS has imposed dividend cap in the immediate term, we believe certain banks are willing to resume previous dividend S-REITs currently trade at an attractive FY21F yield of 6.0% or a policies as soon as MAS changes its stance. The worst appears wider than average FY21 yield spreads of c.5.0% (+1.0 to be over for OCBC and UOB with both having strong CET1 standard deviation (SD)). We believe that this together with ratios and offering FY21F yields of c.4.5%. We have a slight robust growth rates and an extended low interest rate preference for OCBC given its cheaper valuations that provides environment will be catalysts to support a further re-rating. better share price upside and potential income support from its diversified non-interest income. Historical trading yields for S-REITs subsectors OCBC and UOB: Dividends and Payout Ratio

Source: Bloomberg Finance L.P., DBS Bank

Blend yield with vaccine beneficiaries Retail REITs will benefit from Singapore’s shift to Phase 3 and tourists spending when borders start to reopen from 2H21. We favour retail REITs that can deliver pre-COVID-19 DPUs. We also favour retail REITs that are supported by dominant malls and possible pipeline injections. Our picks are CapitaLand Retail China Trust, CapitaLand Integrated Commercial Trust, Lendlease Global and Frasers Centrepoint Trust.

We like the logistics S-REITs Mapletree Logistics Source: Companies, DBS Bank, Bloomberg Trust and Frasers Logistics & Commercial Trust as possible “vaccine plays” on the back of demand for warehouse storage.

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Yield picks

12-mth 12m Avg EPS / EPS / Div Div Net Price Target 12-mth Daily DPU DPU PER PER Yield Yield Debt / P/BV 28 Dec Price Target Mkt Cap Value Growth Growth 20 21 20 21 Equity 21 Company (LCY) (LCY) Return (US$ m) (US$m) Rcmd 20 21 (x) (x) (%) (%) 21 (x)

Yield picks CapitaLand Retail China Trust 1.38 1.70 23% 1,492 4.9 BUY -12% 21% 18.3 14.1 6.3 7.7 0.38 0.9 CapitaLand Integrated Commercial Trust 2.16 2.50 16% 10,510 30.5 BUY -27% 33% 25.3 20.0 4.0 5.4 0.35 1.0 LendLease Global Commercial REIT 0.74 0.90 23% 648 2.4 BUY nm 70% 75.8 19.9 4.1 7.0 0.35 0.9 Frasers Centrepoint Trust 2.46 3.00 22% 3,124 7.2 BUY -25% 41% 18.7 17.2 3.7 5.2 0.41 1.1 Mapletree Logistics Trust * 1.99 2.35 18% 6,072 24.8 BUY 1% 4% 26.2 24.6 4.1 4.3 0.39 1.5 Frasers Logistics & Commercial Trust 1.43 1.85 29% 3,671 10.4 BUY -2% 8% 40.6 21.4 5.0 5.4 0.39 1.3 Mapletree Commercial Trust * 2.11 2.25 7% 5,258 18.5 BUY 13% 9% 23.9 23.2 4.3 4.6 0.33 1.2

Keppel REIT 1.12 1.40 25% 2,870 6.8 BUY 1% 2% 31.1 27.8 5.0 5.1 0.39 0.9

UOB 22.64 24.80 10% 28,480 56.7 BUY -35% 20% 13.3 11.1 3.3 4.5 - 0.9

OCBC 10.07 11.00 9% 33,873 50.8 BUY -33% 22% 13.6 11.1 3.4 4.5 - 0.9

* FY21 and 22 respectively Source: DBS Bank

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Theme 2: Cyclical Recovery attractive pick in this regard, trading at 9.2x FY21F PE compared to peer average of 19.9x. Traditional names back in trend The vaccine-led recovery should lead to a reversion to normalcy Eye on mid-cycle recovery outperformers for the stock market. Banks and real estate stocks that are early We see focus eventually turning to mid-cycle recovery cycle outperformers have led the blue chips recovery over the outperformers (e.g. industrials, capital goods, materials and past two months in anticipation of a cyclical recovery in a post- construction) as the economic recovery broadens. vaccine world. We eye ComfortDelgro, Keppel Corp, Yangzijiang Shipbuilding. We see opportunities in value names that are trading below ComfortDelgro trades at an attractive 1.32x PB (below -1SD of average historic valuations and have decent recovery potential historical mean) as its ROE jumps to ~9% (FY21F). It also post-COVID. benefits from an anticipated consolidation of the point-to-point (P2P) industry and the Phase 3 re-opening. Keppel Corp trades Early cyclicals – banks, properties and technology still offer at 0.87x P/B (below -1SD from 5-year mean) and has made upside good progress on its capital recycling efforts. Keppel also stands Among banking and property names, we think OCBC is an to gain from the improving property sentiment. Yangzijiang inexpensive pick trading at near -1SD below its average 15-year trades at an unjustifiably low 0.55x P/B and below net cash of forward P/BV. Continuing positive contribution from non- S$1.13/share. Contract wins in a robust containership market interest income should also help to alleviate ongoing net and superior financials of 8% ROE could support a re-rating of interest margin repricing. the stock.

Our pick for property is CapitaLand. We believe that CapitaLand US semiconductor sales passed previous peak is well positioned to emerge from the COVID-19 pandemic well and capitalise on opportunities. Its earnings diversity will drive ROEs that is expected to rebound to 7%-8% in 2021-2022. The stock is trading at “GFC multiples” that are unwarranted. Operational results are gaining momentum in 2H20 as rental rebates tail off, implying that earnings momentum is already on the rise. Its managed REITs are trading at conducive cost of capital that enables the group to drive recycling activities to the tune of S$3.0bn that will be ROE enhancing.

Lastly, while the technology sector has been a clear outperformer in 2020, the sector is likely to witness another Source: CEIC, SEMI, DBS Bank uptrend driven by the global economic recovery and the continued semiconductor upcycle. AEM continues to be an

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Cyclical Recovery Picks

12-mth 12m Avg EPS / EPS / Div Div Net Price Target 12-mth Mkt Daily DPU DPU PER PER Yield Yield Debt / P/BV 28 Dec Price Target Cap Value Growth Growth 20 21 20 21 Equity 21 Company (LCY) (LCY) Return (US$ m) (US$m) Rcmd 20 21 (x) (x) (%) (%) 21 (x) Cyclical Recovery Picks OCBC 10.07 11.00 9% 33,873 50.8 BUY -33% 22% 13.6 11.1 3.4 4.5 - 0.9 CapitaLand 3.29 3.70 12% 12,500 24.9 BUY -85% 302% 48.0 11.9 1.5 3.6 0.43 0.7 Keppel Corp 5.41 5.50 2% 7,394 18.2 BUY nm nm nm 11.8 2.0 3.3 0.74 0.9 Yangzijiang 0.94 1.40 49% 2,728 19.5 BUY -14% -3% 6.9 7.1 4.3 4.8 Cash 0.5 ComfortDelgro 1.67 1.96 17% 2,721 20.2 BUY -75% 254% 54.3 15.3 - 3.3 Cash 1.4 AEM Holdings 3.40 5.16 52% 703 14.9 BUY 76% 9% 9.9 9.0 - 2.9 Cash 3.3

Source: DBS Bank

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Theme 3: Vaccine beneficiaries Singapore F&B Foodservice recovery forecast

Publicly reported Singapore-linked vaccines Organization Dosage Comments required Pfizer-BioNTech 2 c.95% efficacy reported, vaccine to arrive by end-Dec 2020. Moderna 2 c.94% efficacy reported, vaccine undergoing rolling review by the HAS. Advance Purchase Agreement entered into. Sinovac 2 Advance Purchase Agreement entered with HSA conducting review of vaccine Source: Singstat, DBS Bank Arcturus 1 Positive preliminary results Therapeutics/Duk reported. Phase 3 trials may begin Hospitality and aviation have bottomed e-NUS soon with a shipment target by The hospitality and aviation sectors are expected to lag in their 1Q21. The Economic Development Board has recovery given Singapore’s dependence on visitors from China, committed S$175m to pre- Indonesia and India. But we believe that the worst is over with ordering the vaccine the rollout of COVID-19 vaccines through the course of 2021 Source: DBS Bank, The Straits Times being the light at the end of the tunnel.

K-shaped recovery expected but worst is over An improvement in the news flow from vaccine distribution and Singapore’s first batch of vaccines from Pfizer-BioNTech arrived reopening of borders will support the recovery of stocks in the in December 2020. The plan is to have enough doses to hospitality and aviation sectors. inoculate the entire population by 4Q21.

Singapore’s top inbound international visitor markets In the meantime, Singapore has also entered Phase 3 that has 4,000,000 resulted in mall capacity limits relaxed to 8 sqm per person from 3,500,000 10 sqm per person. This bodes well for the F&B and retail sectors. Koufu, as an operator of foodcourts and low to mid- 3,000,000 end dining, is expected improve with kiosks and foodcourts 2,500,000 faring better as restrictions are relaxed. The addition of the 2,000,000 Singapore hawker culture to the UNESCO Representative List of 1,500,000 Intangible Cultural Heritage of Humanity will also benefit Koufu 1,000,000 when international borders reopened in the latter part of the 500,000 year. 0

Retail REITs such as Lendlease Global and Frasers Centrepoint

Trust should also see higher tenant sales given the lower Source: DBS Bank, Singapore Tourism Board capacity limits. This benefits all hospitality REITs - Ascott Residence Trust (ART), CDL Hospitality Trust (CDLHT), Far East Hospitality Trust and Frasers Hospitality Trust (FHT). ART has the largest exposure to hotel assets outside of Singapore and is poised to benefit from a global vaccination effort. Both CDLHT and FHT are trading at

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attractive valuations of 0.8x P/B, which is slightly above -2SD for 2H20 with a pick-up in departing frequencies at Shanghai the former and beyond -2SD for the latter. Pudong International Airport since May 2020. While international travel may only recover to pre-COVID levels in 2022, SATS may benefit from the global air transportation of We like China Aviation Oil (CAO) and SATS in the aviation vaccines in the immediate term given its cold chain logistics sector. CAO’s key associate SPIA looks to have bounced back in capabilities.

Vaccine beneficiaries

12-mth 12m Avg EPS / EPS / Div Net Price Target 12-mth Mkt Daily DPU DPU PER PER Yield Div Debt / P/BV 28 Dec Price Target Cap Value Growth Growth 20 21 20 Yield 2 Equity 21 Company (LCY) (LCY) Return (US$ m) (US$m) Rcmd 20 21 (x) (x) (%) 1 (%) 21 (x) Vaccine beneficiaries LendLease Global Commercial REIT 0.74 0.90 23% 648 2.4 BUY nm 70% 75.8 19.9 4.1 7.0 0.35 0.9 Frasers Centrepoint Trust 2.46 3.00 22% 3,124 7.2 BUY -25% 41% 18.7 17.2 3.7 5.2 0.41 1.1

Koufu Group Ltd 0.68 0.77 13% 284 0.3 BUY -50% 61% 24.4 15.1 - 2.6 Cash 3.0

Ascott Residence 1.08 1.20 11% 2,524 5.9 BUY -65% 58% 66.6 33.0 2.5 3.9 0.36 0.9

CDL Hospitality Trust 1.29 1.40 9% 1,185 3.1 BUY -47% 31% 61.1 33.6 3.7 4.9 0.34 0.9

Far East Hospitality Trust 0.62 0.70 14% 907 1.0 BUY -39% 19% 30.5 28.6 3.8 4.5 0.39 0.7 Frasers Hospitality Trust 0.53 0.70 32% 768 0.4 BUY -68% 95% 31.2 29.9 2.6 5.2 0.37 0.8

China Aviation Oil 1.06 1.20 13% 686 0.4 BUY -46% 50% 12.7 8.5 2.4 3.6 Cash 0.7

SATS Ltd * 4.03 4.50 12% 3,394 14.9 BUY nm nm nm 29.7 - 1.0 Cash 2.7

* FY21 and 22 respectively Source: DBS Bank

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Theme: Game of predator vs prey Sunningdale. The continuing global trade tension and the shift in supply chain that require the group's operations to Crisis breeds opportunities better align with these changing market dynamics, coupled with low trading liquidity, prompted the privatisation offer. The sharp plunge in valuation arising from the pandemic in 2Q20 led to a revival of M&A and privatisation deals, with the Other potential candidates – Spindex, Fu Yu, Valuetronics. We momentum picking up in 2H20. With the on-going pandemic, believe Spindex could potentially be back in the market, after small-to mid-size businesses with less robust cash positions its failed attempt in February 2017, given the low free float of will continue to struggle as government support dries up. c.25% and net cash accounting for 43% of its market Bankruptcies and the number of distressed companies are capitalisation. Fu Yu trades at an EV/EBITDA of close to 4x, likely to rise, presenting opportunities for M&A as companies which is the lowest among its industry peers in the region, look for both shelter and new opportunities in all directions. which are trading at an average of c.6-7x EV/EBITDA. Net cash accounts for c.40% of its current market capitalisation, YTD in 2020, only 14 deals were concluded, half of the 28 with an attractive dividend yield of 5.2%. Similarly, deals that we saw in 2019, mainly attributable to the global Valuetronics also has high net cash level, accounting for pandemic, which raised roadblocks to deal-making c.70% of its current market capitalisation, with c.5% yield. fundamentals, including travel restrictions and quarantine The stock is trading at 9.4x/10.9x FY21/22F PE, at a discount requirements. We expect the M&A momentum to continue, to peers, and its ex-cash PE is less than 1x. as valuations have yet to reach pre-COVID levels while hopes of a recovery spurred by positive vaccine development will Property & REITs – M&A at work speed up the process. The low interest environment coupled with ample capital looking for deployment opportunities drove a further Technology sector – shift in supply chain, COVID-19 compression in yields for real estate while most investors look pandemic and trade war to hasten M&A/privatisation needs at COVID-19 income disruption to be more cyclical rather than In the technology space, the shift in supply chain – out of structural. We saw close to S$10bn in real estate transactions China, to other ASEAN countries or back to the US to avoid within the real estate space, as S-REITs continue to acquire for the hefty tariffs – is taking a toll on manufacturing firms. growth or merge in order to compete for capital more Given that such changes will take time to materialise, the efficiently. Following on the S-REIT mergers in 2019, we saw M&A route could be another option to consider. M&A allows the merger of Frasers Commercial Trust (FCOT) and Frasers companies to take advantage of common customer Logistics & Industrial Trust (FLCT) catapult the combined REIT platforms, or synergise their operations and product offering. into the top 10 market cap S-REITs. The stock now trades at Synergistic acquisitions can also offer other significant premiums to NAV coupled with an exciting growth pipeline. benefits such as economies of scale and increased market Other notable M&A activities in 2020 include Frasers share. Furthermore, delisting can also lead to cost savings Centrepoint Trust (FCT) acquisition of its sponsor’s remaining arising from compliance and associated costs relating to stake in PGIM retail fund which hold interests in a portfolio of listing requirements and regular disclosures. These resources retail malls across Singapore worth S$3.0bn. Separately, could be channelled to their business operations instead. CapitaLand Retail China Trust (CRCT) emerged as a “China pure-play” as it pivots towards the new economy real estate Low trading liquidity, economic uncertainty were among the sectors (such as business parks). reasons for privatisation. Elec and Eltek was privatised after the controlling shareholder, Kingboard Holdings, with a The valuation disparity between the physical and listed space 73.6% stake, offered to acquire the remaining shares at have prompted founder-led privatisations (i.e. Perennial Real HK$18.07 (U$2.33) cash per offer share. The offer price was Estate and in the mid-cap industrial S-REIT space) while M&A at a hefty premium of 99% based the last transacted price on activity within the mid-cap industrial S-REITs picked up the SGX-ST before the announcement. The low trading momentum, as expected. Looking ahead, while the planned liquidity of the shares and low trading price were among the merger between Sabana REIT and ESR REIT did not reasons for the privatisation. The chairman of Sunningdale, materialise, we maintain our view that AIMS APAC REIT Mr Koh Boon Hwee, has teamed up with Novo Tellus PE Fund (AIMS) remains an attractive M&A target given its attractive 2 to make an offer at S$1.55 in cash per share via a scheme yields in excess of 7.0% coupled with development upside of arrangement. Mr Koh currently owns 15.6% of within its portfolio. With ESR Cayman (sponsor of ESR REIT)

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holding a strategic stake in the REIT, we believe that the (DSME) – proposed in early 2019, followed by merger of two merger between the two REITs is a matter of time. largest Chinese SOE yards (CSIC and CSSC), substantiates our thesis of continued consolidation in the shipbuilding sector. We like the mid-cap developers space given their attractive valuations coupled with tepid trading liquidity. This group of Speculation over the merger of Singapore rigbuilders have developers typically (i) have founders holding a significant reignited, further fuelled by Keppel’s ongoing strategic review controlling stake in the company, (ii) own a distinctive and of its O&M business. We hold on to our belief that Keppel valuable portfolio of commercial or landbank, and (iii) trade at O&M should be injected and merged with SMM, making significant discounts to their respective book values (and thus Keppel Corp a pure sustainable urbanisation play that focuses replacement costs). This in our view may prompt possible on property, connectivity and infrastructure. conversations around a privatisation or a possible re-listing in the future as a REIT in order to unlock value. Some of the mid- Yangzijiang a “deep value” privatisation candidate. cap developers that we like include Tuan Sing and Bukit Yangzijiang ticked all the checkboxes as a perfect candidate Sembawang and developers (non-covered) with attractive for privatisation. commercial portfolios like GuocoLand and Ho Bee fit the above criteria. Yangzijiang is deeply undervalued trading at 0.55x P/BV and 6x PE, below its net cash level (include financial assets) of Mega waves in the shipyard and industrial sector S$1.15/share, despite having superior financial metrics of 8% Sembcorp demerger a symbolic restructuring of Temasek ROE and 4% dividend yield. linked company in 2020. In Jun 2020, Sembcorp Industries (SCI) and Sembcorp Marine (SMM) announced an SMM 5-for- The market has underappreciated Yangzijiang’s solid 1 rights issue and SCI’s demerger with SMM via dividend-in- fundamentals. It is among the few shipyards in the world that specie, which were successfully completed in Sep 2020. remain profitable throughout the protracted downturn since the GFC with its distinctive economic moat as the largest and Both parent SCI and Temasek had lend support to SMM’s most cost-efficient private shipbuilder in China, bolstered by a rights issues. SCI subscribed to its pro-rata allotment (60%) strong balance sheet. and maximum excess rights shares (12%) amounting to S$1.5bn, and all SMM shares were subsequently distributed to Yangzijiang is also the best proxy to ride the shipping SCI shareholders (every 1 SCI share entitled to 4.91 SMM recovery, which has seen shipping rates climbing to multi-year shares) as dividend. Temasek become the largest direct highs. This is expected to translate to robust contract flow shareholder owning ~38% in SMM post the exercise, ahead. In fact, Yangzijiang has commendably secured including the additional ~9.8% unsubscribed rights it US$1.42bn new orders in 2020, close to its annual target of underwrote on top of the dividend in specie shares received US$1.5-2.0bn, despite 2020 being a challenging year. from SCI (via Temasek’s 50% stake in SCI, which in turns owns 60% of SMM). It could get an uplift in valuation by re-listing on China’s stock exchanges, as its peers are fetching significantly higher We were among the few brokers, and probably the very first, valuations of above 1x P/BV (SOE yards are trading at 1.1-1.7x that illustrated the scenario of a merger between Keppel O&M P/BV). and SMM, and SCI divesting SMM, making SCI a pure defensive utility play which should lead to the re-rating of its Its key shareholders – Founder & Honorary Chairman Mr Ren utilities business. (In our thematic 2017 report Shipyards: Yuanlin, CEO Mr Ren Letian and key management personnel – Creating Global Champions: Time to reform, restructure and hold a 32% stake in Yangzijiang. Based on a market cap of reposition, (page 8)). S$3.5bn plus a premium of 30%, the key shareholders require S$3.2bn to acquire the remaining 68% stake, which could be We also reiterated our view in an upgrade note in early Jun funded by a combination of some cash on hand (~S$2bn as of 2020 Sembcorp Industries: MSCI rebalancing sell-off a buying end-Sep 2020), financial assets (net of debt, ~S$2.5bn) and opportunity. some borrowings or private equity funds.

HPH Trust could be a privatisation candidate given that its Keppel O&M and SMM merger could be next? We believe the share price is 80% below its IPO price of US$1.01, its ongoing shipbuilding consolidation will accelerate an industry prospects and earnings are turning more positive and it has recovery, phase out excess capacity, alleviate competition, and strong shareholders (Hutchison Port Holdings and Temasek boost pricing power eventually. The Korean yard merger – own nearly 42%). Hyundai Heavy Industries (HHI) + Daewoo Shipbuilding

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China Aviation Oil has net cash of c.US$400m, which it can Deals in consumer sector in2020 use to make earnings-accretive acquisitions. Management has Stock Action Note stated that it is on the lookout for complementary BreadTalk Privatisation - acquisitions. Any significant EPS accretive acquisition(s) could Jumbo Acquisition Kok Kee Wanton Noodles help the stock to re-rate further. Japfa Disposal 80% of South East Asia dairy

business Greenfields Dairy to ‘Sweetened’ deals in consumer sector TPG and North Star Group The consumer sector was robust in terms of 2020 M&A Japfa Disposal 25% of China raw milk activity. Six companies in our Singapore consumer universe subsidiary AustAsia made one privatisation, three key acquisitions and disposals. Investment to Meiji BreadTalk delisted its shares from the SGX with the help of SPH Acquisition Aged care assets in Japan Minor International after it breached its financial covenants so SPH Disposal Genting Lane land for that it could better restructure itself. F&B Foodservice Datacentre JV companies continued to expand with bite-sized acquisitions, SPH Acquisition Cancelled Canada expanding their brands and product offerings into other F&B Koufu Acquisition Deli Asia, Deli Snacks, Dough sub-segments to support growth in the long term. Culture, and Dough Heritage

Upstream food companies such as Japfa were targeted for its Dairy Farm Disposal Wellcome Taiwan to Dairy business by both financial and strategic investors Carrefour wanting to ride on the positive outlook of rising raw milk prices from robust demand and short supply. In the grocery Source: DBS Bank retail space, Dairy Farm hived off its Wellcome Taiwan supermarket business to Carrefour in line with its long-term transformation plans. SPH’s continued its restructuring and Possible candidates for M&A in 2021 include the following: M&A activities into 2020 with 1) the disposal of its land and former HQ at Genting Lane for redevelopment into a Delfi (DELFI SP, BUY) Delfi could be an attractive takeover or datacentre via a JV with Keppel Corp; 2) acquisition of aged privatisation target. The company had previously spun off its care assets in Japan in line with diversifying away from media upstream cocoa processing business. In 2013, Delfi sold the and expanding its aged care segment. However, due to the division to Barry Callebaut AG for US$950m. Delfi is now left COVID-19 pandemic, it cancelled its proposed acquisition of with a strong branded consumer business in Indonesia. It is a the aged care assets in Canada. Overall, interest in acquiring market leader with c.50% share in the branded chocolate and disposing assets was buoyant in 2020, with sellers market in Indonesia. Its competitive advantage lies in its first- cashing out of their businesses and buyers looking to grow mover advantage and extensive network across Indonesia, targets to enhance long-term shareholder value. 2021 may which gives it considerable reach in the country. Global see continued acquisitions by consumer companies including players are already competing in the market, but their market Japfa after spinning off its dairy business, as well as Koufu and shares remain relatively low. We believe Delfi’s strong brand Jumbo as they look to expand their brand portfolio. and network will be attractive to investors who are keen to dominate the chocolate space in Indonesia. Despite its strong brand equity, the stock has been illiquid and it has not tapped capital markets funding in recent years.

Thai Beverage (THBEV SP, BUY) According to news reports, ThaiBev has been planning for an IPO of its regional beer assets from as early as 2020. The regional portfolio is likely to include breweries in Thailand, Vietnam and Myanmar. The listing will enable ThaiBev to deleverage and unlock value within the group. The majority of its debt arose from its acquisition of Sabeco in December 2017. More importantly, the proposed IPO could include premium brands in the beer category which we believe is lacking within ThaiBev’s portfolio.

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M&A plays

Fu Yu Corp 0.255 0.31 22% 145 0.3 BUY 21.9 66.2 12.4 7.5 5.3 6.3 cash 1.1 Valuetronics Holdings 0.575 0.53 -7% 189 1.1 HOLD -15.2 -13.5 9.6 11.1 5.2 4.5 cash 1.1 AIMS APAC REIT* 1.240 1.40 13% 663 NA BUY 46.6 11.5 15.1 13.5 7.7 7.2 0.6 0.9

Bukit Sembawang* 3.930 5.44 39% 770 0.4 BUY -16.7 28.6 10.3 8.0 3.8 4.6 cash 0.7

Keppel Corp 5.41 5.50 2% 7,394 18.2 BUY nm nm nm 11.8 2.0 3.3 0.74 0.9 Hutchison Port Hldgs Trust 0.191 0.22 15% 2,213 1.5 BUY -6.8 5.7 26.2 24.8 6.1 6.7 0.4 0.5 (US$) Yangzijiang 0.94 1.40 49% 2,728 19.5 BUY -14% -3% 6.9 7.1 4.3 4.8 Cash 0.5

Delfi Ltd 0.690 0.98 42% 319 0.5 BUY -31.2 27.4 16.2 12.7 4.5 3.9 cash 1.3

Thai Beverage Public 0.725 0.93 28% 55 14.7 BUY -0.1 11.1 17.7 16.0 2.8 3.2 0.8 2.7

* FY21 and 22 respectively Source: DBS Bank

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DBS Bank recommendations are based on 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 share price catalysts within this time frame) *Share price appreciation + dividends

Completed Date: 4 Jan 2021 07:50:17 (SGT) Dissemination Date: 4 Jan 2021 08:01:00 (SGT)

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

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

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.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(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.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not 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 and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

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 CapitaLand Retail China Trust, CapitaLand Integrated Commercial Trust, LendLease Global Commercial REIT, Frasers Centrepoint Trust. Mapletree Logistics Trust, Frasers Logistics & Commercial Trust, Mapletree Commercial Trust, Keppel REIT, UOB, OCBC, CapitaLand, Keppel Corporation, Yangzijiang Shipbuilding, ComfortDelgro, Ascott Residence Trust, CDL Hospitality Trust, Frasers Hospitality Trust, SATS, SPH, Genting Singapore, SingTel, City Developments, UOL Group, Sembcorp Industries, Sembcorp Marine, Hutchison Port Holdings Trust, SPH, Thai Beverage Public Company recommended in this report as of 30 Nov 2020. 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, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in CapitaLand Retail China Trust, Frasers Centrepoint Trust, Mapletree Logistics Trust, Frasers Logistics & Commercial Trust, Mapletree Commercial Trust, ComfortDelgro, Frasers Hospitality Trust, Genting Singapore recommended in this report as of 30 Nov 2020. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Frasers Centrepoint Trust, Mapletree Logistics Trust, Frasers Hospitality Trust, Genting Singapore as of 30 Nov 2020.

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.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Compensation for investment banking services: 1. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from CapitaLand Retail China Trust, CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust, Mapletree Logistics Trust, Frasers Logistics & Commercial Trust, CapitaLand, Keppel Corporation, Koufu Group Limited, SATS, Japfa Ltd, SPH, SingTel, City Developments, Perennial Real Estate Holdings, ESR Cayman Ltd., Guocoland, Sembcorp Industries, Sembcorp Marine, Japfa Ltd, SPH, Koufu Group Limited as of 30 Nov 2020. 2. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from CapitaLand Retail China Trust, Mapletree Logistics Trust, Frasers Centrepoint Trust, as of 30 Nov 2020. 3. 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 CapitaLand Retail China Trust, CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust, Mapletree Logistics Trust, CapitaLand, Keppel Corporation, SATS, Japfa Ltd, SPH, SingTel, City Developments, Guocoland, Sembcorp Marine, Japfa Ltd, SPH, in the past 12 months, as of 30 Nov 2020. 4. 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: 5. Anthony LIM Weng Kin, a member of DBS Group Holdings Board of Directors, is a Director of CapitaLand as of 30 Sep 2020. 6. Tham Sai Choy, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 30 Sep 2020. 7. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director / Chairman of SATS as of 30 Sep 2020.

Disclosure of previous investment recommendation produced: 8. 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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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore.

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

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Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, International Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated Financial by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the Centre DFSA rulebook) and no other person may act upon it.

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 e-mail: [email protected] e-mail: [email protected] Fax: 603 2604 3921 Company Regn. No. 196800306E e-mail: [email protected] Co. Regn No. 198401015984 (128540-U)

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

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