STRATEGY
1H16: Picking Up After Hitting Bottom
l Back to stock picking after recent bounce. With FSSTI bouncing close to 5% from its recent Sep 15 lows, the market appears to be range bound in 1H16. FSSTI looks inexpensive but the 18-29% discounts to long-term mean valuations (PE and P/B) look appropriate given the mixed outlook and structurally weaker domestic growth prospects. We have a year-end target of 3,240 for the FSSTI.
l Hoping for earnings recovery in 2016 but downside risks remain. After a disappointing 2015, investors will be hoping for a recovery but we think any signs are only likely in 2H16 as near-term headwinds persist. We forecast 2016 market EPS growth of 8% yoy, but we see potential downside. Consensus continues to trend down and forecasts 5.4% EPS growth (-1.8ppt) after lacklustre 3Q15 reporting season.
l Buy on pull-backs as volatility remains elevated. With limited earnings visibility, growing geo-political risks, rising rates and uneven growth, we think investors should buy on pull-backs when VIX rises. We look for companies with the potential to surprise on earnings, newsflows or deep discounts to intrinsic value.
l Investment themes to consider in 1H16 include: a) capacity-driven growth, b) secular trend winners, c) growth at reasonable prices (GARP), and d) regulatory changes. Investors should remain defensive, stay nimble and buy selectively on pull-backs.
l Our picks for a profitable 1H16. Large-cap BUYs include Ascott Residence Trust, City Developments, DBS Group Holdings, Raffles Medical, Sembcorp Industries, SATS, Singapore Post, Singapore Telecommunications and First Resources. Mid-cap picks include Wing Tai Holdings, Singapore O&G, Ezion Holdings and Triyards Holdings. SELL SIA Engineering, Sembcorp Marine and Nam Cheong.
TOP CALLS
Share
|
Target
|
FY16
|
Share
|
Target
|
FY16
| ||||
Ticker
|
Price
|
Price
|
PE
|
Ticker
|
Price
|
Price
|
PE
| ||
(S$)
|
(S$)
|
(x)
|
(S$)
|
(S$)
|
(x)
| ||||
Top BUYs
| |||||||||
- Big Cap
|
- Mid Cap
| ||||||||
Ascott Residence Trust
|
ART SP
|
1.195
|
1.39
|
18.6
|
Ezion Holdings
|
EZI SP
|
0.64
|
1.01
|
3.6
|
City Developments
|
CIT SP
|
7.53
|
10.75
|
10.5
|
Singapore O&G
|
SOG SP
|
0.70
|
0.90
|
19.8
|
DBS Group Holdings
|
DBS SP
|
16.81
|
22.34
|
9.4
|
Triyards Holdings
|
ETL SP
|
0.42
|
0.88
|
3.0
|
First Resources
|
FR SP
|
1.945
|
2.40
|
11.6
|
Wing Tai Holdings
|
WINGT SP
|
1.705
|
2.50
|
19.4
|
Raffles Medical
|
RFMD SP
|
4.28
|
5.05
|
31.7
| |||||
SATS
|
SATS SP
|
3.95
|
4.50
|
18.2
|
Top SELLs
| ||||
Sembcorp Industries
|
SCI SP
|
3.30
|
4.07
|
9.3
|
Nam Cheong
|
NCL SP
|
0.146
|
0.12
|
17.7
|
Singapore Post
|
SPOST SP
|
1.805
|
2.18
|
22.0
|
Sembcorp Marine
|
SMM SP
|
2.20
|
1.72
|
14.6
|
Singapore Telecommunications
|
ST SP
|
3.80
|
4.56
|
14.9
|
SIA Engineering
|
SIE SP
|
3.74
|
3.30
|
27.1
|
* FY17 PE for SATS, SPOST, ST, SIE
Note: Closing prices as at 18 Nov 2015
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