Singapore Market Focus

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

DBS Group Research . Equity

Stability in yield plays

Sterling performance from Banks enliven an otherwise

lethargic market

Sentiment in the oil and gas sector will remain fragile

till we see stability in oil prices. BUY SMRT, beneficiary
of lower oil prices.

Chinas interest rates cut an inflexion point for China

property plays Buy Capitaland.

Seek stability in solid yield plays; OCBC, Sheng Siong,

SPOST, SingTel and China Merchants Holdings

Banks save the day. Earnings for the Banks were raised by 6.7%
and 7.4% respectively for FY14F and FY15F, mainly due to maiden
contributions from Wing Hang Bank boosting OCBCs growth. This
cushioned earnings cuts from the volatile sectors of oil and gas,
transport and consumer services, which were affected by a weak
global recovery. Ex-Banks, earnings would have been cut by 3.3%
for FY14F and 1.5% for FY15F. As a result, earnings growth for STI
companies still grow at a healthy rate of 7.6% and 8.7%
respectively for FY14F and FY15F.
Sum of moving parts. Last months 4.5% rise in the STI was
narrow, driven by banks and Telcos. With the earnings revision
trend stabilising, the STI should head for 3400 by year-end, based
on 13.76x (average) FY15 PE. For the STI to move past its average
PE into 2015, re-rating will need to come with a stronger global
recovery to offset rate hike expectations and bolster confidence
that the projected earnings growth of 8.7% can be achieved. With
several key moving economic variables the strengthening US$,
possible interest rate hikes, sliding oil prices and a nascent global
recovery, these factors could trigger volatility in the stock market.
Oils slippery ride. Sentiment in the oil and gas sector will remain
fragile till we see stability in oil prices. Hopes are for oil prices to
rebound after the 27Nov OPEC meeting, which could lead to a
rebound in oil & gas stocks. Leading the pack could be stocks
which are deeply oversold and trading below our bear case
scenario values. Our preferred pick is Yangzijiang, which has little
exposure to rigbuilding, is in a net cash position, and generates a
dividend yield of 4.4%. Transport companies are key beneficiaries
of the lower fuel cost. BUY SMRT.
Inflexion point for China property plays. The surprise rate cut
by PBOC will enhance the affordability of China properties, and this
will be a key inflexion point for moving sales and prices to support
sales recovery. Buy Capitaland, which has 40% of its assets in
China. Its corporate restructuring (privatisation of CapitaMalls Asia),
resulting in improved ROEs, will be catalysts to drive a further rerating in share price.
Stable yield plays Among domestic proxies with stable growth
and yield, we like OCBC, Sheng Siong, Singapore Post and
Singapore Telecoms. We like China Merchants Pacific which offers
a high 7% yield and 12% growth, driven by acquisition.

www.dbsvickers.com
Ed: TH / sa: YM

25 Nov 2014
STI :

3,345.32

Analysts
Janice CHUA +65 6682 3692
janicechuast@dbs.com
LING Lee Keng +65 6682 3703
leekeng@dbs.com

YEO Kee Yan +65 6682 3706

keeyan@dbs.com
Singapore Research Team

Key Indices
STI Index
FS Small Cap Index
USD/SGD Curncy
Daily Volume (m)
Daily Turnover (S$m)
Daily Turnover (US$m)

Current
3,345.32
518.58
1.30
1,346
1,093
841

% Chng 1 day
0.9%
0.8%
0.0%

EPS Gth
1.3
8.6
13.1

Div Yield
3.5
3.6
3.6

PER
17.1
15.8
14.0

EV/EBITDA
12.3
12.1
10.7

Source: Bloomberg Finance L.P.

Market Key Data
(%)
2013
2014F
2015F
(x)
2013
2014F
2015F

Source: DBS Bank

Stock Picks

Price ($) Target Price

21 Nov 14
($)

Buy Call
Capitaland
China Merchant Pacific
OCBC
Sheng Siong Group
Singapore Post
SingTel
SMRT
Yangzijiang
Fully Valued Call
Petra Food
SATS
SIA Engineering
Vard

Rcmd

3.270
0.990
10.470
0.655

3.84
1.42
12.70
0.78

Buy
Buy
Buy
Buy

1.925

2.12

Buy

3.920

4.28

Buy

1.645

1.86

Buy

1.200

1.62

Buy

3.670

3.02

FV

2.990

2.70

FV

4.180

3.80

FV

0.655

0.63

FV

Source: Bloomberg Finance L.P; DBS Bank

Market Focus
Singapore Strategy

Banks save the day

Domestic players outperform foreign proxies
Net earnings of Singapore companies under DBSs coverage
rose by 9% y-o-y and 3% q-o-q in 3Q14. A weaker-thanexpected global recovery affected sectors tagged to external
growth, leading to earnings cut for oil and gas, consumer
goods and services. Domestic sectors held up, while banks
and telecoms surprised on the upside, raking in earnings
growth of 32% and 17% respectively.
Banks mitigate impact of earnings cuts in volatile
sectors
Overall, we have tweaked the FY14F and FY15F earnings for
stocks under our coverage by -0.7% and +0.9% respectively.
Though the downward earnings revision trend has improved,
positive earnings revision for this quarter was mainly
attributable to the Banks, which reported strong quarterly
results. Ex-Banks, earnings would have been cut by 3.3% for
FY14F and 1.5% for FY15F.
3Q 14 earnings report card
Sector

3Q13

Net Profit (S$ mn)

y-o-y
2Q14
3Q14
chng

Banking

2,351

2,698

3,108

Commodities Related

695

367

706

2%

92%

Consumer Goods

222

279

187

-16%

-33%
-16%

q-o-q
chng

32%

15%

Consumer Services

581

342

287

-51%

Financials

201

159

189

-6%

19%

34

42

34

-2%

-21%
-2%

Health Care
Industrials

618

722

706

14%

Oil & Gas

969

885

885

-9%

0%

Real Estate

611

1,203

662

-9%

-45%

REITS

714

796

809

8%

2%

73

76

75

3%

-2%

Telecommunications

1,005

973

1,181

17%

21%

Grand Total

8,074

8,543

8,828

9%

3%

Technology

Source: DBS Bank

Consumer sector affected by margin squeeze

Consumer stocks and plantations - specifically Petra Food and
Super Group, were mainly affected by lower margins as the
lag effect of higher commodity prices ate into margins.
Consumer Services like Genting were hit by poor win rates,

Page 2

while core newspaper & magazine operations remain weak

for SPH. Industrial sector was mainly dragged down by SIA
Engineering, ST Engineering, Cosco and Hyflux. SIA
Engineerings revenue was affected by
deferments/cancellations of work and also margin pressure.
Cosco was dragged by provisions for cost overrun and weak
margins. Higher-than-expected operating costs and weak
quarters ahead prompted us to expect bigger losses for
Hyflux.
All Oil & Gas stocks, except for Nam Cheong, suffered
cuts in earnings post-3Q results
More than half of the Oil & Gas stocks we cover reported
results below our expectations, arising from margin pressure,
higher dry docking expenses and deferment of contracts. We
expect more sector headwinds ahead, with potential order
cancellations for SembCorp Marine. Given the potential delays
in Brazil as well as weaker oil price outlook, we have
downgraded POSH to HOLD. Earnings for Pacific Radiance
were impacted by losses from its subsea vessel division, while
Kim Heng was affected by further deferment of rig contracts.
Banks the only silver lining
The strong results for UOB were driven by non-interest income
while NIM stabilised. Results for OCBC were boosted by
contribution from Wing Hang Bank (WHB). OCBC is on track
to meet its earlier guided targets: high single- to low doubledigit loan growth, stable NIM (but higher vs FY13). Overall, we
have raised earnings for the Banking sector by 6.7% and
7.4% for FY14F and FY15F respectively, mainly due to maiden
contributions from Wing Hang Bank boosting OCBCs growth,
and the sectors earnings growth to 11.7% for 2015.
Healthy earnings growth ahead
Despite the disappointing 3Q results, we expect STI companies
to grow at a healthy rate of 7.6% and 8.7% for FY14F and
FY15F respectively. Banks, which account for about 20%
weightage by market cap, are one of the key pillars to the
growth in earnings. Telecommunications, the next key sector
which accounts for another 12% weightage in DBSs
coverage, is also expected to deliver stable growth of about
6% for both FY14F and FY15F.

Market Focus
Singapore Strategy
Earnings revision after 3Q14

Earnings revision trend

% Chg A fte r Re s ults A nnounce d

S e ctor
Banking

FY14
6.7%

FY15
7.4%

Commodities Related

-5.6%

-6.8%

Consumer Goods

-3.8%

-5.1%

Consumer Services

-9.4%

-2.0%

Financials

2.2%

-4.6%

Health Care

0.0%

0.0%

Industrials

-4.9%

-3.3%

Oil & Gas

-5.2%

-6.6%

Real Estate

-0.5%

8.4%

REITS

-0.2%

0.4%

Technology

-3.7%

-3.4%

0.0%

0.0%

Gra nd T ota l

-0. 7%

0. 9%

Ex Prope rty

-0. 7%

0. 0%

Telecommunications

2.0%

Earnings Revision Trend

0.9% 1.0%

1.0%

0.9%
0.2%

0.0%

0.0%

-0.5%

-1.0%
-2.0%
-3.0%

-1.3%

-1.5%

-2.4%

-4.0%

-1.4%

-2.7%

-1.7%

-2.5%
-3.1%

-3.6%

-1.4%

-0.7%

-1.5%
-2.1%

-2.9%
-3.0%

-4.3%

-5.0%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Yr 1 Forecast

Source: DBS Bank

Yr 2 Forecast

Source: DBS Bank

Earnings growth by sector

Eps Growth (%)

CAGR

Div Yld

PER (x)

Sector

2014F

2015F

13-15

2014F

2015F

Banking

14.7

11.7

13.2

12.2

11.0

2013A
2.9

Consumer Goods

-2.2

9.5

3.5

16.9

15.4

2.0

Consumer Services

2.3

25.0

13.1

21.8

17.5

3.5

Financials

-5.3

4.4

-0.6

25.6

24.5

5.5

Health Care

17.7

12.5

15.1

39.5

35.1

0.7

Industrials

14.1

19.7

16.9

16.2

13.6

3.3

Oil & Gas

10.2

16.4

13.3

12.3

9.7

3.4

Real Estate

6.4

19.6

12.8

16.6

13.9

2.5

REITS

11.3

3.4

9.0

16.2

15.7

5.8

Technology

9.6

11.2

10.4

18.7

16.8

7.1

Telecommunications

6.3

6.5

6.4

16.6

15.6

4.4

DBS Co verage

8.6

13.1

10.8

15.8

14.0

3.5

STI DBSV Fo recast

Avg (Befo re EI )

7.6

8.7

8.1

14.5

13.3

STI Co nsensus Avg

6.8

8.2

7.5

14.6

13.5

Source: DBS Bank, Bloomberg Finance L.P.

Page 3

Market Focus
Singapore Strategy

Market Outlook & Strategy

Singapore Market Outlook
Last months 4.5% rise in the STI was narrow, driven mainly
by domestic sectors banks and telcos. Acquisition growth by
OCBC and the banks sterling performance masked a
disappointing set of 3Q results, holding up earnings growth
for 2015 at a healthy level. With the earnings revision trend
stabilising in the just concluded 3Q14 results season, the STI
should head for 3400 by year-end based on 13.76x (average)
FY15 PE.

interest rates which should be positive for the property

market. As a result of these policy differences, the US dollar
has strengthened against major currencies in recent months.

For the STI to move past its average PE into 2015, re-rating
will need to come with a stronger global recovery to offset
rate hike expectations and bolster confidence that the
projected earnings growth of 8.7% can be achieved. With
several key moving economic variables the strengthening
US$, timing and magnitude of interest rate hikes, sliding oil
prices and a nascent global recovery, these factors could
trigger volatility in the stock market.

US steers towards rate hike next year

The Fed ended its QE3 programme in October 2014 and
expressed confidence in the US recovery despite global
growth concerns. The US job market continues to recover as
the November unemployment rate dipped to 5.8% and nonfarm payrolls rose by 214k. The Fed is poised to tighten
monetary policy next year with consensus expectations for the
Fed funds rate to start rising in 2H 2015. Strong corporate
earnings have also helped the S&P500 Index recover from its
recent correction back into all-time high territory. However,
the S&P500 now trades at 17.1x projected earnings based on
Bloomberg consensus, the highest multiple since 2009. Thus,
valuation is no longer cheap.

STI at various forward PE levels

-0.5 sd

-0.25 sd

Avg 13.76x

+0.25 sd

13.02x PE

13.3 PE

PE

14.1 PE
3,216

FY14
FY15

2,969

3,033

3,138

*(+48)

(+35)

(+60)

(+48)

3,226

3,296

3,409

3,494

(+58)

(+45)

(+60)

(+49)

*change compared to before the start of 3Q results season

Source: DBS Bank

STI forward PE trend

4,500

+2sd@ 16.71x

4,000

+1sd@ 15.23x

3,500

Avg@ 13.76x
-1sd@ 12.29x

3,000
2,500
2,000
1,500

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

1,000

Source: DBS Bank

Different strokes for different folks

Major central banks are adopting varying policy stances as
their economies head in different paths. The US is
steering towards a rate hike in 2H15, while both the ECB and
BOJ look to further stimulate their ailing economies.
Meanwhile, China has just announced a surprise cut in

Page 4

After rallying for the past few months, the Dollar could pause
for a breather soon. Still, there can be negative implications
for emerging markets and USD-denominated commodities as
well as positive for companies with USD revenue streams if
the currency continues to strengthen next year.

ECB and BOJ add stimulus

Growth in the Eurozone is faltering. Whats worrying is that
the weakness is coming from the core economies of Germany,
France and Italy. The region faces the possibility of deflation
and is at risk of slumping into its third recession in recent
years. ECB president Mario Draghi has pointed to government
bond-buying as a policy tool that officials could use to
stimulate the economy should the Eurozones outlook worsen.
Japan has just slipped into recession with the economy
shrinking 1.6% in 3Q, surprising the consensus, which
forecast a 2.2% growth. The BOJ had recently voted to ramp
up the pace of its stimulus measures by increasing the annual
purchases of government bonds from 60-70tn to 80tn and
aiming to hit its 2% inflation target.
China stands pad
3Q GDP growth for China slowed to 7.3% y-o-y in the third
quarter from 7.5% in 2Q. Meanwhile, the IMF projects
Chinas GDP growth to decelerate to 6.3% by the end of this
decade from 7.4% in 2014. In a surprise move, the PBOC
announced cuts in lending and deposit rates to stimulate the
economy. The 1-year lending rate was cut by 40bps and
deposit rate by 25bps.

Market Focus
Singapore Strategy
US Dollar on a strengthening path
The USD has strengthened against major currencies in recent
months, as a result of the different monetary policy stances.
The USD Index that measures the strength of the USD against
USD Dollar Index (ytd)

major currencies has risen 10% since July. The USD has
strengthened by c.10% against the Euro and close to 15%
against the Yen over the same period. Against the SGD, it has
gained about 5%.

USD against Euro (ytd)

Source: DBS Bank

USD against Yen (ytd)

USD against SGD (ytd)

Source: DBS Bank

Three implications of the strengthening dollar

1. Emerging market volatility The trend for emerging
market equities and the USD tends to be inversely
correlated. While the USD Index has risen c.10% in
recent months, the MSCI Emerging Market Index has
corrected by about the same percentage points since
September. A strengthening USD triggers outflow from
emerging market equities and vice versa.

Direction of USD Index and MSCI Emerging Market Index

tends to be negatively correlated

In the near term, the USD Index looks to have limited

upside and could pull back to consolidate its recent
months gains. While this provides a respite for EM
market equities in the short term, more volatility could be
in store next year if the USD continues on its rising path.
2.

Commodity price weakness USD-denominated

commodities (e.g. gold, oil) could come under further
pressure if the USD continues to strengthen. This would
also impose pressure on upstream commodity companies.

3.

Positive for companies with earnings in USD Ceteris

paribus, a strengthening USD is positive for companies
that derive their revenue streams in the currency (e.g.
HPH Trust, Dairy Farm, Jardine Group, NOL).

Source: DBS Bank

Page 5

Market Focus
Singapore Strategy

Beneficiaries and losers of strengthening US$

Company

Rec

Share
Price
(S$)

Target
Price
(S$)

Exposure

Positive
NOL

Hold

0.755

0.88

About 95% of revenues in US$, vs ~60% of costs in US$. Reports in

ST Engineering

Hold

3.34

3.80

26% of sales are to US customers and 29% of assets are in the US.

US$.
About 20-25% of sales are denominated in US
dollars. Each 1% gain in the US dollar vs Singapore
dollar could boost STE's bottomline by about 0.3%.
Venture

Buy

7.70

8.40

Bulk of revenue in US$ which is almost matched by a large portion of

Hi-P

0.675

Bulk of revenue in US$ which is almost matched by a large portion of

cost in US$. Company hedges exposure.

cost in US$. Each 1% gain in the US dollar vs Singapore dollar could
boost bottomline by about 1%.
HPH Trust (US$)

Buy

0.69

0.78

All income and distributions are in US$, translation gains to S$ DPU.

Olam

Buy

2.24

3.05

Reports in S$ but some commodities are traded in US$.

Negative
Super Group

Hold

1.155

1.15

Key raw materials are predominantly in US$ while sales are in various

Petra Food

FV

3.67

3.02

Cocoa beans are denominated in US$ and sales in Indonesia are made in

Yongnam

Hold

0.20

0.19

regional local currencies.

Indonesia Rupiah.
Revenue mainly in S$, steel costs in US$, about 25% of COGS. Each 1%
gain in the US dollar vs Singapore dollar could hurt bottomline by about
0.8%.

Source: DBS Bank

lifted, this could add to the supply problem. Should oil price
stay at its current low levels for a sustained period, this will
lead to more E&P projects being deferred. Petrobras added
fuel to the fire when investigations broke out last week,
implicating heavy construction companies OAS, Odebrecht
and Queiroz Galvao, which have contracts to build and supply
the US$18.5bn Abreu and Lima refinery, in the alleged
laundering and corruption case dubbed operation car wash.

Slippery oily path

Oil price YTD
US$ /barrel
120
115
110
105
100
95
90
85
80
75
70
Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Source: Bloomberg Finance L.P.

Brent crude, hovering at <US$80pb, is below our 2015 base

case assumption of US$95 and close to our bear-case scenario
of US$75pb. Meanwhile, oil & gas stocks, and rigbuilders have
come under pressure, wiping off their market cap by 20%
over the past three months. Expectations that OPEC will cut
output is low at this point, and if sanctions against Iran are

Page 6

Sentiment will remain fragile till we see stability in oil prices.

Hopes are for oil prices to rebound post-OPEC meeting on
27Nov, which could lead to a rebound in oil & gas stocks.
Leading the pack could be stocks trading below our bear-case
scenario values Ezion (bear target price of S$1.50). Among
shipyards, our preferred pick is Yangzijiang, which has little
exposure to rigbuilding, and is in a net cash position, trading
close to book and generates an attractive dividend yield of
4.4%.
Yangzijiang (BUY, TP $1.62)
The expected recovery in the shipping and shipbuilding
markets in the next two years should benefit established yards
like Yangzijiang, whose orderbook of US$4.6bn translates into
a healthy book-to-bill of 2.2x. Yangzijiang is set to outperform

Market Focus
Singapore Strategy
peers with 5- to 10-ppt higher margins (through better
newbuild prices, payment terms and efficiency as well as
active cash management) and deliver relatively stable profits
with upside potential from the recognition of the relocation
fees from government (Rmb720m and profits from disposal of
previously cancelled vessels c.Rmb600m). Including Held-toMaturity (HTM) investments, Yangzjiang is in net cash of 33
Scts per share or 26% of its NTA.
Beneficiaries of lower oil prices
Transport companies are key beneficiaries of the lower fuel
cost. However, SIA and NOL have yet to see a reversal of
fortunes for rates or yield recovery. Eurozone remains weak
while airlines continue to see intense competition from
budget and main carriers. Preferred plays are land transport
operators Comfort Delgro and SMRT. However, Comfort
Delgros valuation is not cheap, and the stock is near our
target price of S$2.71. We recently upgraded SMRT to buy
post-3Q results.
SMRT (BUY, TP $1.86): We see more efficient operations and
lower oil prices driving SMRTs earnings growth. In particular,
its bus segments losses are narrowing with lower opex, led by
staff, diesel, repair and maintenance, and depreciation
expenses. We expect the recent oil price correction to benefit
diesel and electricity costs opex going forward. Based on our
lower oil price assumptions (US$90-95/bbl), we are expecting
an earnings CAGR of 27% from FY14-FY17F on the back of
4% revenue growth driven by higher ridership. Current
valuation of 22x FY16F PE is attractive vis--vis growth
prospects, implying a PEG of 0.8x. Further upside to the stock
could come from better-than-expected earnings should oil
prices remain around c.US$80/bbl levels over the longer term.
Property companies to benefit from rate cuts in China
The surprise rate cut by PBOC will raise the affordability level
of property purchasers in China, and will be a key inflexion
point for moving sales and prices to support sales recovery.
% Exposure by asset value
100%
90%
80%
70%
60%
50%
40%

In addition to direct China property plays Yanlord and Yingli,

Singapore Property developers with exposure to China will
enjoy spillover interests. In terms of exposure, KPLD offers
higher exposure to China Residential compared to CAPL (a
mix of retail and residential). However, we expect that
Capitalands corporate restructuring (privatisation of
CapitaMalls Asia), resulting in improved ROEs, will be catalysts
to drive a further re-rating in its share price in the medium
term.
CapitaLand (BUY, TP $3.84) Apart from its growing
operations in Singapore and China residential, we see the
privatisation of CMA as a key driver towards lifting profits and
ROEs for the group. With a stream-lined organizational
structure, we see the group being nimble in executing on
opportunities (gearing of 0.6x; S$2.5bn cash) and also to
potentially look to re-cycle capital either through its
REITs/funds which will act as catalysts towards closing the
RNAV gap. Our TP of S$3.84 is pegged at a 30% discount to
RNAV.
Go for stable yield plays
OCBC (BUY, TP $12.70)
With Greater China as its added growth engine, this will
diversify and enhance OCBCs geographical earnings trend. In
addition, its strong non-interest income franchise (insurance
and wealth management) and an added edge in Islamic
banking in its Malaysian operations should provide exciting
opportunities for growth. OCBCs asset quality remains solid
and the bank will derive long-term integration and synergistic
benefits from Wing Hang Bank, raising its ROE potential. Its
dividend yield is attractive at 3.8%.
Sing Post (BUY, TP $2.12)
E-commerce logistics will be the key growth driver for SPOST.
In addition to tapping into Alibabas carriage business, SPOST
will likely seek growth through strategic investments and
M&A. The company has also announced plans to develop a
553,000-sq ft e-commerce logistics hub in Singapore to
support the segments growth. There was a postal rate hike in
October 2014, which is expected to support margins. The
annual impact is about S$16m (~S$12m in the first year due
to rebates), effective from 3Q15. Besides its healthy cash
generation business model and net cash position, SPOST also
offers double-digit earnings growth and 3.3% yield in FY15F
(March Year End).

30%
20%
10%
0%
CapitaLand
Others

Keppel Land
China Assets

FCL
Singapore Assets

Source: DBS Bank, companies

Page 7

Market Focus
Singapore Strategy
locations where it is not represented. The stock is trading at
below average valuations of 21x FY15F PE in comparison to its
historical average PE of 23x and regional peers average of
25x.

Sing Tel (BUY, TP $4.28)

A benign competitive environment and comparatively stable
currency in the region are benefitting associate profitability.
This improved profitability will be a key driver in bottomline
growth for FY15. SingTel has maintained its guidance for low
single-digit growth in core EBITDA, which leads us to believe
that it can secure a 7% earnings growth this year and offer a
~5% yield.

China Merchants Holdings (BUY, TP $1.42)

We like CMHP as it is offering a >7% dividend yield, and is
trading at less than 10x FY15 PE, with steady earnings growth
of 10% p.a. from 2014-2016, driven by both organic traffic
volume growth in China, and contribution from the newly
acquired Jiurui Expressway. We expect the stock to declare at
least a 3.5-Sct final dividend in February, and along with
continued earnings growth, act as catalysts for the stock to rerate. The projected net gearing of the company will also be
less than 0.2x by end-2015F, providing debt-headroom for
potential acquisitions. There is >40% upside to our DCF-based
TP of S$1.42.

Sheng Siong (BUY, TP $0.78)

We like Sheng Siong for its strong net cash per share of
S$0.12, dividend yield of >4% and steady CAGR of 3% for
the next two years. We expect SSSG improvement (as a result
of marketing initiatives and store renovations) and margin
expansion (from higher sales of fresh products and bulk
purchasing) to continue supporting growth in the next few
quarters. Having raised S$180m in equity recently, the
company is now in a better position to open new stores in

Stock Picks
PE (x )
14F
15F

P/B (x)
14F
15F

Div Y ld
14F
15F

EPS / DPU
Grow t h
14F
15F

Buy

18.2x

17.8x

0.8x

0.8x

2.2%

2.3%

45%

3%

44%

Buy

11.5x

10.3x

1.1x

0.9x

7.2%

7.2%

(3%)

12%

12.70

21%

Buy

11.2x

10.4x

1.3x

1.2x

3.8%

3.9%

23%

8%

0.78

19%

Buy

20.1x

21.0x

4.0x

4.1x

4.5%

4.3%

16%

(4%)

1.925

2.12

10%

Buy

25.4x

22.2x

6.0x

5.6x

3.3%

3.4%

1%

14%

48,080

3.920

4.28

9%

Buy

16.1x

15.1x

2.5x

2.4x

4.7%

5.0%

7%

7%

1,926

1.645

1.86

13%

Buy

26.8x

22.5x

2.9x

2.7x

2.0%

2.2%

51%

19%

3,538

1.200

1.62

35%

Buy

6.1x

6.7x

1.1x

0.9x

4.4%

4.4%

15%

(10%)

Petra Food

1,725

3.670

3.02

-18%

FV

34.4x

30.1x

5.8x

5.3x

1.7%

2.1%

(16%)

14%

SATS*

2,569

2.990

2.70

-10%

FV

18.7x

17.8x

2.3x

2.2x

4.3%

4.3%

(3%)

5%

SIA Engineering*

3,605

4.180

3.80

-9%

FV

24.4x

20.1x

3.6x

3.4x

3.8%

4.3%

(28%)

21%

595

0.655

0.63

-4%

FV

16.4x

8.7x

1.0x

1.0x

1.8%

3.4%

(32%)

87%

Mkt
Cap
(US$m)

Price
(S$)
21- Nov

T arget
Pric e
(S$)

10,713

3.270

3.84

18%

791

0.990

1.42

32,107

10.470

758

0.655

Singapore Post*

3,146

SingTel*
SMRT *
Yangzijiang

Company
Buy Call
Capitaland
China Merchants
OCBC
Sheng Siong Group

%
Upside Rc md

F ully V alued Call

V ard

Source: DBS Bank

* FY15 & 16 forecast

Page 8

Market Focus
Singapore Strategy

3Q14 Result Highlights

Sector

Highlight

Outlook & Risks

Stock Picks & Recommendation

Banks
Overweight

Stable NIM; moderated loan

Positive vibes on a rising interest rate

environment; risk to asset quality only
if unemployment is affected.

OCBC is our preferred pick over UOB.

OCBCs key catalysts would be the successful
integration of WHBs operations, which
would further enhance OCBCs earnings
profile and give rise to a more diversified
geographical profit distribution. Key risks to
our forecast and call would be OCBCs
inability to integrate WHBs operations and
extract synergies from the acquisition.

Consumer

Weaker margins and profits are

Overweight

generally seen for F&B counters

due to higher raw material costs
and weaker regional currencies
Topline growth weaker as
consumer sentiment moderation
continues in the region, for
example slowing GDP, reduction
in subsidies (Malaysia &
Indonesia), slower tourists arrivals

Expect topline growth to be relatively

muted as consumer demand continues
to moderate, particularly in Indonesia,
Malaysia on lower subsidies, higher
inflation. Margins could see respite
and on recovery trend as effects of
lower raw materials gradually come
into effect, expected from 1Q15
onwards. Further weakening of USD
against regional currencies could
negate lower raw material prices.

ThaiBev and Sheng Siong are our preferred

picks, given their stable and relatively
defensive operations. We expect ThaiBev to
continue to see operational improvement qo-q into 4Q14 and an additional catalyst
could come from the corporate restructuring
of its shareholding in FNN/FCL. We expect
Sheng Siongs SSSG and margin expansion to
continue supporting growth. Post-share
placement, Sheng Siong is now in a better
position to acquire properties for more new
stores in Singapore.

Rigbuilders/Shipbuilders Generally weaker margins in

Neutral
3Q14
Sentiment dampened by capex
cuts by oil majors, declining day
rates and the imminent large
number of rig deliveries next year
Also affected by keener
competition and declining oil
prices

We expect recovery in the shipping

and shipbuilding markets in the next
two years, though it may be a bumpy
journey, despite near-term headwinds.
Rigbuilding sector faces a triplewhammy of near-term supply glut,
keener competition, and declining oil
prices. While Singapore rigbuilders
continue to receive healthy enquiries
for both exploration and production
platforms, order flow is slowing down
and newbuild prices may also come
under pressure.

Yangzijiang, whose orderbook of US$4.6bn

translates into a healthy book-to-bill of 2.2x,
should benefit from a recovery in the
shipping and shipbuilding markets.
Yangzijiang is set to outperform peers with
5- to 10-ppt higher margins (through better
newbuild prices, payment terms and
efficiency, as well as active cash
management) and deliver relatively stable
profits with upside potential from the
recognition of the relocation fees from the
government.

Oil & Gas Service

Providers

Cautious on outlook for utilisation and

rates amidst weak oil price
environment; companies with
exposure to shallow waters, cabotage
markets and niche vessel types to be
more stable.

Ezion remains our top pick as it will continue

to report earnings growth on sequential basis
despite some delays in delivery of vessels.
Pacific Radiance should also be able to deliver
growth as its virtual shipbuilding strategy
helps outperform peers on employability and
margins. Nam Cheong is on a recordbreaking path in FY14, and looks set to
deliver on a bigger shipbuilding programme
in FY15.

Expect further weakness in 4Q14 CPO

ASP on lower record soybean harvests,
drop in biodiesel demand; offset by
sequentially flat/higher output. Risks:
developing El Nino may push up
prices.

Prefer BAL and IFAR over FR and WIL. FR and

WIL may continue to see adverse refining
profit squeeze until 2Q15. BALs upstream
model and IFARs delayed profit booking
mean they are priced below potential.

Neutral

growth
Robust asset quality indicators
Well-controlled costs

Mixed quarter with OSV

operators generally reporting

weak results with profitability
impacted by one-off factors like
drydocking and repairs
Companies with long-term
charters outperform
Build-to-stock orders continue to
flow

Plantation

Lower-than-expected CPO ASP;

Underweight

some output shifted to 4Q14

due to dryness
Refining margins dropped on
zero spread between
CPO/refined oil export taxes
Temporary spike in G&A due to
annual Eid allowance
Labour minimum wage hikes
offset by lower fertiliser costs

Source: DBS Bank

Page 9

Market Focus
Singapore Strategy

3Q14 Result Highlights

Sector

Highlight

Outlook & Risks

Stock Picks & Recommendation

Property

Residential market in Singapore

Neutral

continues to be weak but enjoys

good take-ups for well-located
projects
Developers increasingly focused
on overseas expansion, e.g.
Keppel Land recycling capital from
recent asset disposals into
overseas projects
Generally in strong financial
position with lower-than-expected
gearing for FCL a highlight

We expect the Singapore residential

market to remain weak until there is
relaxation of cooling measures. Thus,
the key driver going forward is the
execution of the developers overseas
plans. Nevertheless, we see value in the
developers currently as they are trading
at 20-50% discounts to RNAV.

We believe the potential for more capital

recycling activities and improved execution
capability following a more streamlined
organisational structure will act as catalysts to
narrow Capitalands c.40% discount to RNAV.
We also like FCL for its robust earnings outlook
which is underpinned by the Australand
acquisition and the unlocking of S$3.9bn
worth of unrecognised revenues.

REITs

Positive rental reversions in office

Neutral

space due to tightness in supply

Headwinds from increased supply
in industrials as expected
Demand in hospitality still patchy

With risks of rising interest rates by

end-2015, investors should focus on
REITs with underlying organic growth
and AEI potential. In addition, with
SREITs fairly valued at the moment and
trading on a forward yield of 6.3%,
implying a yield spread of c.4% which
is in line with historical averages, we
remain selective.

FCT Contribution from the recently acquired

Changi City Point which is still in its first lease
cycle.
MAGIC Continued positive rental reversions
on the back of active tenant management at
Festival Walk and tight office supply in Beijing.
FCOT Significant earnings boost following
expiry of master lease at Alexendra
Technopark.
Cache Earnings upside as master leases on its
initial IPO portfolio expire. Rents for these
properties are currently 37% below market.

Telecoms

Tiered data plan uptake

Overweight

supporting mobile
Increased price competition in
fixed broadband
Regional markets increasing
contribution to bottomline growth

Ongoing data re-pricing (through

migration to tried data plans) may
offset revenue dip stemming from
lower voice and IDD volumes. However,
fixed broadband and Pay TV are likely
to remain weak due to competition.

Prefer SingTel over StarHub and M1. Strong

performance of regional associates is likely to
continue, led by Bharti and Globe, which
should boost SingTels earnings.

Transport

Profitability for operators like

Neutral

airlines and NOL remain subdued

on weak yields and rates, amidst
overcapacity and weak demand
environment
Infrastructure owners like HPH
Trust and CMH (Pacific) performed
significantly better than operators,
with steady earnings growth and
firm cash flows
MRO names SIA Engineering and
ST Engineering both posted results
that were below expectations due
to higher costs and less-than-rosy
revenue performances
Land operators performed fairly
well, with SMRT showing signs of
improving earnings

The focus in the quarters ahead would

be on the beneficial impact of lower oil
prices on the sector, and in particular
for operators. We expect both airlines
and shipping companies to see lower
fuel bills, though how much of that will
be offset by weaker demand remains to
be seen. We project lower fuel prices to
drive marginally improving earnings for
most operators like airlines and
shipping companies.

We like HPH Trust for its 8% FY15 dividend

yield, and also CMH (Pacific) for its 7%
dividend yield and earnings growth profile.
CWT has undemanding valuations at less than
8x PE and double-digit earnings growth. SMRT
is an earnings recovery story, driven by better
efficiencies and fare increase.

Source: DBS Bank

Page 10

Market Focus
Singapore Strategy

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

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd,
its respective connected and associated corporations and affiliates (collectively, the DBS Vickers Group) 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)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
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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 and it
may not contain all material information concerning the company (or companies) referred to in this report.
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)
(b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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.

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.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.
ANALYST CERTIFICATION
The research analyst 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 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 this report. As of the date the report is
published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities
recommended in this report (interest includes direct or indirect ownership of securities).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (DBSVS), their subsidiaries and/or other affiliates do not have a
1.
proprietary position in the securities recommended in this report as of 30 Sep 2014 except OCBC, Singapore Post, SingTel, SMRT,
Thai Beverage Public Company, Yangzijiang Shipbuilding, SATS, Neptune Orient Lines, ST Engineering, Venture Corporation ,
Hutchison Port Holdings Trust, UOB, Ezion Holdings, Indofood Agri Resources, Wilmar International, CapitaLand, Mapletree Greater
China Commercial Trust, Cache Logistics Trust, StarHub, M1, Yangzijiang Shipbuilding, ComfortDelgro, Sembcorp Marine, SPH,
Keppel Land, Cosco Corporation, Hyflux, Genting Singapore, Jardine Group.
2.

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common
equity securities of Mapletree Greater China Commercial Trust as of 30 Sep 2014.

Page 11

Market Focus
Singapore Strategy
3.

Compensation for investment banking services:

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months,
and within the next 3 months may receive or intends to seek compensation for investment banking services from Singapore Post,
Olam International, F & N, Ezion Holdings, Frasers Centrepoint Trust, Mapletree Greater China Commercial Trust, Sembcorp
Marine, Pacific Radiance Ltd, PACC Offshore.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking
transaction as a manager or co-manager 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
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Page 12