Analysts: Yeo Kee Yan and Ling Lee Keng
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| Bloomberg, Jan 5 |
THE PRICE-EARNINGS (PE) valuation of the Singapore market has normalized, and its growth is likely to become more gradual this year, compared to 2009’s V-shape, according to DBS Vickers analysts.
DBS Vickers’ small to mid cap strategy for 2010 centers on sustainable growth: a favorable backdrop for energy due to rising demand, beneficiaries of Singapore’s 2 integrated resorts and China consumption.
Its stock picks are Swiber, Ezra, Ascott Residential Trust, SC Global and China Fishery.
DBS Vickers is forecasting for small to mid cap stocks to grow earnings 14% in 2010, followed by a stronger 29% in 2011.
Growth this year will be driven by the following sectors: Basic Materials, Consumer Goods and Oil & Gas sectors. For 2011, the analysts have forecasted the Real Estate sector to post a sterling 97% growth, led by companies with large land banks and exposure to the high-end segment.
Oil & Gas
Swiber operates a fleet of offshore construction vessels, and provides a wide range of support services.
Oil price will trade within the range of USD70-90 per barrel (or average USD80pbl) in 2010. With the price currently much closer to the lower end of this range, there is room for upside going forward that should lend support to O&G stocks.”
”The time is right to buy Swiber as the contract award season for offshore field development projects in Southeast Asia begins. The expected new orders should rejuvenate interest in the stock in 1Q10. After 2 years of preparation efforts, we also expect to see new contracts from the Middle East and South Asia from 2Q10.
"Among our 4 stock picks, Swiber shares offer the highest percentage upside to target price and the forward PE of 5.9x is also much more attractive compared to the 9.3x for the small caps O&G sector.”
”We believe that Ezra’s large cash horde through the aggressive fund raising of USD160 million in 2009 will enable it make acquisitions to complement its own skill sets and offshore assets like FPSO and subsea vessels. Earnings wise, the first FPSO is finally contributing and a second FPSO may contribute higher than expected income as well as offer possible fabrication contracts.”
Tourism
The analysts forecast that the opening of integrated resorts in 2010 will turn Singapore into a ‘mono-destination’ for tourists and drive visitor arrivals higher by about 20% to an all-time-high of 10.5-11 million.
They are forecasting a stunning 43% year-on-year growth in Singapore hotel revenues in 2010, and a 25% spike in industry average revenue per available room.
At an undemanding valuation (0.8x price to book) and high yield of 6.7% (FY10), Ascott Residential Trust is DBS Vickers’ top pick for the sector. It has a regional portfolio of serviced residence assets located at prime locations in key gateway cities in the Asia Pacific region and should also benefit from a pick-up in business travel. Forecast earnings growth: about 6% CAGR in FY10-11F on the back of higher average occupancies as business travel demand picks up in coming quarters.
Some units of SC Global's luxury development at Sentosa Cove, Seven Palms, hit record selling prices in Oct 2009, exceeding S$3,000 psf.
The analysts believe that prices of Singapore’s high-end properties will benefit with the advent of casino resorts, after the precedents in Australia and Macau.
The top sector pick is SC Global, which has more than 80% of its readjusted net asset value attributed to the Singapore high-end segment.
Other factors favoring Singapore’s high-end property segment include:
(1) Lower valuation vis-à-vis Hong Kong,
(2) Less sensitivity to a higher interest rate environment, and
(3) Not as likely as mass market properties to be subject to changes in government policies.
China Consumption
The analysts believe that food prices in China should be continue to be supported by improvements in its lifestyles, urbanization and economic recovery. Its top sector pick is China Fishery, which the analysts expect to resume year-on-year growth in 1Q10 with higher revenue and operating margin improvement.
