Strategy Singapore

Strategy Singapore: HSBC’s 2014’s theme highlights that Singapore should continue struggling with property cooling, tightening monetary stance and foreign labour constraints. GDP is expected to grow at 3.5% y/y, in tandem with the gradually improving outlook for US and Europe economies. SGD is expected to appreciate in line with expected inflation pressures. The market is trading at FY14e PE of 13.5x, 4% discount to 5 year average of 14x. FY14e dividend yield of 3.7% is amongst highest in APAC countries, and with appreciating SGD, will be one of the main attractions, in HSBC’s view. The house also notes M&A activity, notably in property sector is likely as seen in prior low-growth cycles in the market. Highest conviction overweights: DBS (TP: $19.80) 1) Cheapest bank stock 2) Earnings most sensitive to rising rate environment 3) Good asset quality (except exposure to Indian middle market corporates) Keppel Land (TP: $4.90) 1) China exposure/ sales: 1H13 sales exceeded FY12, showing strong momentum 2) Singapore: Solid demand with Corals at Keppel Bay ASP $2200 psf. MBFC T3 > 90% committed, bringing closer to divestment, following with a special dividend, according to HSBC. Highest conviction underweights: Wilmar (TP: $3.17) 1) Margin erosions from excess crushing capacity in China, and flood of new palm oil refining capacity in Indonesia 2) Increasing dependence on non-core activities (FX gains, interest income etc) should reduce earnings visibility and raising balance sheet risk profile Yangzijiang (TP:$0.95) 1) Concern on rapid growth in non-core areas like venture capital, lending and property, affecting balance sheet and execution risk. Shipbuilding expected to have dampened outlook till 2014, HSBC is concerned that this will spur further non-core expansion 2) Warrant issue would likely dilute existing minority holdings by ~8%. HSBC questions why would a company with Rmb 17b would need to raise Rmb 2.5b when core business doesn’t appear to have high investment needs