OSK DMG Strategy

Strategy: OSK DMG expects the Singapore market to post a rebound after two disappointing years. While the tight labour market and the lack of productivity improvement will continue to be a drag on the economy, house sees bright spots that are expected to lift the STI by 11% to 3,720, its highest level since 2007. 1) Go contrarian. OSK believes in the O&M and property sectors. The free-fall in oil prices will continue to grapple the market, although house believes that prices will recover some time before the middle of the year, setting the stage for a rebound. As for property, the physical market is likely to remain subdued, leading to a fall in residential prices by up to 10%. OSK expects some cooling measures to be lifted in 2H15, which should see interest returning to this segment. 2) Head for mid caps. For the past two years, house has advocated for investors to do selected stock picking in the small cap space, which have paid-off handsomely. This year, given the slump in many prominent mid caps, OSK believes that this segment is the sweet spot to be in. 3) STI target of 3,720 based on 15x FY15F P/E. This is driven by: i) The expected positive returns from bellwether sectors; ii) Productivity in Singapore turning around; and iii) attractive valuations. Top mid-cap picks include: CWT (BUY, TP: $2.00), Ezion (BUY, TP: $2.65), M1 (BUY, TP: $4.40), Nam Cheong (BUY, TP: $0.61) and OSIM International (BUY, TP: $2.30). Large caps: DBS (BUY, TP: $22.60), and Keppel Land (BUY, TP: $3.88), Small caps: BreadTalk (BUY, TP: $1.90), Centurion (BUY, TP: $0.83), Giken Sakata (TP: $0.61), and IPS Securex (BUY, TP: $1.26) Top SELLs include Parkson Retail Asia and Silverlake Axis.