Strategy

Strategy: Further downside risk; Stay defensive
Post-3Q15 results, Maybank-KE further trimmed its earnings estimates for Singapore corporates, particularly for the O&M sector.

The house sees more delivery deferrals and provisioning by yards, which suggest clients’ unwillingness or inability to pay due to cash flow issues.

In addition, weak companies are seeking to amend bond covenants and some are diversifying away from the O&G sector, implying low confidence for a recovery in 2016.

Hence, the house maintains a bearish view on the O&M sector and sees increasing risk for SMM (Sell, TP: $1.75).

Elsewhere, the healthcare sector outperformed substantially and is expected to remain resilient due to their defensive nature and structural growth outlook. Maybank-KE sticks with Raffles Medical (Buy, TP $5.22) and ISEC Healthcare (Buy, $0.40).

The house has cut EPS for nearly all sectors, except consumer, telcos, banks, and property.

Sixteen of its 56 stocks missed while 9 beat. Earnings that beat were of low quality, mostly bolstered by FX gains or non-recurring items. Also, balance sheets deteriorated.

The market reaction to results suggests that the negatives are not fully priced in as stock prices moved almost in line with results.

Link to report here: https://factsetpdf.maybank-ke.com/PDF/MACRO__791d609bee6440158a5a6f65820b1016.pdf?