CGS-CIMB expects coming reporting season to be 'muted'; flags inflection point for SingPost, ComfortDelGro

CGS-CIMB is keeping its year-end target for the Straits Times Index at 3,350 points

CGS-CIMB expects the coming reporting season for the quarter ended March to be “muted”. While most of the sectors under the brokerage’s coverage will deliver higher y-o-y revenue, earnings could be tempered because of higher operating and funding costs.

With most recent government data and policy stance signalling that the economy is growing at a weaker-than-expected pace, the focus ahead will be changes in the companies’ guidance, and impact of China’s re-opening on the broader economies and their businesses.

For now, CGS-CIMB is keeping its year-end target for the Straits Times Index at 3,350 points, which is based on 10.5x earnings this year.

From within CGS-CIMB’s coverage universe, there are a few stocks that have been struggling, that are likely to see “inflection points” in their performance.

First, SIA Engineering is like to report earnings for its 4QFY2023 ended March 2023 double y-o-y to $19 million, with higher revenue from near term jump in maintenance demand, as well as contribution from associates. “A risk to our view is stubbornly elevated staff costs due to
labour shortage,” adds CGS-CIMB.

SingPost, which will report its 4QFY2023 ended March 2023, will likely see its earnings bottom that seasonally-weak quarter, and subsequently, return to y-o-y earnings growth in the current 1QFY2024 ending June 2023 quarter.

CGS-CIMB says it will be looking at qualitative underlying trends, including e-commerce volume trend of key customers and cost control initiatives for domestic post and parcel segment.

The brokerage will also look out for conveyance cost trend and impact on international post and parcel segment margins, and whether business development efforts have led to re-acceleration in topline growth.

ComfortDelGro, thanks to stronger taxi earnings amid the pick up in commuting traffic, is likely to report q-o-q improvement for its 1QFY2023 ended March 2023, although y-o-y numbers will remain weak.

The recovery trend is seen to continue and result in a y-o-y improvement for its 2QFY2023, thanks to lower taxi rental rebates starting April.

It will also collect a higher fee for its bus contract in UK to pass on higher costs and no longer absorb the increase. “Its rail segment in Singapore could also reach profitability as ridership inches closer to pre-pandemic levels,” adds CGS-CIMB.

Having gained 23% year to date, CGS-CIMB has dropped Genting Singapore from its most recent update of its Alpha picks.

The current big cap picks are: Sembcorp Industries, ST Engineering, Thai Beverage, Singapore Telecommunications, United Overseas Bank, Raffles Medical Group, Capitaland Ascott Trust, Capitaland Integrated Commercial Trust and Capitaland Investments.

Small caps include Boustead Singapore, China Aviation Oil, Delfi, Yangzijiang Financial Holding and PropNex.

 

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