Investment Strategies For 2019: Solid Blue-Chip Anchors (Part 1)

With a host of external uncertainties and rising interest rates, UOBKH foresees investors to show an initial preference for solid blue chips to anchor their portfolios. Investors will preferably target stocks that offer decent dividend yields and earnings visibility.

While developers are trading at a deep 41 percent discount to RNAV, the operating environment for developers remains challenging, particularly those that are saddled with high-cost landbank. Apart from limited positive catalysts, regulatory risks also remain elevated.

Investors Takeaway: 2 Solid Blue-Chip Anchors

1. OCBC

OCBC surprised many investors in 3Q18 when it reported a net profit of $1.2 billion. This was more than 10 percent above the consensus estimates. The outperformance came largely due to growth from developed markets like Singapore and Greater China with broad-based growth in building & construction, general commerce and transport & communications sectors.

Apart from loan growth, net interest margin expansion also had significant part to play. OCBC’s net interest margin expanded to 1.7 percent after it raised interest rates for residential mortgages in Singapore (since August 2018). In 2019, UOBKH expects OCBC to continue to benefit from the re-pricing of residential mortgages, both in Singapore and Hong Kong. OCBC’s management expects 60 percent of its mortgage portfolio to benefit from the hike in prime lending rate. The management has also forecasted for a mid-to-high single digit loan growth in 2019.

BUY, TP $14.05, Current share price $11.26

2. Singtel

Although the precipitous drop in share price has seen Singtel lose its top position in the Singapore market by market capitalisation, it is still the second largest stock in Singapore. Moreover, Singtel is a liquid defensive stock.

Singtel has been working on launching a cross-border payment alliance, VIA, to build a region-wide payment network. Singtel, AIS and Kasikornbank will offer QR-code based mobile payments through mobile wallets, such as Singtel’s DASH or AIS’ GLOBAL Pay and Rabbit LINE Pay, across both Singapore and Thailand. The alliance will progressively be expanded to Telkomsel in Indonesia, Bharti Airtel in India and Globe Telecom in Philippines.

Singtel, Optus, Telkomsel, Airtel, AIS and Globe have also signed a memorandum of understanding (MOU) to collaborate on growing the gaming and e-sports eco-system in Southeast Asia. The consortium will scale up on e-sports and collaborate on content creation and distribution. Developing new solutions and services for gamers will also be part of their agenda.

According to UOBKH, the eco-system will help Singtel build “sticky” customer relationships and leverage on economies of scale to more than 700 million mobile subscribers across six countries. In the future, the platform could be expanded to distribute financial services, such as insurance and microloans.

BUY, TP $3.94; Current share price $3.10

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