Opportunities abound in Singapore market after STI correction in May: DBS

FEHT, CDLHT, LREIT, DFI Retail and CDL are the stocks to look at for bargains after their corrections.

DBS Group Research analysts are eyeing opportunities in the Singapore market as it builds a base for a rebound, with the Straits Times Index’s (STI) correcting to 3,180 points after a pullback in May.

According to analysts Yeo Kee Yan, Foo Fang Boon and Janice Chua, the STI’s seasonal trend supports a June base following the May correction, with a “tradeable rebound” starting either in June or July.

The analysts say that May’s STI pullback to 3,180 points, which coincides with 10.8x 12-month forward price-to-earnings (P/E), 2 standard deviations (s.d.) below the mean, was in line with their expectation.

They expect the STI to “hold intact” at 3,180 points, forming a near-term base and initiating a tradable rebound this month, with two possible triggers coming from a pause to US Fed rate hikes and the raised US debt ceiling with no default.

Overall, DBS has revised its FY2023 earnings upwards by 1.1% — underpinned by banks — and flat for FY2024, following a “stable” 1QFY2023 results season. Earnings revisions downwards were concentrated among technology stocks, with 1QFY2023 weakness likely to extend into the second quarter.

The analysts now expect to see FY2023 earnings per share (EPS) growth of 11.1% for stocks under their coverage, up from 10% previously, and 13% for the STI, up from 11.6% previously.

They recommend looking beyond current weaknesses, while taking profit on stocks that have run up and reacted further after posting record results, and have spotted three “pair-trade opportunities” following 1QFY2023 results.

First, the analysts are recommending investors go long on UMS Holdings 558 as artificial intelligence (AI)-led tailwinds could drive the anticipated 2HFY2023 recovery. At the same time, they are recommending investors short AEM Holdings AWX as the AI-led tailwinds could have a more muted impact on the latter.

Next, the analysts note that DFI Retail’s D01 1QFY2023 results could have marked the start of earnings recovery to pre-Covid profitability levels, while the risk-reward is less attractive for Delfi P34 after its recent rally with possible margin impact from higher sugar prices. Hence, they are recommending investors go long on DFI Retail and short on Delfi.

Finally, they advise positioning for Seatrium’s S51 return to profitability by FY2024 while taking profit on Sembcorp Industries (SCI) U96 as the stock has risen 6% above their target price.

DBS is recommending “buy” for UMS, DFI and Seatrium, with target prices of $1.20, US$3.80 and 18 cents, respectively.

As at 2.44pm, shares in UMS, DFI and Seatrium were trading at $1.04, US2.83 and 12.6 cents, respectively.

Five stocks to buy into after their corrections

Aside from DFI, four other stocks that are proving to be “bargains” after the STI’s correction according to the analysts are Far East Hospitality Trust (FEHT) Q5T, CDL Hospitality Trusts (CDLHT) J85, Lendlease Global Commercial REIT (LREIT) JYEU and City Developments (CDL) C09.

They note that FEHT’s 32% gearing is the lowest among hospitality REITs, with “little to no risk” of equity fundraising this year. The stock is trading at some 5.75% FY2023 yield, with a 0.7X price-to-net asset value ratio (P/NAV).

Meanwhile, Singapore contributes 60% of CDLHT’s net property income (NPI), which bodes well for the REIT as the imminent return of Chinese travellers, which currently stands at only 30% of pre-Covid levels, should sustain leisure demand in the country.

Similarly, LREIT is the DBS analysts’ preferred pick to ride on the Orchard malls’ recovery, and trades at an attractive 7.4% FY2023 yield.

Meanwhile, CDL could benefit from the return of “bargain hunters” given resilient demand, despite the latest property measures introduced in late April, say the analysts. CDL’s valuation is also attractive at a 0.65x price-to-book ratio (P/B), which stands at the lower end of its historical range.

DBS has “buy” ratings for FEHT, CDLHT, LREIT and CDL, with target prices of 75 cents, $1.60, $1.00 and $10.50, respectively.

As at 2.44pm, units in FEHT, CDLHT, LREIT and CDL were trading at 59.5 cents, $1.19, 67.5 cents and $6.90 cents respectively.

See Also:

• Click here to stay updated with the Latest Business & Investment News in Singapore

• LREIT to acquire stake in Parkway Parade for $88.9 mil

• UMS, AEM, Grand Venture Tech and Venture Corp to benefit from semicon trade diversification: DBS

• S-REITs may remain ‘sideways’ in near-term amid prospect of another rate hike: DBS

• Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World

• Get in-depth insights from our expert contributors, and dive into financial and economic trends

• Follow the market issue situation with our daily updates

• Or want more Lifestyle and Passion stories? Click here