UOB Kay Hian moderates STI target to 3,240 but Singapore market 'still the place to be'

Bryan Wu
3-min read
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The brokerage’s key focus for stocks in 2H2023 include counters such as Capitaland Investment, Genting Singapore and Keppel Corp.

UOB Kay Hian Research analyst Adrian Loh and the brokerage’s Singapore research team say that Singapore is “still the place to be” although they have moderated their year-end Straits Times Index (STI) target to 3,240 points, down from 3,520 points, due to potential economic headwinds and the contraction of global trade which could negatively affect Singapore’s open economy.

In their Singapore strategy report dated July 19, the analysts believe that the Singapore market will largely trade sideways as Singapore’s open economy is likely to be impacted by the contraction in global trade, leading to their moderate outlook for the STI.

“Despite the prevalence of quality, value and dividend stocks relative to its regional peers, and despite the STI’s defensive nature, we do not anticipate that the index can outperform on an absolute basis in 2H2023,” they say.

“Singapore’s headwinds in 2H2023 include contracting good exports, as seen by its weak manufacturing Purchasing Managers’ Index (PMI) and weak new-export orders,” add the analysts.

The analysts highlight that the STI’s valuations remain inexpensive, trading at a 2023 price-to-earnings ratio (P/E) of 10.7x, price-to-book value (P/Bv) of 1.0x and yield of 4.5%. “We highlight that these P/E and P/Bv multiples are meaningful discounts to the STI’s long-term averages and its P/E multiple is at the bottom of its 15-year P/E trading range,” they say.

They are forecasting less than 1% earnings per share (EPS) growth for the STI’s constituents under UOB Kay Hian coverage, which is “broadly on par” with consensus growth estimates.

However, the analysts note that this is still “meaningfully lower” than the 9% core net profit growth forecasted for their overall large-cap coverage.

UOB Kay Hian’s key focus stocks for 2H2023 are CapitaLand Investment (CLI), CapitaLand Ascott Trust (CLAS), Genting Singapore, Keppel Corp, Mapletree Logistics Trust (MLT), OCBC, SATS, Sea Limited, Seatrium, Singapore Telecommunications (Singtel), Wilmar International and Yangzijiang Shipbuilding.

In the small-cap space, they like Civmec, CSE Global and LHN.

Meanwhile, UOB Global Economics and Markets Research (UOB GEMR) has retained its full-year 2023 GDP growth forecast for Singapore at 0.7% at the bottom end of the Ministry of Trade and Industry’s (MTI) forecast range of 0.5% to 1.5%, reflecting its more cautious external outlook.

The UOB Kay Hian analysts see better-than-expected 2QFY2023 GDP numbers after Singapore’s preliminary seasonally-adjusted (s.a.) 2Q2023 GDP came in at an increase of 0.3% q-o-q and 0.7% y-o-y, better than Bloomberg’s and UOB GEMR’s more bearish forecasts.

They note that Singapore’s 1Q2023 GDP growth was unchanged from its previous reading of an increase of 0.4% y-o-y — but a 0.4% q-o-q contraction. “While the growth outcome was soft, 2Q2023 did manage to avoid another sequential contraction, which means Singapore avoided a technical recession in 1H2023.”

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