UOBKH Singapore 2H08 Strategy: Staying Ahead Of Inflation
We are facing a difficult environment of slowing economic growth and rising inflation on the back of high commodity prices.
l The best thematics are companies with strong pricing power or those that can grow their revenue faster than rising costs. There include plantation and upstream oil & gas-related companies. Selected REITs will benefit from rental reversions in 2008-09. Rising interest rates, coupled with a strong loan growth, will be positive for banks. S-chip companies that have a strong brand name and are seeing strong domestic demand should stay ahead of inflation. On the flip side, we are negative on the aviation sector and neutral on traditional defensive/yield stocks whose cost increase will likely outpace their revenue growth.
l On value picks, property developers are deep in value following a sharp price decline since 3Q07. Share prices should be supported by their worst-case RNAVs despite negative sentiments in the physical market throughout 2008.
l The FSSTI will likely be range-bound in the 2,800-3,200 region in the short term. A new low is not envisaged at this stage. Our 12-month bottom-up FSSTI target is 3,630. The market's 2008 PE of 13.6x is at the bottom of its long-term historical PE band and FSSTI’s P/B of 1.70x is below Asia ex Japan's average of 2.3x. FSSTI's core EPS growth is forecast to contract 2.6% in 2008 before rebounding to a growth of 12.6% in 2009. We are OVERWEIGHT on the Singapore stock market.
Top BUYs: DBS, OCBC, SembCorp Marine, AusGroup, ASL Marine, First Resources, Indofood Agri Resources, City Developments, Ho Bee, A-REIT, CCT, Parkway Life REIT, China Hongxing, China Sports.
Top SELL: SIA
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