Singapore strategy: Watch the earnings

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Singapore companies’ fourth-quarter results were “not impressive,” and that may raise the spectre of earnings downgrades ahead, CIMB said.

”Underachievers” outnumbered companies beating expectations 15 to seven, CIMB said in a note on Friday.

”This shows that corporates are still grappling with costs and kitchen-sinking. However, overall earnings per share still held up, mainly led by banks and manufacturing sectors,” it said.

CIMB said its bottom-up target for the Straits Times Index is 3705, based on 14.2 times 2018 price-to-earnings and 10 percent on-year EPS growth for 2018.

But it had some words of caution.

”We think analysts have generally penned in blue-sky expectations for 2018 and 2019. While banks may not see much cuts, we see risks from capital goods and manufacturing if orders and sales expectations were overhyped,” CIMB said.

The brokerage tweaked its “alpha picks” list, which it chooses based on earnings growth, share price correction and valuations.

Its picks are Sembcorp Marine, Venture, UOL, Genting Singapore and ST Engineering, among the big caps, and AEM, China Sunsine, Yongnam and mm2, among the small caps. It removed Sunningdale on foreign-exchange uncertainty and lower average selling prices and Keppel on concerns over its various arbitrations.