Phillip Capital: Top 10 Singapore stock picks for this year

CapitaLand Mall Trust building in Singapore’s Bugis neighborhood.CapitaLand Mall Trust building in Singapore’s Bugis neighborhood.

Despite slowing economic growth momentum globally, Singapore’s market is set to post positive returns this year, with funds set to head back into the city-state and the region, Phillip Capital said in a note last week.

While Singapore shares are cheap on a historical basis at a forward price-to-earnings ratio of 12 times, and dividend yields of 4.5 percent are around the highest since the post-Global Financial Crisis, that’s not sufficient to trigger gains, the brokerage said.

It tipped the major catalyst this year as funds being set to flow back into Asia driven by four factors:

  1. It said it expected U.S. economic data would “roll over” this year after it was boosted last year by fiscal stimulus measures.
  2. Phillip Capital said it expected U.S. political turmoil to deepen, particularly the investigations of the White House.
  3. Slower economic growth was also set to temper the U.S. Federal Reserve’s rate hike momentum, with interest rates likely to head to neural levels of around 2.5 percent to 3.5 percent, rather than exceeding them, it said.
  4. Lastly, the brokerage said it expected the U.S. to reach a negotiated truce on trade with China.

The brokerage kept its Straits Times Index target at 3400, where it has been since October, pegged at 13.5 times price-to-earnings, or around its 10-year average valuation.

For its picks, it tipped a lower risk portfolio with an emphasis on dividend-paying stocks.

It picked UOB, rated Buy with a S$32.52 target, for its “attractive dividends,” which are supported by its excess capital.

It also said it liked Singapore Exchange, rated Buy with a S$9.01 target, for potential growth of 20 percent in its derivatives business.

In the REIT segment, it tipped Ascendas REIT, rated Accumulate with a S$2.78 target, for stable dividends, and CapitaLand Commercial Trust, rated Accumulate with S$1.90 target, for what it viewed as attractive supply-demand dynamics in the office market.

It also tipped Keppel DC REIT, rated Accumulate with S$1.45 target, on the structural growth in the data center business.

Among growth stocks, it picked Geo Energy, rated Buy with S$0.245 target, on forecasts for a coal-production recovery this year, and grocery store operator Sheng Siong, rated Accumulate with S$1.13 target, for its rising market share and roll out of new stores.

It also pointed to China Sunsine, rated Buy with S$1.68 target, as a growth stock pick, saying it expected the rubber-chemical maker’s earnings growth would remain healthy as China’s newly strict environmental regulations are constricting supply.

For plays on re-rating, it tipped CapitaLand, rated Accumulate with S$4.00 target, and ComfortDelGro, rated Buy with S$2.69 target.

“ComfortDelGro’s prospects will improve from lower taxi competition and more bus contracts overseas,” Phillip Capital said. “CapitaLand continuously builds up more recurrent and quality earnings from investment properties and other property asset cum funds under management.”

Singapore’s Straits Times Index ended Friday up 1.54 percent at 3059.23.

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