S'pore stocks 'offer potential'

Andrew Chow, head of research at brokerage house UOB Kay Hian, says investors here may look at the opportunity to invest in Singaporean stocks as a way to diversify their risks. Even though the upside possibility for the Singaporean bourse is small at present, investors might gain from currency appreciation since the Singaporean dollar has been outperforming other currencies over the past couple of years.
Among the UOB’s top picks are DBS, Keppel Corp, Capital Land, Ho Bee, Suntec REIT, Ascott Residence Trust (ART), Ezion Holding and Nam Cheong.
Earnings per share of Singaporean stocks should grow only 0.2 per cent this year and 7.7 per cent next year. A consensus earnings downgrade is likely, since listed Singaporean firms reported lacklustre third-quarter results. At current valuations, Singaporean stocks are not cheap. They are trading at 12.9 times projected 2013 earnings, compared to the Asian Ex-Japan average of 12.2.
“One of the pitfalls of the SGX [Singapore Exchange] is that being an open economy, Singapore is very susceptible to the global economy,” he said.
Heightened economic volatility during the last few years has made it quite challenging to invest in stocks. Investors should “stay nimble and buy on meaningful pullbacks”.
UOB suggests four themes for investors eyeing to invest in Singapore stocks.
nYield Compression: Since interest rates are expected to remain low for a longer period, investors may look to buy stocks that can benefit from the trend, such as Suntec REIT, ART and Mapletree Logistics (MLT).
nCapital Management: Many companies have cash surpluses and their management is coming under pressure to make use of the cash through mergers and acquisitions, share buy-backs and paying special dividends. Buys: Ho Bee, OCBC and OSIM.
nResilient Consumer Companies: Retail spending was up 2.5 per cent in September, while the unemployment rate is low at 1.9 per cent and household incomes are rising. Buys: Raffles Medical, OSIM, Frasers Centrepoint Trust.
nSelective Mid Caps: Some medium-sized stocks offer attractive valuations and “catalysts”. Buys: Ho Bee (shared buy-backs and trading at a deep 46-per-cent discount to revised net asset value), Nam Cheong (dominant Malaysian offshore and marine group, catalyst from vessel sales), Sino Grandness (cheap valuations with P/E at less than 3 times and listing of its juice subsidiary), Kreuz (subsea services provider with “catalyst” from new contract wins).
Investors should look at companies with exposure to consumer demand, which has shown resilience not only in Singapore but also in many other countries. Raffles Medical, for instance, has attracted many patients from the Middle East and Russia who fly to Singapore for medical screenings, while their wives go shopping for some Prada or Louis Vuitton pieces.
“We have also seen some high-end residential projects selling at 4,000-5,000 Singaporean dollars [Bt100,600-Bt125,700] per square foot. Even some billionaires…one of the founders of Facebook now stays in Singapore,” he said.
Singapore’s key attractions include its status as a “dynamic hub” for Asean in the financial, medical and education industries, open economy that welcomes foreign direct investment, strong currency and country reserves, transparent and stable government, solid corporate balance sheet, and possession of globally competitive industries such as offshore and marine (O&M) and commodity trading.
The brokerage is “Overweight” on banking, property, O&M and oil service, while “Underweight” on gaming, land, transport and telecom.