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Singapore: On to next phase; new 3,650 12-mth STI target (+18%)

With 79% of the population fully vaccinated, Singapore is closer to wider re-opening, we believe. Nevertheless, the rapid spread of the Delta-variant could keep the pace of opening cautious. Following fast upgrades, we think 2H21 earnings recovery should slow from higher bases and better earnings visibility. Nevertheless, we think this sets the market up for multiple expansion given relative value discounts between key STI sectors vs. history, plus regional growth markets continuing to undergo surging COVID and low vaccination rates. During the GFC, multiples expanded 20% between EPS normalization phase and the multiple-expansion phase. Post-1H21 results, we raise our STI bottom up / top down 12-mth target to 3,650 (from 3,537), which is 14.9x 22E PER (+1SD vs. mean) and a new historical high in absolute terms. At this stage, we prefer sectors with operating leverage to re-opening that have lagged or sectors with earnings visibility from structural growth. Positive on Financials, Transport, Telcos, and Industrial & Retail REITs. Top Picks: AEM, AREIT, CICT, CD, DBS, ESR, FCT, OCBC, ST, UMSH.

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Malaysia: 2Q21 results wrap highlights; Plantations M&A thematic

Against the backdrop of base effect-flattered 2Q21 GDP rebound (+16.1% YoY; 1Q21: -0.5%), core net profit of our research universe (quarters ending May/June 2021) summed to a second consecutive quarterly record, underpinned by a fourth consecutive quarter of QoQ earnings expansion, at +3% QoQ (Fig 1; 1Q: +30%). However, after three sequential quarters of earnings beats exceeding misses, the ratio of misses-to-beats moved back above 1.0, to 1.2x (1Q: 0.5x). Four sectors reported earnings outperformance – banks, NBFIs, petrochem and plantations, with record 1H21 profits for banks, gloves and petrochem. Sectors that missed were mostly consumer-related i.e. consumer, auto, REITs and construction. The ratio of earnings downgrades-to-upgrades rose to 1.5x (1Q: 0.6x), reflecting the impact of MCO 3.0 and FMCO in 2Q21, which has continued into 3Q. Six stocks were upgraded, all to BUY – AEON, CMS, HLFG, MRDIY, Padini and ViTrox – while three were downgraded i.e. HLBK and Hartalega were reduced to HOLD, while Sunway was cut to SELL. Plantations sector M&A 8MYTD transacted values has already surpassed 2020’s MYR3b total. Activity will continue to be supported by the valuation gap between transacted physical prices (2019-20 average: MYR55,900/ha, and 2021 average: c.MYR59,000ha) and the equity values of SMID caps, many of which trade at implied adjusted EV/ha of just MYR17,000-38,000, which is at or below replacement cost. Our top acquisition target picks are BPlant and Hap Seng Plantations (unrated).

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Thailand: SET rallies; Positive on GRM (TOP, SPRC upgraded), REITs

Post the Jackson Hole meeting, SET reversed trend, rising 1% over the past two weeks. It is now trading on +2SD>10Y average PE. We see profit taking to re-emerge as we near the close of the 3Q financial period. We would take market pullbacks as an opportunity to position for a liquidity-driven rally in late 4Q21 or 1H pumped by pre-election related spending / largesse and optimism on broader re-opening. Our tactical picks are mostly large caps: BBL, TOP, SCGP, PTTGC, SCC, LH, MTC, GLOBAL, HANA, BH. We have turned positive on the GRM (gross refining margin) outlook as two key overhangs have eased (i.e. Asian middle distillate inventory decline and Aramco moderating OSP to Asia to maintain market share) and upgrade pure-refiners TOP, SPRC to BUY. We also highlight the resilient industrial REITs sector and flag that bottoming CPNREIT is a viable re-opening play that has been overlooked by the market.

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Philippines: Vaccine vs. Delta newsflow; ESG Compendium published

In 25 Aug – 08 Sep, the PSEi rebounded by 1.9% as the government aims to extend the vaccination rollout to the general population and children by end-Oct or Nov, open the economy for vaccinated persons through “vaccine bubbles”, and pilot granular lockdowns to allow more sector openings and capacity in areas with low COVID-19 cases. The market also got a boost from telco names driven by the pending legislation to lift foreign ownership on telcos from the current level of 40%. Despite developments on the inoculation program and Metro Manila being on track to fully vaccinate 72.6% of its population by Oct 2021, threats posed by the COVID-19 variant continue to impede the economy’s full reopening and recovery. We retain URC, MER, AC, BDO and TEL as our top-picks. We have also published the Philippine ESG Compendium that also introduces our ESG picks i.e. AC, ICT, ALI, TEL, BDO, AP and URC.

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Vietnam: Planning gradual re-opening; Base-case scenario firms

The market has been moving sideways in the range of 1300-1340pts over the past two weeks, watching over the evolution of the Covid situation in major cities and (more attention on) plans to reopen HCMC. Negative impacts of the extended lockdown appears to have been factored in by the market; and in case of the banking sector, it actually appears exaggerated with premature concerns about surging NPLs and falling earnings. It would take time for sentiment towards the banking sector (which accounts for 1/3 of the VNIndex) to revitalize, i.e likely only post-3Q results announcement in mid-Oct. Initial actions re easing restrictions on mobility, and more concrete plans on resuming normal operation for manufacturing segment (expected by 15 Sep) will improve market sentiment and strengthen our confidence re maintaining our base-case growth forecasts. Market downside risk has been reduced in view of how the market has already consolidated so far, and also the government’s plans to support the economy (i.e. easing lockdown timely as per target, extended debt moratorium, accelerated public investment). However, we expect the market to only truly wake up post-Sept when concerns about 3Q numbers and seasonal tightening of margin lending by brokers (around end-Sep) have largely eased. We reiterate the current consolidation provides a window for investors to build positions in quality VN stocks at very reasonable valuations. We still like Banks: VCB, TCB/MBB, VPB/CTG; Real estate/IPs: VHM, NVL, KDH, NLG, HDG; Industrials: VIC, HPG; Logistics: GMD, ACV; Consumers: MWG, PNJ, DGW; Technology: FPT; O&G: GAS; Utilities: REE.

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India: Nifty stable near all-time high as sentiment remains buoyant

The NIFTY was steady at 17300 during the last fortnight and is being supported by both local and foreign flows. The buoyant investor sentiment is aided by reduced Covid caseload and strong economic recovery as the movement across India normalizes. The IPO market continues to be strong with a big pipeline in the coming months. The Government’s tax receipts are buoyant and its announcement of USD90b asset sale has been received positively. The vaccinations now cover 12.5% of the Indian population and a 3rd wave is expected in the next 2 months. Our NIFTY target remains at 13,038 (+13%) based on average PER of 17.8x 1-year forward vs. current 22x. We recommend select sectors and stocks where earnings visibility is good and valuations reasonable. Top BUYs are in Telecom (BHARTI, INDUSTOW), Software (TCS), and Tractors (MM, ESC). SELLs are in Autos (MSIL, TTMT).

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Indonesia: Inflation soft on pandemic curbs; RALS IJ cut to Hold

With headline inflation a lower-than-expected +1.5% year-to-date due to the prolonged movement curbs, we trim our 2021 inflation forecast to +1.6% (from +1.9%), below the BI’s target range of 2%-4%. We expect inflation to pick up in 4Q to around +2% as the economy reopens, and rise by +3% in 2022. Department store operator Ramayana Lestari (RALS IJ) is cut to HOLD, with SSSG recovery delayed to FY23E due to weak recovery re purchasing power of low-income segment and store footfall – prefer MAPI IJ for better earnings recovery visibility, underpinned by expanding brands portfolio and store expansion. Top Picks: KLBF (healthcare beneficiary), Mayora Indah (export growth) and BMRI (attractive ROE, yield outlook).