STRATEGY – SINGAPORE

Remaining Bullish In 1H22

We believe that the STI will continue to perform well in 2022. Singapore’s strong GDP growth in 2021 has set the stage for a 29% EPS growth in 2022 on our estimates. Importantly, the STI’s valuations are not stretched at present, trading at 2022F PE and P/B of 13.2x and 1.1x respectively and paying a yield of over 4%. Our year-end 2022 target for the STI is 3,500.

·        Staying constructive for 1H22. Given the nature of a coronavirus-caused pandemic, a recovery was always going to be bumpy, and the recent emergence of the Omicron variant has injected a significant amount of volatility into global markets. While new variants will likely emerge, we believe that these are causes for concern and not panic as the policy outlook remains supportive in Asia; more importantly, the Singapore market is inexpensive vs its regional peers and its developed market peers.

·        29% EPS growth for 2022. For the Singapore stocks under our coverage, we forecast an aggregate 29% EPS growth in 2022 with all sectors, with the exception of aviation, to register yoy earnings growth. We expect property, shipyards and land transport to register the strongest earnings growth; however it should be noted that the first two sectors will be coming off low bases in 2021.

·        We forecast the STI to reach 3,500 by the end of 2022 using a top-down methodology. This implies about 13% upside from current levels, which underlines our bullishness for the market. Our 2022 STI target is based on 20% earnings growth for 2022, and target PE and PB multiples of just under 14x and 1.0x respectively. Both of these target multiples are around 10% discount to the past 5-year average for the index which we believe is fair.

·        2022 valuations for the STI appear inexpensive, with the STI trading at a forecast 2022 PE and P/B of 13.2x and 1.1x respectively, and paying a yield of over 4%. We highlight that these multiples are meaningful discounts to the STI’s long-term averages, so we expect some level of mean reversion in 1H22.

·        Rebound in 2021 setting a firm foundation for 2022. UOB GEMR forecasts Singapore GDP growth of 3.5% yoy in 2022 after a solid rebound of 6.5% in 2021. Despite the relatively high base in 2021, growth in 2022 should be underpinned by the export and manufacturing sectors, which will benefit from the expected recovery of Singapore’s key trading partners as they bolster their vaccination efforts into 2022.

·        Our top large-cap picks are City Developments, ComfortDelGro, DBS, Genting Singapore, Keppel Corp, OCBC, Raffles Medical, Sembcorp Industries, Sembcorp Marine, ST Engineering and Thai Beverage. Meanwhile, in the small/mid-cap sector, we highlight Civmec, Food Empire, Innotek and UMS Holdings.

·        For 1H22, we are OVERWEIGHT on consumer, financials, land transport, property, REITs, shipyards & industrials and technology, and MARKET WEIGHT on aviation, gaming, healthcare, plantations and telecommunications. COVID-19 recovery plays include Singapore Airlines (SIA), SATS, Genting Singapore (GENS), Ascott Residence Trust, CDL Hospitality Trusts, and Far East Hospitality Trust.