Turbulence Ahead But Stay The Course
As Singapore is a relatively defensive market, we believe the STI will perform well in
2H22 on the back of our 14% EPS growth forecast for this year. Our year-end 2022
target for the STI is 3,390 (3,500 previously), which implies a 10% upside from current
levels. Importantly, the index’s valuations are not stretched at present, trading at 2022F
PE and P/B of 12.4x and 1.0x respectively, and paying a yield of 4.5%.
• Staying constructive for 2H22. While the post-COVID-19 economic recovery has been
bumpy, newer concerns such as inflation and higher interest rates have come to dominate
the market’s attention. However, we believe inflation concerns should subside in the latter
half of 2022 and the Straits Times Index (STI) should be able to perform due to the
prevalence of quality, value and dividend stocks relative to its regional peers. Since there will
no longer be a synchronous global cycle, country risk will return and our view is that
Singapore presents a lower risk vs other countries in the region.
• 14% EPS growth for 2022. We forecast an aggregate 14% EPS growth in 2022 for the
Singapore market with most sectors, with the exception of aviation and healthcare,
contributing to 2022 EPS growth. By our estimates, financials and telecommunications
are the two largest contributors to this earnings growth, but it should be noted that the
latter sector is coming off a low base in 2021.
• We forecast the STI to reach 3,390 by end-22 using a top-down methodology, implying
about 9% upside from current levels. We have lowered our target for the STI from 3,500
previously as we have moderated our EPS growth estimates for 2022. Our new 2022 STI
target is based on 14% earnings growth for 2022, and target multiples of 13.5x and 1.3x
respectively, both of which are at about a 10% discount to the past five-year average for
the index. We believe this is fair given moderating earnings growth and potential risks to
the economy and thus our forecasts.
• 2022 valuations for the STI appear inexpensive, with the STI trading at a forecast 2022
PE and P/B of 12.4x and 1.0x respectively, and paying a yield of 4.5%. We highlight that
these multiples are meaningful discounts to the STI’s long-term averages.
• Reasonably strong economic performance for Singapore in 2022. UOB GEMR
forecasts Singapore GDP growth of 3.5% yoy in 2022 after a solid rebound of 7.6% in 2021. Despite the relatively high base in 2021, we have seen that the export and
manufacturing sectors have continued to do well this year, benefitting from the recovery of
Singapore’s key trading partners regionally and globally.
• Our top large-cap picks are CDL Hospitality Trust, ComfortDelGro Corporation, DBS
Group Holdings, Genting Singapore, Keppel Corporation, Lendlease REIT, Sembcorp
Industries, Sembcorp Marine, SIA Engineering, Venture Corporation and Yangzijiang
Shipbuilding. Meanwhile, in the small/mid-cap sector, we highlight Civmec, Frencken
Group and Singapore Medical Group.
