STOCKS WORTH CONSIDERING IN 2017 - · PDF fileDeutsche Bank: 4 ... The research in this report...

STOCKS WORTHCONSIDERING IN 2017

EXCERPTS FROM VARIOUS RESEARCH HOUSES

CONTENT

Introduction ...........................................................................................................................04

CIMB Outlook: 3 Sectors To Focus On As We Enter An Uncertain 2017 ..........................................06

CIMB: 5 Small Caps You Cannot Ignore In 2017 .....................................................................09

CIMB: 4 Blue Chips You Might Want In Your Portfolio In 2017 ..........................................13

Credit Suisse: 3 Investment Themes You Need To Know In 2017 ....................................................20

DBS: 4 Investment Themes Driving Asia In 2017 ..................................................................30

DBS: Buy These 4 Defensive Asean Stocks For 2017 ..........................................................34

Deutsche Bank: 4 Things You Need To Know About Sg In 2017 ...........................................................39

Deutsche Bank: Buy These 5 Sg Stocks In 2017 .........................................................................................43

MBKE 2017 Outlook: 2 Strategies To Counter A Mediocre 2017 ....................................................................47

MBKE: 6 SG Stocks We Love In 2017 ...........................................................................................50

The research in this report was conducted independently by the author(s) and the views and opinions expressed in this report belong to the author(s)’ own. The author(s) and the respective research houses cited in this report do not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article.

In no event shall Shares Investment or the respective research houses be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article. This is not a recommendation to purchase or sell any of the mentioned securities. The information contained herein are the opinions and ideas of the authors and is strictly for educational purposes only.

This information should not be construed as and does not constitute financial, invest-ment or any other form of advice. Any investment involves substantial risks, including complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent research or to contact a licensed professional before making any investment decisions.

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth herein. Shares Investment and its related and affiliate companies and/or their employees shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising di-rectly or indirectly from the use of any of this material.

All content and materials on this report are the exclusive property of Shares Invest-ment or its content suppliers, and may be downloaded or printed for your own personal and non-commercial use only. Any content may not be copied, reproduced, distributed, republished, reposted, modified, transmitted, made available to the public, adapted, cre-ated into a derivative work or otherwise used or exploited for any purpose.

Disclaimer

2016 has been a year of unexpected events and shock to say the least. Uncertainty and volatility will continue to persist in the new year of 2017 as Donald Trump officially takes over from Barack Obama as the US President; the United Kingdom leaving the Euro-pean Union to be independent; the other European states fighting for their own referendum; and many more to come.

While no one knows exactly what will happen in 2017, looking through the lens of various research houses could give us some idea of how the global economy and markets will fare.

We are committed in our mission to continuously be of service to our readers, helping them make more informed investment decisions by providing well-researched and condensed data and information.

This report features the various research houses’ overall macroeconomic outlooks followed by stock ideas that we’ve picked out. Read on to find out more.

Introduction

• Shares Investment Editorial Team

• Shares Investment Translation Team

[email protected] Visit Shares Investment for more investment research material at : http://www.sharesinv.com

1 January 2017

STO CKS WORTH C ONSIDERING IN 2017 Page 05

2017 – A Year of Unprecedented Uncertainty2017 is an uncertain year to step into. We are not just referring to the investment out-

look, but world politics as well. 2017 will be filled with multiple elections in Europe (Germany, France, and the Netherlands) and major decisions will be made throughout the year (think of Trump, Brexit Article 50, Federal Reserve rate hike).

In other words, the foundations of many of the global political and economic models have been shifting rapidly without us noticing.

CIMB OUTLOOK:3 SECTORS TO FOCUS ON AS

WE ENTER AN UNCERTAIN 2017

But All Is Not LostThere is still good news for Asia though. For Asian economies, the prospects of uncer-

tainty arising from increasing protectionism in developed markets and persistent financial market volatility will encourage governments to adopt an expansionary fiscal stance to support economic growth.

January

1) Trump takes office2) ECB Meeting

1) French Election2) BOJ Meeting3) ECB Meeting

1) French Election2) US Fed Meeting

OPEC Meeting

1) ECB Meeting2) BOJ Meeting3) US Fed Meeting



1) OPEC Meeting2) BOJ Meeting3) US Fed Meeting

1) German Election2) BOJ Meeting3) US Fed Meeting

1) BOJ Meeting2) US Fed Meeting

US Fed Meeting

BOJ Meeting

ECB Meeting

ECB MeetingECB Meeting Czech Election

Dutch ElectionBrexit -

Article 50

February March April

MayJuneJulyAugust

September October November December

Source: CIMB, Company Reports

2017 events to keep the global economy and equity markets on their toes


Spotting the Right OpportunitiesCIMB believes that there are trading opportunities in the short term. Based on the his-

torical trough-to-peak assessment, CIMB opines that the market could enter a twilight zone of risk-on mode from Dec 2016 to Mar 2017 to hit the 14-month window of low to high.

CIMB highlights two trading opportunities in 1Q17. The first opportunity is the support of a continuous recovery in oil prices. The second opportunity is the first interest rate hike by the Fed in 2017.

In the longer term, CIMB foresees opportunities to buy on dips after the market digests 4Q16’s earnings disappointments and a glimpse of the first 100 days of Trump’s presidency.

Investors Takeaway: Go Overweight on These Sectors 1. Property

According to CIMB, property stocks are trading at around 42 percent discount to reval-ued net asset valuation (RNAV). This is below the -1 standard deviation to the mean discount. While developers would continue to remain range bound as rising global uncertainties and the prospect of higher interest rates take a toll on potential home owners, CIMB foresees possible mergers and acquisitions (M&A) activities that could catalyse a re-rating. Moreover,


property developers are deeply discounted and possess limited downside risk to investors.

2. Consumer Goods

Consumer companies have been affected by the weak global environment and macro uncertainty. However, CIMB sees this as an opportunity to buy on dips. CIMB recommends looking out for companies with high brand equity and depressed valuations as these com-panies represent attractive targets for privatisation. A few privatisations took place in 2016 with the most prominent ones being Osim, Eu Yan Sang and Super. The privatisations also signal that the secular Asian consumer trend is still very much alive.

3. Gaming

In light of headwinds from China’s anti-corruption drive, Genting managed to shift its business focus from VIP gaming segment to the mass and premium mass segment. As part of its efforts, Genting is restructuring its business by removing redundancies, upgrading its hotels and exhibits to cater to a wider audience, and introducing targeted events and initiatives to draw in a new crowd. With Japan’s parliament agreeing to allow an integrated resorts model to be built, optimism has already built up around Genting.


4. Avoid REITs

Following the rising of yields and steepening of curves, CIMB undertook a major re-rating of the REITs sector by downgrading the REIT sector from overweight to underweight. CIMB reckons that the hawkish stance from the Fed will put a cap on share price performance and negatively affect distribution per unit (DPU) through higher refinancing costs.

Article by Lim Si Jie


1. Auric Pacific

CIMB:5 SMALL CAPS YOU CANNOT

IGNORE IN 2017

Auric is a diversified F&B company that manufactures and distributes fast-moving con-sumer goods in Singapore and Malaysia. It has a number of well-established brands such as Sunshine, SCS butter and Buttercup spread under its portfolio.

Auric currently trades at a heavy discount against bakery peers and general F&B players. Not just that, Auric also has a much stronger balance sheet compared to its peers. Given Auric’s significant net cash (47 percent of its market cap) and minority shareholder interest of only 23.28 percent, CIMB reckons that Auric is a proper privatisation target.

BUY, TP $1.96

STO CKS WORTH C ONSIDERING IN 2017

2. Best World

CIMB believes that FY17 is poised to be another record year for Best World as it con-verts its distribution in China to its core direct selling model. The strong demand and low selling price to distributors is set to propel the group to a new level of profitability. Best World is set to enjoy a record year of profit in FY16 with net profit far exceeding previous years’ profit in just nine months.

The stock’s valuations are undemanding as well at just 10x forward Price-Earnings (PE) ratio. This is below peers’ 16x forward PE and its historical peak band of 15-18x.

BUY, TP $2.21

3. CEI LimitedCEI Limited is a niche contract manufacturer that focuses on low volume, high mix

manufacturing. CEI derives around half of its revenue from the medtech/life science sector. Many of CEI Limited’s key customers have been with the company for the past 10-20 years. CIMB notes that CEI is gaining better traction with its customers. The continued strength of US dollar has also helped drive CEI’s revenue growth. CIMB recommends CEI as a proxy for the growing medtech and life sciences industry in Singapore.

BUY, TP $1.04


4. Cityneon

For those who do not know Cityneon, it is the parent company of the popular Marvel Avengers and Hasbro’s Transformers exhibition. Cityneon owns the exclusive licensing rights to both exhibitions till 2023 and 2024 respectively via Victory Hill Exhibitions (VHE).

VHE developed its first Avengers S.T.A.T.I.O.N set which was put on display in New York for 15 months, before making stops in Seoul and Paris. Recently, it has stopped at the Singapore Science Centre. Moving forward, Cityneon has announced two other exhibi-tion locations (Taiwan and Australia) for 2017, as well as a two-year agreement for the first Transformers set in China, with more anticipated in the pipeline.

Apart from the existing licensing rights, Cityneon’s management is keen to expand its existing product range in the form of core intellectual properties. Success in expanding its product range could push the stock’s price higher.

BUY, TP $1.41


Dutech currently holds the market leader position in the niche safe manufacturing sec-tor. As Asia’s largest safe manufacturer, Dutech fulfills over 50 percent of the safe demand from Diebold and Wincor Nixdorf, the world’s second- and third-largest ATM manufactur-ers. This translates to an estimate of around a 20- to 25-percent share of the global ATM safe market for Dutech.

Despite being the market leader, Dutech continues to sharpen its competitive edge in the high-end global safe market via continued investment in Research and Development (R&D). Its R&D efforts have paid off as Dutech is now one of the few Asian safe makers today with UL and CEN certificates, which are often considered key criteria in global customers’ selection of suppliers.

BUY, TP $0.65


5. Dutech


1. Dairy Farm2015 was a challenging year for Dairy Farm as it expanded too aggressively in a low

demand environment. But in 2016, Dairy Farm has undertaken the painful task of rational-ising its stores and driving productivity. CIMB feels that Dairy Farm’s margins will recover having closed the underperforming stores of 2015.

CIMB:4 BLUE CHIPS YOU MIGHT WANT IN

YOUR PORTFOLIO IN 2017

Dairy Farm also implemented a slew of initiatives to improve its core food business: (1) higher range of fresh produce, (2) increased private label offerings, and (3) increased direct sourcing. CIMB reckons that Dairy Farm will start to see fruits of its efforts in 2H16. As such, 2017 will be a good year for investors to “harvest” the fruits.

BUY, TP $8.70


2. First ResourcesAmong regional crude palm plantation companies, CIMB favours First Resources for its

young estate profile (average 10 years). CIMB believes that this bodes well for its output growth prospects, as yields from young estates improve.

First Resources currently owns 850k tonnes of refining capacity. CIMB believes that this will allow First Resources to refine in-house CPO to extract better profit margins for its palm products. Furthermore, its biodiesel plant also stands to benefit from the higher demand in the country following the Indonesian government’s move to raise its biodiesel mandates to a 20-percent blend in 2016.

BUY, TP $2.32

3. ST Engineering

With 25 percent of its revenue based in the US, CIMB opines that increased spend-ing within the US and better economic outlook could benefit ST Engineering. There will be greater spending on marine, land systems (road construction vehicles and beverages trucks) and aerospace (stronger US airlines’ profit improves willingness to incur aircraft maintenance expenses).

ST Engineering also stands to benefit from multiple positive secular structural trends such as urbanisation, smart cities development, and increasing demand for data connec-tivity and security (e.g. physical surveillance, cyber and cloud).

CIMB expects stronger-than-expected orders and divestment of loss-making non-core businesses to act as key catalysts for ST Engineering.

BUY, TP $3.75


4. Venture CorpHeading into 2017, CIMB

forecasts that Venture’s profit growth will outpace revenue growth as Venture focuses on servicing customers with higher profit margins. CIMB is confident that Venture will continue to reap the benefits of its past engagements with customers who value its abil-ity to to innovate and improve their products. With better earnings and stronger free cash flow, Venture could sur-prise analysts’ expectations of $0.50 in dividends per share. Moreover, given the weak eco-nomic outlook, CIMB foresees accretive M&A opportunities for Venture in FY17 that could spark interest in the stock.

BUY, TP $10.94



2016 was a turbulent year. Fears of a rate hike cycle, slowdown in growth leader China and falling oil prices sent shock to the markets. The losses were subsequently offset by a rally on the back of improving U.S. economic data and new stimulus measures in China. In addition, not one, but two black swan events with the potential of catalysing a crash in the stock market. Yet, the market recovered and the bull run continued.

As we head into 2017, we highlight three investment themes from Credit Suisse with good growth potential that investors can find investment ideas worth investing in. These investment themes are secular investment themes driven by fundamental changes in the society.

Theme 1: Ageing in Emerging Markets

CREDIT SUISSE:3 SECULAR INVESTMENT THEMES

FOR 2017


According to CS (and logically), almost every country globally is seeing an increase in the proportion of older people as a percentage of their total population given improved longevity, the post-war “baby boom” and declining fertility rates. CS observed that emerg-ing markets (EMs) population proportion is ageing much quicker than developed markets (DMs). As EMs population age, there are a lot of opportunities for life insurers to increase their businesses to help these ageing population meet with the rising need for medical and life insurance.

China’s Insurance Market Still Under-Penetrated

In particular, CS highlights China’s life insurance sector as a focal area of investment to tap on to this demographic theme of ageing. This is because China remains the most under-insured country in Asia in terms of life insurance.

Investors Takeaway: AIA Group, Ping An, Fresenius Medical Care and Straumann

Theme 2: Internet Of (Every)Thing

Online Is Still Not As Proliferated

Despite the growth seen to date in internet usage and online transactions, the market for E-Commerce remains very much in the early phases of development. CS believes strongly in the structural revenue growth outlook for internet, especially E-Commerce, globally.


Since 2011 the online retail markets in India, Indonesia and Mexico have expanded by 7.5x, 6x and 2.5x, respectively. But looking at the share of retail transactions executed online (rather than offline), the figure remains at just about seven percent globally. This means that there is still much more room for e-commerce to growth.

Younger Generation Will Drive Growth

Unsurprisingly, the popularity of online retail is greatest among younger people. Based on data for Europe and the US, internet users aged below 45 are much more likely to pur-chase online than those over 45. In the US, ‘millennials’ are now the largest section of the population. As demographics continue to shift, online will soon take over offline as the main mode of transaction.

Investors Takeaway: Alphabet, Facebook, VISA, Alibaba

Theme 3: BIG Data, AI

Increasing Reliance On Big Data And Analytics

As companies become more aware of how important data will help in their everyday operations, the reliance on big data will grow.

Data quality is fundamental to the value of Big Data-derived insights. According to Erics-


son’s widely-cited 2010 forecast, there would be 50 billion connected IoT devices by 2020. The increasing adoption of distributed ledger technologies (i.e. Blockchain) also offers the potential to fuel Big Data by offering more accurate data in a shorter span of time. With better quality data, insights derived from these data will be much more beneficial to com-panies, thus motivating companies to adopt analytics function.

Neural Network Computing (AI)

Technology companies like IBM are coming up with faster-than-expected advances in cognitive computing. The advancement in cognitive computing are positive for Big Data analytics as it allows the combination of brute computing force and innovative neural net-works.

Computational power will continue to improve rapidly to open up the possibility of new areas of pattern recognition and predictive analytics to drive further usage of big data. Not only big data, the development of neural network computing will also quicken the adoption of AI in companies’ operations.

Investors Takeaway: Hon Hai Precision, SAP, BroadCom, Baidu, Wangsu Science



Sub-Theme 1: China’s Insurance Market Still Under-Penetrated

CREDIT SUISSE:THEME 1: AGEING IN EMERGING

MARKETS - 3 STOCKS TO CONSIDER

The UN forecasts that the total world population aged 60+ will increase by 56 percent between 2015 and 2030, from 900 million to 1.4 billion. The majority of this increase will come from EMs, with around a third from China alone. The Chinese insurance market is forecasted to grow at 15 percent per annum over the next decade supported by the China’s five-year plan, deferred tax pension and tax breaks for health insurance.

Ping An Insurance

An ageing population implies that the demand for pension schemes will increase as the population prepares for life after retirement. The Chinese government have also pushed


out plans to promote purchase of pension schemes to supplement state-funded basic so-cial insurance scheme and corporate annuities through its national tax-deferred pension insurance guidance.

Largest Market Share

Among the Chinese insurers, Ping An has the largest market share with 43 percent market share by premiums in 1H16. With demand for pension schemes taking flight, Ping An should benefit the most from the government’s promotion of pension products.

In terms of valuation, Ping An is trading at 0.9x P/EV, which is not a demanding valua-tion. Furthermore, the stock is trading at one standard deviation below historical average of P/EV despite robust Value of New Business (VNB) growth.

BUY, TP HK49


Sub-Theme 2: Better (And More) Healthcare Needs From Ageing Population

As EMs experience the same demographic shifts towards an elderly population with a more Western lifestyle, demand for healthcare needs will also grow. Another beneficiary of the ageing population in EMs will be the healthcare sector.

Fresenius Medical Care

Rising ERSD Incidence Rates In EMs

Due to a more Western diet, combined with ageing effects, incidence rates of ERSD will increase substantially in EMs. The ESRD incidence rate in Asia is likely to develop in favour of healthcare companies like Fresenius in the long run. End Stage Renal Disease (ESRD) requires patients to go for regular dialysis treatment to keep their ESRD under control. Fresenius Medical Care (FME) has predominantly been strong in the US dialysis market.

Low Market Share Signifies Growth Opportunities In EMs

However, FME’s presence in the EMs leaves much to be desired. Asia represents around


43 percent of total dialysis patients globally. Yet, FME’s market share in Asia is only around two percent. This is way below its market share in Europe/Middle East and Latin America.

This means that FME has the potential to accelerate its growth by tapping into emerg-ing markets, particularly in Asia. Its management projects sales to increase at around ten percent CAGR from 2013-2020. CS estimates that 15 percent of this growth will come from Asia in the next four years.

Attractive Valuation-To-Growth

FME is a stock that holds value for investors attributable to its defensive growth qualities and relatively attractive valuation-to-growth profile among larger names in the European Healthcare sector. Given its current price, the stock is priced at a good entry point for a longer horizon investment heading into 2017.

BUY, TP €90

Straumann

Another area that will be driven by increasingly age-ing population in EMs is the dental implant market. The dental implant mar-ket is expected to grow much quicker in EMs than DMs.

Strong Position To Capture Market Share In EMs

With operations in China, India, Russia, Latin America and other EMs, Straumann is well positioned to gain maximum market share from EMs through its enhanced value segment portfolio, local subsidiaries and direct sales lines to cater to local needs. Furthermore, with substantial net cash on its balance sheet, Straumann has the finances to acquire subsidiar-ies for inorganic growth.


Theme 2: Internet Of Everything - 3 Stocks To ConsiderAlibaba

Alibaba is the largest online and mobile commerce company in the world with its total trading volume online in the latest fiscal year surpassing Walmart’s annual sales. Alibaba is not just an e-commerce only company but it operates an ecosystem that serves as a plat-form for third-party merchants. Over the past few years, Alibaba has made a dozen satellite investments in online-to-offline (O2O) retail and services, media and entertainment, and frontier technologies.

Alibaba Is Synonymous With Growth

Alibaba’s sustained gross merchandise volume (GMV) growth and a monetisation rate improvement for the core e-commerce business is undeniable. Moving forward, should there be a breakthrough in new categories such as grocery and food or an upside surprise from Lazada and Youku (China’s equivalent of YouTube and Dailymotion), it could catalyse a revaluation of Alibaba.

Earnings Visibility From Core Assets

Alibaba’s forward earnings is also gradually more visible with four key growth assets in Ant Fi-nancial (internet finance), Cloud (cloud computing), Cainiao (smart logistics) and Koubei (O2O ser-vices). Its satellite invest-ments could also unlock future value in O2O retail & services, media & en-tertainment, and frontier internet technologies to give Alibaba’s earnings potential upside.

BUY, TP US$125


Alphabet

For many, the company is known as Google. But for the purists, the name is Alphabet. The continuing shift of consumer engagement towards mobile platforms and the migration of advertising spending online will continue to drive revenue for Alphabet.

Online Ad Business Evolving

Alphabet have highlighted several new products that can help them maintain website growth momentum. This includes (1) expanded text ads, (2) individual bid adjustments, and (3) wide deployment of the fourth sponsored link on desktop.

On top of its core business, a higher than-expected contribution from Google’s larger non-search businesses (i.e. YouTube and Google Play) and any upward bias to estimates and shareholder value creation from Alphabet’s ‘Side Bets’ will further drive Alphabet’s share price.

Scepticism Creates Buying Opportunity

Credit Suisse believes that recent concerns about tougher comparisons and the poten-tial for multiple compression starting in 3Q16 have weighed on Alphabet’s share price and created a buying opportunity.

BUY, TP US$1070


Facebook

Similar to Alphabet, Facebook is another beneficiary of the shift of consumer engage-ment towards mobile platforms and the migration of advertising spending online.

Monetisation Potential Underestimated

Despite concerns about the number of ads that Facebook can display without affect-ing user experience, Credit Suisse remains confident that Facebook will be able to drive revenue growth without a material lift in ad loads. Among the industry, analysts are being too conservative on Facebook’s valuation and underestimates the long-term monetisation potential of upcoming new products like WhatsApp and Messenger.

New Ad Tools For Retailers

There are healthy demand indications among advertisers for Facebook’s new Dynamic Ads for Retail, which facilitates the connection of in-store merchandise with nearby users. The Dynamic Ads for Retail contribute significantly from 4Q16 onwards. Moreover, recent feedback from advertisers suggests that the company continues to innovate on product development. There could be an arrival of a new prospecting tool to help retailers find new


customers, as well as the initial steps to start monetising Messenger in 2017.

BUY, TP$170

Theme 3: Big Data, Ai - 3 Stocks To ConsiderThe amplifying cycle of data creation, data storage, data transmission and data analytics

will continue to drive growth to companies exposed to big data and artificial intelligence. This growth is unlikely to slow as appetite from corporates for greater operational efficiency through data interpretation will only increase in an increasingly globalised world. The in-creasing variety of data is also another driving factor behind this theme.

BroadCom

The DataCenter Ethernet Switch mar-ket is expected to record a 12-percent CAGR, driven mainly by Cloud/DataCenter expansion. Broadcom’s wired infrastruc-ture gives it a good exposure to the secu-lar trend in big data as wired infrastruc-ture is directly levered to Cloud and Data Center growth. With AAPL and Samsung recording content gains of more than 20 percent per annum and M&A synergies more than the US$750 million outlined

by the management, Broadcom leads Credit Suisse’ recommendation for 2017.

BUY, TP US$200

SAP

SAP is engaged in enterprise applications in terms of software & related service revenue. Its core business is selling licenses for software solutions & related services to deliver a range of choices fitting the varying functional needs of its customers.


SAP HANA, A Game Changer

In the big data era and era of disruption, SAP introduced SAP HANA (High-Performance Analytic Appliance) that is viewed as the cornerstone of the company’s in-memory strategy. Credit Suisse recognises that SAP HANA is one of the most disruptive product to database market share since SQL Server’s emergence in the 1990s. It is a preconfigured hardware appliance with pre-installed SAP software.

Migration Of Legacy IT Systems

Cloud will be a key driver behind a multi-year wave of application modernisation. Ap-plication modernisation is the refactoring, re-purposing or consolidation of legacy software programming to align it more closely with current business needs. SAP’s new cloud initia-tives will benefit them in this shift towards modernisation as companies migrate away from its legacy IT infrastructure and system.

BUY, TP €90

Wangsu Science

The increasing demand for big data will most certainly drive the growth for high-volume and high-variety of information and processing. This increasing data traffic will be beneficial for its Content Delivery Network (CDN) business, which makes up 87 percent of Wangsu Science revenue. CDN is a distributed network of proxy servers deployed in multiple data centers. The goal of a CDN is to serve content to end-users with high availability and high performance.


Top CDN Vendor In Growing CDN Market

The CDN market in China is expected to grow at a 34-percent CAGR up to 2020. Wangsu will benefit from the strong growth in its core CDN business as the top professional CDN vendor in China. Wangsu’s competitive advantage in higher operating efficiency, content operation experience in non-standard business, leading CDN technology and independent third-party positioning will give it an edge over its peers and new entrants.

IoT Another Secular Trend In The Making

Other than Big Data, Wangsu’s strong long-term growth prospects is also driven by the proliferated use of IoT in the near future. Credit Suisse recommends Wangsu as a long-term investment given its strong 46-percent growth and an average ROE of 25 percent for 2016-18E, which is way ahead of its peers.

BUY, TP RMB 79.30



Handful Of Black Swans In 20162016 was unlike any other years we had. 2016 produced not just one black swan event,

but a handful of them, from the Brexit saga to Trump’s unlikely victory and the unexpected post-election rally that no one anticipated. The new Trump era is now perceived by inves-tors as a pro-growth, equity friendly political environment that will support further growth in the US economy.

Poor US-Asia Relationship Won’t Hurt Asia’s Growth

DBS:4 INVESTMENT THEMES DRIVING

ASIA IN 2017

On the other hand, Asia is heading into uncertain times as we approach 2017, given the poor US-Asia relationship portrayed by Trump in his campaign. One only has to look at how the Trans-Pacific Partnership (TPP) died to know that this isn’t one of the rosiest period for US-Asia relationship.


However, DBS is confident that growth among Asian economies will remain intact as a whole. DBS believes that four investment themes will continue to thrive in Asia in 2017.

Four Investment Themes For Asia In 20171. US Cyclical Expansion To Drive Asian Exports

While Trump has shown strong desire to bring manufacturing jobs back into the US, Asia is still undoubtedly the best place for manufacturing in the world. Asia’s manufactur-ing and cost efficiency is still superior to US. A weak currency and global recovery scenario should continue to benefit exporters in Asia.

The Trump administration is also contemplating tax cuts for individuals and businesses. These tax cuts have the potential have a positive impact on US consumers’ discretionary spending, which will in turn benefit Asian exporters.

2. Global Fiscal Expansion

Trump’s plans to push ahead with fiscal stimulus by raising national debt to provide federal funding for infrastructure is no secret. And Trump is definitely not alone. Outside of the US, world leaders are coming to a consensus that monetary policies have limited effectiveness in stimulating their ailing economies.


Following years of fiscal contraction, developed nations are now turning towards fiscal stimulus to improve fundamental factors of their economies, i.e. driving demand and sup-ply factors in developed economies. DBS expects greater global fiscal expansion to benefit steel, mining, cement, construction and engineering firms’ prices in 2017.

3. Valuation re-rating of US valuations

Historically, Asian markets have had a strong correlation with the US markets. Yet, valuations of Asian markets continue to trade at cheaper valuations compared to the US. DBS believes that investors can focus on sectors which have potential to be re-evaluated, e.g. Banks, Energy, Real Estate, Consumer Staples, Material and the Utilities sectors. These sectors are all trading cheaper than their respective US peers.

US vs Asia Sectors — 2017 Valuation And Growth Comparisons

2017 PE (x) 2017 Gro (%)

Sector ASEAN China HK US ASEAN China HK US

Cons. Discr. 19.3 18.0 21.5 18.9 17.4 29.9 8.3 9.1

Cons. Staples 21.3 19.9 11.3 19.0 12.9 13.0 11.5 7.3

Energy 13.2 14.7 32.1 13.7 174.3 403.0

Financials 11.2 6.7 18.1 13.5 7.6 4.4 11.2 10.3

Banks 10.9 5.4 14.0 13.0 7.7 2.1 9.9 7.1

Real Estate 14.5 6.4 12.8 36.3 7.5 16.8 1.3 -21.4

Healthcare 35.9 16.9 12.5 14.6 17.3 16.7 9.2 8.8

Industrials 16.7 10.0 17.8 18.4 5.8 13.1 21.9 5.1

IT 14.7 24.0 16.8 13.1 29.2 11.7

Materials 13.3 14.1 16.7 6.4 23.0 13.8

Telcos 17.1 13.5 15.0 13.8 8.3 10.9 7.8 4.3

Utilities 12.2 10.1 17.7 16.4 0.7 1.3 2.3 0.9

Market 14.3 11.6 15.4 17.1 8.1 15.1 6.5 11.8

Source: Datastream, IBES, DBS Bank. Shaded ones are sectors with cheaper valuation and stronger growth compared to the US


Investors Takeaway: ASEAN Consumer Stocks, Asia/US Valuation Laggards

While Asia no longer has the luxury of the TPP deal to act as a catalyst for investor in-terest in the region, DBS believes that there is still a number of investment opportunities for investors in the Asian universe. Based on the four investment themes, DBS suggests that investors focus on beneficiaries of US recovery and global infrastructure spending through Asia/US valuation laggards and ASEAN consumer stocks (Thaibev, CPALL, Sheng Siong, Robinson Retail).


4. ASEAN Domestic Demand Is The Safe Bet

From a macro perspective, 2017 is hardly a year to be excited about. While a moderate recovery can be expected, US rates, currencies, and inflation outlooks will add uncertainty for any investment plans. As such, DBS recommends focusing on defensive sectors that have higher visibility on its 2017 outlook, i.e. ASEAN consumer sector. DBS highlights that domestic government investments and private consumption will continue to be supportive of growth in Asia.


Following DBS’ four investment themes that will drive Asia In 2017, we take a closer look at four investment ideas that DBS recommends based on its four investment themes.

1. Indofood: Undervalued Consumer Play

DBS:BUY THESE 4 DEFENSIVE ASEAN

STOCKS FOR 2017

Indofood (INDF) is the largest instant noodle and wheat flour manufacturer in Indone-sia. For many Indonesians, noodles are a cheap substitute to rice. Even in a slow economy, INDF’s noodle sales are relatively resilient. In 3Q16, INDF’s Consumer Branded Products (CBP) segment recorded an improvement in volume growth across all segments, indicating an improving demand environment.


Deep Discount To SOTP

INDF’s shares have been trading at a deep discount to its sum-of-the-parts (SOTP) valu-ation in the past three years. The company now trades at a 26-percent discount to its SOTP valuation, compared to an average discount of 14 percent in the past five years.

Divestment From China Minzhong

DBS opines that this is largely due to the company’s venture into the cultivation business through the acquisition of China Minzhong Food Corporation in 2013. INDF is currently in the midst of divesting its majority ownership in China Minzhong to Marvellous Glory Hold-ings. INDF and First Pacific have already gained approval from independent shareholders. The divestment will conclude before 2017.

DBS believes that this will catalyse a revaluation of INDF share price that will narrow INDF’s current discount to SOTP valuation.

BUY, TP IDR 9,900

2. ThaiBev: Regional Player In The MakingThaiBev is currently in a transformational stage as it morphs into a regional player. This

transition and uncertainty surrounding the mourning period in Thailand has been encour-aging investors to divest from ThaiBev in recent months.

Deep Discount To SOTP

ThaiBev has strong financials to drive earnings accretion through inorganic growth. Ac-cording to DBS, ThaiBev and F&N has sufficient financial strength to undertake acquisitions to the value of $4 billion.


Looking To Take Stakes In Vietnam Beverage Companies

There has been increasing talks of ThaiBev looking to take potential stakes in Vinamilk and Saigon Beer Company in Vietnam. Should ThaiBev succeed in taking stakes in Vinamilk and Saigon Beer, it will further underpin their ambition to become a regional player.

Overall, DBS believes that ThaiBev remains an attractive stock to invest in as it trans-forms into a regional player.

BUY, TP $1.19

3. Robinsons: Fundamentals Intact Despite Recent Sell-Off

Current shareholdings in FCL and FNN

Source: Company, DBS Bank


Robinsons Retail Holdings (RRHI) has closed down a significant number of nonperform-ing stores, which had an adverse impact on the company’s margins. This contributed to the recent sell-off in RRHI’s share price. Despite the recent sell-off in RRHI’s share price, DBS is confident of the company’s strong fundamentals and improving earnings profile in FY17F/FY18F.

Tailwind From External Factors

According to DBS, RRHI’s growth prospects remain bright. Growth is underpinned by positive industry data: favourable demographics, rising disposable income, low inflation backdrop, and underpenetrated modern retail industry.

DBS also expects same-store-sales-growth (SSSGs) to normalise in the upcoming quarter as the effects of election-related spending wears off. Rising household disposable income, low inflation backdrop and robust economic/construction activity will continue to support RRHI’s growth prospects.

BUY, TP PHP 92

4. CPALL: Higher Growth And Margin In 2017


CPALL’s outlook in 2017 is driven by two major shifts in consumer trends: cautious spending and shift towards convenience.

Trend 1: Cautious Spending Among Thais

Amid weak consumption pressure, Thai consumers are spending on smaller-ticket items and making more frequent trips to convenience stores and mini-supermarkets. With convenience stores and mini-supermarkets forming the bulk of CPALL’s operations, DBS expects CPALL’s SSSG to outperform other retailers. Furthermore, CPALL’s attractive products and sales promotion and favourable position as the leader in the convenient store market allows it to benefit from potential government stimulus packages and public infrastructure spending.

Trend 2: Shift Towards Convenience

There is another underlying shift in consumer trend among the Thais, i.e. one that is towards convenience. Given the tilt towards convenience, DBS foresees strong growth in ready-to-eat food, health and beauty products, and drinks at its cafe corner. CPALL should expect to yield relatively higher margins in the upcoming year from these higher margin products.

BUY, TP THB 75



In DB’s recent outlook for Singapore in 2017, DB warns of a challenging year for Singa-pore in the upcoming year. This is because, fundamentally, Singapore remains a very chal-lenging market in the near-term with many structural issues. The uncertainty from global economies also suggests a fairly volatile trading year ahead. DB predicts that 2017 will be a more volatile year than the past few years.

In this article, we highlight the four things you need to know about the Singapore mar-ket in 2017:

1. Headwinds In Transition Year 20172017 will not be a year of much growth, but rather a transition year for Singapore. 2017

will be a ‘stepping stone’ year for Singapore to transit towards the goal of Smart Nation.

DEUTSCHE BANK:4 THINGS YOU NEED TO KNOW

ABOUT SG IN 2017


Despite a multitude of external headwinds, DB forecasts that Singapore is on a path of mild recovery through the medium-term.

2. Cyclical Sector Worries Will Ease

DB expects Singapore to reach a cyclical bottom in 2017 on expected improvement in external demand and pro-growth policies. In particular, DB expects the two cyclical sectors - real estate and O&M - to bottom out in 2017. There is much hope that stability will return to the O&M sector following the recent deal within OPEC and the introduction of support measure by International Enterprise (IE) Singapore. As worries over cyclical sectors ease, it will also ease worries of non-performing loans (NPLs) among the three local banks.

3. Two Key Investment Focus: Restructuring, RebuildingTo put simply, 2017 will be a challenging year for Singapore. However, the good news

is that the Singapore government has been proactively building towards the future.

Unlike previous years, restructuring and rebuilding Singapore Inc will be the key invest-ment focus for Singapore in 2017. This will be similar to the last turning point in early 2000


when Singapore saw a prolonged contraction in the economy and faced structural chal-lenges to its pillar industries. The episode forced Singapore’s Economic Review Committee to propose appropriate strategies to promote growth and development of the Singapore economy.

Rebuilding Singapore Inc.

In terms of rebuilding, the spotlight will be on Singapore Inc. that were once leaders of their respective sectors. The last time such effort was undertaken was in 2000 after the Asian financial crisis. ‘Building Singapore Inc’ was carried out in that period to foster scale and create Singapore Champions.

Singapore Inc. has lagged behind due to technology disruptions and intensified competi-tion from regional players. DB thinks that Singapore Inc. will have to undergo its next phase of technology and productivity rebuilding in order to regain its position as market leaders.

Restructuring Singapore’s Economy

The other area of focus is economic restructuring. Technology and innovation will be at the forefront of this economic restructuring. In January 2016, Singapore held its first Committee on the Future Economy (CFE) to position Singapore for the future and identify areas of growth regarding regional and global developments.

Most recently, the government has sought to make Singapore a leader in FinTech. The Singapore government has established the FinTech Innovation Lab, and “regulatory sand-box” for FinTech experiments and solutions, whereby innovative solutions can be offered to the public under relaxed regulatory requirements for a limited period of time.


Overall, there will be an investment focus on companies that are able to evolve them-selves into the Smart Nation’s eco-system. These stocks will be in a better position to out-perform in 2017.

4. Yield Falling Out Of FavourYield stocks have gone from being the love of the market to the fear of the market as

markets embrace for an accelerated pace of inflation. However, DB reiterates that the fun-damental outlook for strong yield stocks have hardly changed. Thus, DB sees opportunity for yield plays as the likely volatility in the year ahead and stability of some yield names would attract institutional investors back to ‘safe haven’ yield plays.



In our previous article, we highlighted some of the key developments in the Singapore market for 2017. In this article, we focus attention on five stocks that will benefit from the key developments in the Singapore market for 2017.

1. Singtel: Focus On Smart Nation And Cyber SecurityThe two key themes for Singtel in 2017 are

Smart Nation and Cyber-security.

The Smart Nation is a ‘whole-of-nation’ IoT project spearheaded by the government with a focus on mobility, healthcare and citizen services. As a key partner of the government in its Smart Nation effort, Singtel will be a major beneficiary. In particular, Singtel’s enterprise division will

DEUTSCHE BANK:BUY THESE 5 SG STOCKS IN 2017


benefit from the infrastructure build-out and associated services of the Smart Nation pro-gramme. Its enterprise division has a 35-percent contribution to core earnings.

SingTel is also rapidly building upon its cyber security capabilities with its 2015 acquisi-tion of cyber security company Trustwave for $1 billion.

In addition, the potential IPO of NetLink Trust would provide an opportunity for a one-time special dividend for shareholders.

BUY, TP $4.45

2. SingPost: Riding With Alibaba

SingPost’s re-focus on integration is deemed as a positive management move by DB as it expects the integration of SingPost’s past acquisitions to drive revenue at a CAGR of 20 percent over FY16-19E.

Alibaba’s recent investment to increase its stake in SingPost and Quantium Solutions to 14.5 percent and 34 percent respectively also bodes well for SingPost. Given that Alibaba’s continued expansion into Asia-Pacific (APAC) with various acquisitions, SingPost would be the ultimate beneficiary from Alibaba’s China-APAC trade flows.

BUY, TP $1.85


3. SATS: Tourism Rebound Boon For SATSSATS has a dominant position in the aviation and food solutions business in Singapore

with an 80-percent market share at Changi Airport. Its long term attractive business growth is well-supported by strong Chinese inbound tourism to Singapore, and capacity expan-sion of Changi Airport (terminal 4 and 5). DB expects Chinese inbound tourism to register a CAGR of 18 percent over 2015-2020E, which will indirectly drive overall growth of revenue for SATS.

On top of macro factors, SATS also possess solid fundamentals. SATS has a net cash position in the balance sheet and generates a stable four to five percent Free Cashflow yield. This financial strength gives SATS the flexibility to make value-accretive acquisitions or increase dividend payouts to shareholders.

BUY, TP $5.79

4. CapitaLand: Increasing Efficiency; Attractive ValuationAs one of the leaders of Singapore Inc., DB believes that CapitaLand will remain focused

on improving its ROE in 2017. This will be done through existing initiatives including cost


reduction and project completion cycles. New initiatives including optimising its capital structure and becoming more asset light could be alternatives.

On top of that, CapitaLand could be a likely first-mover on any potential restructuring and increasing dividend payout. DB is confident CapitaLand’s likely strong earnings growth in the medium term and its current undemanding valuation will enable CapitaLand to out-perform in 2017.

BUY, TP $4.05

5. DBS: Rate Hike BeneficiaryAmong local banks, DBS has the highest developed market exposure (SG and HK at

64 percent of loans). Now the the Fed has raised rates, DBS is in prime position to benefit from the best CASA franchise among the three banks at 62 percent, providing an additional leverage to take advantage of rising rates.

Aside from the potential uplift in net interest margin (NIM), the strength of its wealth management franchise will continue to propel its earnings growth, boosted by the tie-up with Manulife bancassurance agreement.

BUY, TP $18.50



Amidst the festive cheers, investors have to be prepared for a tough 2017, warns MBKE. Against the backdrop of tepid global growth, near-term fundamental growth challenges to key financial services, property and energy-related sectors, Singapore’s forecasted growth for 2017 has been reduced to a range of just one to three percent.

MBKE: Economic Growth, Index Valuation, Earnings Recovery, Political Factors

To gauge an economy’s outlook, MBKE considers four important factors: economic growth, index valuations, earnings recovery expectations and political factors. According to MBKE, these four factors point to a mediocre year for Singapore in 2017. Economic growth will continue to be sluggish while index valuations remain uncompelling. Earnings recovery

MBKE 2017 OUTLOOK:2 STRATEGIES TO COUNTER A

MEDIOCRE 2017


expectations are also weak with downside risk.

Politically, there are rising risks of protectionism in the west and possible cooling-off in China relations following the recent seizure of Singapore’s military vehicles en-route Hong Kong. Central banks in the region are taking measures to restrict capital flight. MBKE opines that this could have a bearing in the medium term for Singapore housing sales to foreigners, tourism and direct investment. As such, Singapore stands to lose the most as an open economy.

SG Consumers Pessimism Reflects Mediocre Year Ahead

Various consumer confidence monitors also suggests that Singapore’s consumers are increasingly tightening their consumption. Referencing the Mastercard Index of Consumer Confidence, MBKE reasoned that the outlook for consumer spending remains ‘Pessimistic’ with a ‘Significant Deterioration’. The study also indicated that Singapore ranked second-lowest on the Index in the Asia-Pacific region in terms of overall consumer confidence.

STI Valuations Deceptively CheapWhile STI trailing PE valuations look attractive relative to both its three-year and five-year


historical data, MBKE thinks that this is largely due to the de-rating of the financial sector. Excluding the financial sector, STI valuation appears to be moderately rich.

But STI Is Still A Good Dividend Play

That being said, STI stands out as one of the highest dividend-yielding indices in ASEAN. This is partly attributable to STI’s REITs components and proactive payout policies. On top of that, a number of corporates have also linked management KPI to various balance sheet capital efficiency measures, prompting these corporates to increase their dividend payouts.

Investors Takeaway: 2 Investment Strategies For 2017With a one-year investment time frame in mind, MBKE prefers steady, relatively high

cash flow resilience sectors, especially stocks with low or declining CAPEX requirements and ones that benefit from secular growth trends. MBKE believes that investors should be overweighting Property REITS and Healthcare stocks.

Another strategy that MBKE recommends is a bottom-up strategy with a focus on com-panies with a strong business model in sectors that are driven by secular growth. MBKE high-lights that stocks with (1) low earnings cyclicality, (2) cashflow stability and low balance sheet risk within a preference framework of secular growth drivers and (3) business models with demonstrated track record will provide potential upside for investors in a year of uncertainty.


FSSTI Trailing P/E (3 year) FSSTI Trailing P/B (3 year)

Source: Maybank Kim Eng, Bloomberg Source: Maybank Kim Eng, Bloomberg

3,700

3,500

3,300

3,100

2,900

2,700

2,500Dec-16

Dec-15

Dec-14

Dec-13

Jun-16

Jun-15

Jun-14

17

16

15

14

13

12

11

x PE PE + 1sd Index (RHS)

PE mean PE - 1sd 3,700

3,500

3,300

3,100

2,900

2,700

2,500

1.5

1.4

1.3

1.2

1.1

1.0

0.9 Dec-16

Dec-15

Dec-14

Dec-13

Jun-16

Jun-15

Jun-14

x PB PB + 1sd Index (RHS)

PB mean PB - 1sd


1. JumboJumbo is one of MBKE’s top recommendation for its combination of a resilient home

base and successful overseas thrust that should provide catalysts to outperform. Its focus on seafood with a wide clientele appeal and strong branding among local and foreign food lovers make it the default choice for premium seafood delicacies.

MBKE: 6 SG STOCKS WE LOVE IN 2017

Jumbo’s core Singapore market provides stable incremental growth while overseas markets (China for now, but could include Thailand in the future) are expected to provide higher growth quantum in coming years. Best of all, valuations have not yet priced in the expected catalysts.

BUY, TP $0.78


2. EzionAmong the O&M sector, Ezion is one of the relatively more resilient stocks. Ezion’s

exposure to production and maintenance services allows them to keep most of its assets utilised and to generate free cashflows from FY16-18E. Ezion has a high chance of surviving the current downturn as it has no immediate balance sheet risks. Ezion’s five new assets scheduled for contribution in 1H17 could serve as a near-term stock catalyst to drive earn-ings per share (EPS) growth.

BUY, TP $0.42

3. Bumitama AgriHaving planted an average of ~9,000 hectares (ha) of nucleus area per annum over the

past 10 years, Bumitama Agri is one of the fastest-growing plantation companies. Bumitama Agri now has a sizeable nucleus planted area of 120,000 ha of relatively young oil palm trees.

With an average age of around eight years old, Bumitama Agri is expected to grow its fresh fruit bunches (FFB) output at a 10-percent CAGR over 2015-18. Moving forward, MBKE expects FFB yields to normalise and grow sharply by 25 percent.

BUY, TP $0.97


4. UOLIn a tough operating environment for property developers, UOL remains as one of the

worthy developers to invest in, according to MBKE. UOL has the highest share of recurring income base amongst local developers with a conservative residential portfolio with high pre-sales and no exposure to qualifying certificates (QC) penalties over the next two years.

Moreover, with a massive 43-percent discount to the underlying market value of its assets, it is high-reward-low-risk for investors.

BUY, TP $7.37

5. Raffles MedAs Singapore’s leading integrated healthcare organisation with robust track record

and exciting development plans in China, Raffles Med is one of the top picks among locally listed stocks. MBKE reckons that Raffles Med’s local expansions will support medium-term growth, while its China expansion will drive long-term growth. Moreover, MBKE believes that the catalysts from expansion have not been fully priced in yet, especially in China.

BUY, TP $1.85


6. Capitaland Commercial TrustMBKE recommends Capitaland Commercial Trust (CCT) as it is one of the better posi-

tioned REITs to ride through near-term headwinds in the sector with its favourable lease expiry profile and strong weighted average lease expiration (WALE) of 6.8 years. Unlike distributions for office REITs that are supported by non-core distributions, CCT’s distribu-tion highlights the underlying fundamentals of its properties. CCT is currently valued at a 14-percent discount to the value of its offices in Singapore.

BUY, TP $1.81


STOCKS WORTH CONSIDERING IN 2017 - · PDF fileDeutsche Bank: 4 ... The research in this report...

Documents

Transcript of STOCKS WORTH CONSIDERING IN 2017 - · PDF fileDeutsche Bank: 4 ... The research in this report...