Excerpts from CGS-CIMB report

Analysts: LOCK Mun Yee & LIM Siew Khee 

Singapore Strategy
3Q22F: Preparing for more negatives

■ More analysts are taking the cautious stance going into the 3Q22F results season on the back of negative sentiment on the macro front.

■ Fig 1 of this report shows the likelihood of risks/catalysts for the companies reporting. We conclude that there would be more negatives than positives.


■ Negatives: REITS in general, Tech in general, KEP, IFAST, SATS, Q&M,Grab, TDCX, STE.

Bleak macroeconomics
Macro newsflows have been increasingly challenging. Our economist fears a start-pause trade war between the US and China could have long-term impact on overall global supply chains. Singapore’s PMI was at 49.9 in Sep, pointing towards a contraction, the first since Jun 2020.

Pulling the index down was the electronics sector PMI, which recorded a decline of 0.2 points from the previous month of Aug, to 49.4 in Sep. This was attributed to faster contractions in the indexes of new orders, new exports and factory output, and a contraction in the employment index.

Trade is expected to stay modest going forward as factors are stacked for a greater demand slowdown ahead. Our economist maintains a forecast of moderating GDP growth in 2023F to 2.0% yoy, compared with 3.8% this year.

One’s man meat is another man’s poison


• REITs’ current valuations could have factored in 50-100bp of interest rate hikes.

• SIA and ComfortDelgro should see improving pax load factors, ridership and taxi updates in Singapore.

While banks are due to deliver significant NIM expansion, we could see DPU downgrades for REITs as interest rates continue to rise. We have factored in 20-30bp higher average funding cost into our estimates. That said, we believe REITs’ current valuations could have factored in 50-100bp of interest rate hikes. On the flip side, banks’ guidance on continued NIM expansion beyond 3Q22F could keep sector interest warm.

We think a normalisation of credit costs towards business as usual (BAU) levels of 15-25bp may be well expected. Overall, bank’s strong yoy earnings growth (10-25%) in FY22F could still be the key reason to hold up the FSSTI.

Order book-driven companies building up strength

Companies that are driven by orders – the capital goods and construction sectors – are seeing elevated order book levels. We estimate the combined order books of both SMM and KEP are above S$19bn given their recent wins. We think SMM, BRC, and Boustead Project’s upcoming updates in order outlook could catalyse their share prices.

Although STE is likely to see strong order book updates, its share price could be neutral with potential consensus earnings downgrades due to high interest expenses, in our view.

Tech, consumer and healthcare
Generally, we think tech companies would report a neutral set of earnings/updates this season as expectations have been adjusted down due to slower growth outlook. The most affected would be those with larger China exposures, such as ISDN. Central to this upcoming results season would be management’s outlook and forward guidance on the back of the US’s 7 Oct announcement of limiting the sale of semiconductor technology to China.

The results of consumer and healthcare companies will likely be a mixed bag, with THBEV benefiting from stronger consumer sentiment amid the reopening of the economy, while JAP could see an earnings beat on improving ASP that would support margins and the release of more details on the recently- announced AustAsia Group (AAG) IPO.

Reopening plays: should see qoq improvements
SIA and CD should see improving pax load factors, ridership and taxi updates in Singapore. GENS should also see normalised wins. SATS could see a net loss similar to the previous quarter due to the start-up costs of its Inflight Catering Centre 1 (ICC1) to support the reopening of Changi Airports terminals 2 and 4 (T2 and T4).

Forex impact
Companies that report in US$ or S$ and derive significant revenue from operations overseas may suffer some negative translation impacts; companies that derive revenue in US$/S$ but have a higher-cost base in local currencies or importers may benefit.

ComfortDelGro, Sea Limited and Grab Holdings should see some hit; Sheng Siong could benefit. We think Singtel’s recent share price could have priced in regional associates currencies vs. the strengthened S$.

This could offset qoq improvements in Bharti, Telkomsel and possibly Singapore operations.

Full report here

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