Investors should look for outperformance opportunities in specific stocks and sectors in 2025 as the Straits Times Index (STI) could generate “modest” returns in 2025, says RHB Bank Singapore analyst Shekhar Jaiswal.
In a Dec 16 market strategy note, Jaiswal points out five investment themes for next year — stocks that offer sustainable earnings growth or are undervalued; stocks offering sustainable high yields (save for the REITs sector); counters that will help mitigate increased volatility risk; small-cap stocks with earnings tailwinds; and gradually build positions in the REITs sector as interest rates eventually decline.
For the first theme, Jaiswal highlights Centurion Corp, ComfortDelGro , Singapore Telecommunications (Singtel) and Singapore Technologies Engineering (ST Engineering).
Centurion is expected to deliver about 20% EPS growth per annum in 2024-2025. This follows positive near-term bed rates amid tight worker dormitory beds supply, growth expectations and more dormitory project wins.
ComfortDelGro is expected to deliver 16% y-o-y earnings growth in 2025, aided by contributions from Australian bus tender wins; acquisition of A2B and Addison Lee; as well as an improving China taxi business.
For Singtel, Jaiswal estimates the company’s earnings to grow at 12% in FY2025 and further 15% in FY2026. The analyst likes the counter for its improving return on invested capital, cost savings from consolidation of Singapore operations and strong balance sheet, among others.
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ST Engineering has reported record-high order book which provides close to three years of revenue visibility and sustained distribution per share of at least 16 cents each year, paid quarterly. Jaiswal expects ST Engineering to deliver a 2023-2026 profit CAGR of 15%, which will be aided by a recovery of earnings, contributions from Transcore and the gradual delivery of its order book.
Outside of its coverage, RHB also sees a similar opportunity in Sats.
City Developments (CDL) is an undervalued or laggard play, says Jaiswal. He expects CDL to deliver 12% y-o-y profit growth in 2025, a beneficiary of a surge in Singapore residential property volumes. RHB likes the stock for continued recovery in the hospitality segment, the company’s high quality commercial assets in Singapore and the UK, as well as growth from its fund management segment.
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For stocks offering high dividend yields excluding REITs, RHB sees Singapore banks offering investors a solid defensive option. Although earnings prospects ahead may not be exciting, downside risks should be limited with four US Federal funds rate cuts already baked in.
“Also, dividend yields still look attractive, with room for yields to compress as rates fall and this is further supplemented by potential capital management initiatives, now that the banks have better clarity on excess capital available,” Jaiswal adds. He has “buy” calls on DBS and United Overseas Bank (UOB), aside from a “neutral” call on Oversea-Chinese Banking Corp (OCBC).
For 2024, the share price performance of Singapore REITs (S-REITs) was disappointing compared to RHB’s initial expectations of a stronger rally in 2H2024 from the commencement of rate cuts. Looking ahead, Jaiswal believes the worst is likely over for S-REITs, with the outlook for interest rates peaking across most of the markets and an expected gradual decline in rates.
Although RHB expects global economic growth to remain strong in 2025, the team expects some volatility during the courts of the year from uncertainties arising from US president-elect Donald Trump’s tariffs and policies.
The industrial sector remains RHB’s preferred space due to its defensive nature of cash flows and healthy demand. This is followed by the office sector, which Jaiswal believes is undervalued due to continued investors’ concerns over work-from-home trends. Top picks for this theme are AIMS APAC REIT, CapitaLand Ascendas REIT , CapitaLand Integrated Commercial Trust and Keppel REIT.
For the fourth theme, Jaiswal notes the fears that Trump’s protectionist measures will impede trade growth and have a negative impact on Singapore’s economy. That said, RHB thinks Trump's presidency may inject merely short-term market volatilities and would not dent the very resilient growth momentum already seen in the past two years.
“To mitigate the increased volatility risk during the next few quarters, investors can consider including some defensive companies with strong domestic exposure in their portfolio. Our top choices in this circumstance are Raffles Medical Group , Sheng Siong, ST Engineering and UOB.
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“We believe Singapore will continue to profit from trade diversification and the movement of supply chains by enterprises pursuing the China Plus One strategy. We expect this pattern to continue, even when Trump returns to the White House. We see UOB, which now has a strong Asean presence following the Citi acquisition, as the key beneficiary of this trend,” he adds.
The last theme is bottom-up opportunities in the small-cap space. Within RHB’s coverage universe, in the sub-US$1 billion to almost US$1 billion market cap range, the analyst prefers exposure to Apac Realty, Centurion, Frencken and Riverstone. All four stocks have earnings tailwinds either this year or next year.
Apac Realty’s share price has severely underperformed ytd amid a significant slowdown in primary transaction volume, which is a key earnings driver. Although Singapore’s property market has been gradually cooling off, prices have remained largely resilient due to strong household balance sheets and growing household income.
RHB expects this trend to continue for the rest of the year, with some recovery in buying sentiment anticipated in early 2025, based on potential rate cuts and a stronger economic recovery. This should drive APAC’s earnings turnaround.
For Frencken, key semiconductor outlook remains positive as it continues to support its key customer in Europe, as well as customers that have moved production to Asia. Aside from opening a larger facility in the US, Frencken’s near-term growth should also stem from its customers’ Europe and Asia capacity expansion in programmes and new products,
Lastly, Riverstone is a prime beneficiary of the recovery of global semiconductor sales which, in turn, should drive its cleanroom glove sales. The company should see industry tailwinds arising from the US imposing import tariffs on China gloves, presenting a trade diversion opportunity for Malaysian glove manufacturers. Riverstone is also the sole rubber glove manufacturer still posting double-digit core profit margins while continuing consistent dividend payouts, Jaiswal highlights.
For RHB’s coverage universe, excluding the S-REIT sector, RHB forecasts a 4.8% market cap-weighted y-o-y EPS growth in 2025. Jaiswal expects the S-REIT sector’s DPU growth to also turn positive in 2025.
“At 11.6x, the STI's forward P/E is still reasonable and is at negative 1SD from its forward P/E. Applying a target P/E of 11.3x to 2026 EPS, we estimate the STI to hit 3,940 points by the end of 2025,” he says.
