Singapore equities were up 2.1% in April, the second consecutive month of gains with shipping and banks emerging as the biggest gainers for the month, according to a report by PhillipCapital on May 6.
Seatrium rallied in tandem with oil prices and the announcement of a $100 million share buyback, says analyst Paul Chew who was “puzzled” that the company’s move to gear up the balance sheet to purchase shares for the employee share plan and director fees turned out to be a positive thing. Since its announcement on April 29, shares in Seatrium have risen some 3.33% to 9.3 cents as at 11.07am on May 6.
At the same time, Chew notes that DBS's outperformance was due to expectations of higher for longer interest rates. Meanwhile, REITs took another knock as interest rate cuts were delayed.
Moving forward, the analyst notes that inflation rates will remain sticky in the US, with gasoline and industrial commodities at year highs, and the benefits of disinflation in the goods sector wearing out as supply chains normalise.
The upcoming elections in the US also makes it unlikely for the Fed to cut rates in September with the presidential debate or in November with the elections meetings.
“This leaves December as the likely trigger point. With such a backdrop, inflation hedges or high-interest rate beneficiaries are Singapore banks,” says Chew.
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In Singapore, analysts say that the manufacturing data is recovering at a gradual pace, with new orders purchasing managers index (PMI) averaged above 51 for the past three months till April, while electronics PMI is the highest in 28 months.
The residential property market is still reeling from last April’s cooling measures, with new residential transactions down 13% y-o-y for the 1Q2024.
On the other hand, Singapore’s positioning as a tourism hub for events is enjoying stellar results, according to Chew, with hotel revenue per available room (RevPAR) jumping 21% y-o-y in March. This is supported by a 45% jump in visitor arrivals to 1.48 million, of which China arrivals jumped four-fold to 247,000.
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With this as the backdrop, the analyst says that most electronic contract manufacturers, including Aztech Global 8AZ , Nanofilm and Venture, are guiding for a recovery in customer orders for the coming quarters.
The recovery bodes well for Valuetronics BN2 , he adds, with a “buy” call and target price of 70 cents. The company benefits from four new customers, pays a 6% dividend yield, and trades at 9 times P/E or 2 times P/E excluding the $200 million net cash on its balance, he notes.
However, Chew believes the electronics recovery will not extend to the semiconductor stocks in Singapore, as the industry is still absorbing a spike in capacity after record orders for semiconductor equipment in 2022/2023.
As rates maintain current levels and maturing securities roll over to higher rates, PhillipCapital says that banks continue to remain the bright spot. “Wealth management fees are rebounding as client risk appetite improves,” he writes.
In addition, as North Asia stocks have started outperforming on the back of more stable economic data and hopes of more government stimulus, Chew has “buy” calls on three stocks with the highest exposure to China.
They are CapitaLand Investment, China Aviation Oil, and Sasseur REIT, with target prices of $3.38, $1.05 and 87 cents respectively.
Finally, PhillipCapital’s Absolute 10 portfolio was up 1.5% in April. Its major gainers were Cromwell REIT, DBS, and ComfortDelgro, and the weakest performers were Keppel and Singapore Telecommunications Z74 (Singtel).
For 2Q2024, Chew has “add” calls on DBS, Cromwell European REIT, and he has removed OCBC and Frasers Centrepoint Trust J69U from PhillipCapital’s list.
