In 2022, DBS Group Research analysts Yeo Kee Yan, Janice Chua and Woon Bing Yong estimate that Singapore’s gross domestic product (GDP) will grow to 3.5%.
Inflation during the year may average around 2.4%, predict the analysts in a Jan 3 report.
“2022 is the year where investors juggle between a more resilient transition to living with Covid-19 while the economy faces uncertainties from inflationary pressure, higher interest rates, uncertainty about China’s growth, and domestic policy risks,” they write.
“Growth in the manufacturing sector should normalize while that for the services sector broadens as the economy reopens. Policy risks beyond the latest property cooling measures are GST hike and a possible wealth tax,” they add.
During the year, Yeo, Chua and Woon forecast that stocks under the brokerage’s coverage will register “strong” earnings per share (EPS) growth of 17.7% y-o-y in FY2022, amid the easing of domestic and international border restrictions.
“The high teens earnings growth comes despite the higher-base from the snap back +58.5% y-o-y FY2021 EPS recovery,” add the analysts.
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Should the estimates meet expectations, FY2022’s earnings will reach some 12% above the levels seen pre-Covid in FY2019.
“While the Fed now sees three interest rate hikes next year, we observe that equities tend to perform positively at the start to middle phase of a rate hike cycle so long as it is supported by growth,” note the analysts.
“Our end-2022 [Straits Times Index] target of 3,550 [points] is pegged to 13.2 times (average) FY2023 price-to-earnings (P/E) and implies a 13% upside,” they add.
Counter picks
Singapore’s reopening looks to be inevitable, despite the rising number of Omicron cases.
Most of the reopening plays have priced in up to a six-month delay, note the analysts.
With that, they have identified SATS, Ascott Residence Trust (ART), CDL Hospitality REIT (CDLHT), CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT) and ComfortDelGro (CDG) as their top picks amongst the stocks slated to benefit from the reopening of Singapore’s economy.
“We see earnings turnaround going beyond the reopening related sectors,” say the analysts.
Furthermore, downstream technology firms Venture Corporation and Nanofilm also look set to benefit from the gradual easing of the semiconductor shortage from 2QFY2022.
“AEM is the only upstream technology player that should register stronger y-o-y growth for FY2022,” predict the analysts.
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“We advocate that investors diversify to include structural trends such as digital transformation and sustainability drive. Semiconductor stocks UMS and Frencken are supported by demand for electronics, 5G transition and new-tech developments. Sembcorp Industries (SCI) plans to quadruple its renewable energy portfolio by 2025 while Singapore Technologies Engineering (ST Engineering) expects its smart city revenue to more than double by FY2026,” add the analysts.
“Eventful year”.
There’s a lot to look forward to in 2022, with counters such as Thai Beverage (ThaiBev), Yangzijiang Shipbuilding, Singapore Telecommunications (Singtel), City Developments Limited (CDL) and Tuan Sing planning spinoffs or listings for their units.
The analysts also see mergers and acquisitions (M&As) being brisk with Keppel Corporation’s offshore and marine (O&M) business completing its merger with Sembcorp Marine (SembMarine).
ST Engineering is also seeking to acquire TransCore Partners for US$2.7 billion ($3.64 billion), a move that will position the group as a market leader in smart mobility.
“The potential listing of SPACs on the Singapore Exchange (SGX) could drive increased trading volume for SGX. Singapore banks (UOB, OCBC) may seek to acquire Citi’s consumer businesses,” say the analysts.
Finally, Singapore REITs (S-REITs) “could see a year of bustling M&A activity with CDLHT expanding its investment mandate and Lendlease REIT potentially upping its stake in JEM”.
The STI closed 10.57 points higher or 0.34% up at 3,134.25 points on Jan 3.
Photo: Bloomberg
