RHB Group Research analyst Shekhar Jaiswal reiterates a barbell portfolio strategy recommendation with a mix of growth and defensive Singapore equities for 2QFY2022 amid the country’s reopening of international borders and the domestic economy.
Although the reopening as well as the government’s assurance on its plans to keep the economy open if Covid-19 cases spike bodes well for business and tourism, Jaiswal maintains that the Singapore equities outlook will depend on how well stocks and sectors deal with ongoing factors.
These factors are supply chain disruptions caused by Russo-Ukrainian war and China’s zero-Covid-19 policy; uncertainty over the rate of rise in inflation; and the resultant expectations of rapid rises in interest rate hike for the rest of 2022.
Jaiswal’s large-cap picks are Ascendas REIT, City Developments, DBS, Genting Singapore, OCBC, Singtel, ST Engineering, Suntec REIT, Thai Beverage, Venture Corp and Wilmar International.
Meanwhile, his mid to small-cap picks are Bumitama Agri, ComfortDelGro, ESR-Logos REIT, HRnetGroup, Kimly, Prime US REIT and Raffles Medical Group.
Jaiswal has removed United Overseas Bank (UOB) from his top picks post the recent downgrade. RHB downgraded UOB to “neutral” from “buy” following its 1QFY2022 results and has lowered its target price to $32.70 from $38.10.
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“[UOB’s] 1QFY2022 results missed our expectations mainly on lower non-interest income (non-II). Although trading and investment income is expected to rebound in 2Q22, our FY2022-FY2024 earnings were cut by 5%-6% to take into account the 1QFY2022 mark-to-market trading loss and more conservative assumptions on non-II, given the more challenging environment for wealth management,” says Jaiswal.
RHB’s lower target price accounts for higher risk premiums and a tweak in the ESG score to 3.2 from 3.3, as it recalibrated the assessment of risks and regulatory requirements associated with data and cybersecurity.
“We believe UOB’s share price should consolidate in the near term, given its YTD outperformance and more subdued FY2022 earnings growth,” adds Jaiswal.
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Venture is an addition to the top pick, following above expectations performance in 1QFY2022. Jaiswal highlights that Venture expects demand to be steady going forward, based on customers’ orders and forecasts across its various technology domains.
“We expect Venture to enjoy a positive FY2022 with expectations of 11% y-o-y earnings growth versus 5% y-o-y growth in FY2021 despite supply chain challenges. This is because the group has shown that it is able to maintain margins despite this inflationary period — thanks to Venture’s strong relationships with its customers.”
RHB’s themes for 2QFY2022 remain unchanged, says Jaiswal. These themes are buying the beneficiaries of the rising interest rates cycle; continuing exposure to economic reopening plays; buying beneficiaries or stocks that are defensive against rising inflation; buying defensive stocks that will deliver EPS and DPS growth, net margin expansions as well as ROE improvements; and buying REITs that are defensive and those that will benefit from the reopening of the economy.
Photo: Bloomberg
