SINGAPORE PROPERTY
Call: Overweight
Broker: UOB Kay Hian
We recommend an "overweight" stance on the sector, preferring stocks with exposure to the residential, hotel and office segments, which are expected to outperform as we head deeper into the upcycle.
We are cautious on retail and industrial factory and warehouse spaces.
City Developments, Wing Tai, CDL Hospitality Trusts, CapitaLand Commercial Trust and Ascendas Reit are our top picks.
Concerns over interest rate hikes are unwarranted. Past cycles have demonstrated that sharp rate hikes are contingent on a strong economic recovery and heightened expectations of inflation.
Real estate investment trusts (Reits) are able to transform themselves into growth vehicles in an inflationary interest rate environment, contrary to the conventional inverse relationship between dividend yields and interest rates.
The direct impact of higher interest rates is low for developers as interest accounts for a minority of overall development costs. The TDSR (total debt servicing ratio) framework provides safeguards against the indirect affordability impact.
SINGAPORE STRATEGY
Broker: Maybank Kim Eng
A third consecutive quarter of core profit growth will go a long way in reinforcing sustainability of the somewhat tentative turnaround seen two quarters ago. The macro data continues to deliver on our growth outlook while earnings expectations are inching up as well.
We maintain a preference for cyclicals and are positive on property and industrials. Most of our top stock ideas are from these sectors.
We are "positive" on property developers, industrial Reits and industrials. We are "neutral" on financials, office Reits and gaming, and "negative" on telecoms and agricommodities.
Key downside risks to our outlook for the current rally to extend through 2018 are external growth or trade headwinds that derail industrial production and the tech capex upcycle, potential measures to cool the property market amid rebounding physical prices and collective sale activity, and material portfolio fund outflows from Asean to North Asia.
NAM LEE METAL
Call: Buy
Target price: $0.56
Broker: Phillip Securities Research
Net cash (cash less total borrowings) of $40.8 million represents 42 per cent of market capitalisation. We continue using the current-asset value (current assets less total liabilities) of 37.4 cents a share to demonstrate the limited downside risk.
The outlook is stable to positive. The tone of management commentary is now more upbeat compared to previous quarters, mentioning that the recovery in the US economy could have a positive impact on the aluminium industrial product business. This refers to the aluminium frames for container refrigeration units.
Domestically, Nam Lee could potentially benefit from the pipeline of infrastructure projects and spate of collective sales. Any revenue recognition though would probably only be at least two years from now, coinciding with the tail-end of these projects.
Our target price represents 11.1 times 2018 forecast earnings and 0.96 time 2018 forecast book. The two-cents dividend offers an attractive yield of 5.1 per cent based on the last closing price of 39.5 cents. We currently forecast 2.5 cents of dividend for 2018 and maintain our view of Nam Lee as a yield play.
