DBS says worst over for earnings of Singapore-listed companies

TheStar Tue, Sep 08, 2020 09:50am - 8 months ago

Social distancing markers are seen on benches as buildings stand in the Central Business District in Singapore on Monday, July 6,2020. Prime Minister Lee Hsien Loong vowed to hand over Singapore "intact” and in "good working order” to the next generation of leaders, predicting the coronavirus crisis will "weigh heavily” on the nation’s economy for at least a year. Photographer: Wei Leng Tay/Bloomberg

SINGAPORE: Despite deep cuts in the latest quarterly earnings of Singapore-listed companies and trusts, the worst is now behind them, said DBS Group Research in a market strategy report.

The second-quarter results season had suffered the full impact of global Covid-19 lockdowns, with a sharp 14.9% cut in forecast earnings in financial year 2020 for stocks under DBS’ coverage.

Investor interest is likely to pick up for travel or leisure stocks, lifted by progress in Covid-19 vaccine candidates that are under third-phase trials, noted DBS analysts Yeo Kee Yan and Janice Chua.

DBS’ picks are Hutchison Port Holdings Trust (HPH Trust), ST Engineering, SIA Engineering Co (SIAEC), Wilmar International, UMS and Venture Corp, among counters with either a positive earnings revision of more than 5% or a recommendation upgrade.

“Looking beyond the ashes of the second-quarter earnings slash, we seek opportunities from the list of companies that saw upward earnings revisions or recommendation upgrades, ” Mr Yeo and Ms Chua said.

These are companies that have emerged positively from the second quarter.

While the exact timeline for a vaccine to be made widely available is uncertain, DBS thinks the recovery in air travel will be swift once this materialises.

The analysts pointed to empirical evidence showing that China’s domestic air travel had recovered promptly to near pre-Covid-19 levels in a pre-vaccine environment within five months.

DBS thus recommends that investors look beyond the near term to accumulate travel- and leisure-related stocks in anticipation of the industry possibly recovering next year.

Its picks in the travel and leisure space are SIAEC, China Aviation Oil, ComfortDelGro Corp, Ascott Residence Trust, and Far East Hospitality Trust.

As for manufacturing- and trade-related names, DBS noted the strengthening purchasing managers’ indices in the United States and China, as well as the transport stocks’ strong run-up from the third quarter.

These hint at a broadening manufacturing recovery and a revival in trade activities, said the DBS analysts.

DBS’ picks in these areas are semiconductor components maker UMS Holdings, capital and consumer equipment service provider Frencken Group and Venture Corp, which provides contract manufacturing services to electronic companies.

DBS also favours HPH Trust, which the research team sees as a proxy to improving global trade activity, offering a yield of about 11%. — The Straits Times/ANN

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