Bullish case for Singapore telecom and property shares

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Bullish case for Singapore telecom and property shares

Published: Sun 29 Jan 2017, 4:44 PM

Last updated: Sun 29 Jan 2017, 10:20 PM

2016 was a year of Chinese water torture for investors in Singapore, with the Straits Times index down two per cent for its second successive loss making year. The slump in world trade, the Darwinian shakeout in the offshore rig construction market (Keppel is Southeast Asia's market leader in this sector), the malaise in the local commercial property market and a soft Sing dollar all contributed to the dismal performance of the Straits Times index. The hottest country in Asia was Pakistan (up 45 per cent), Vietnam and Indonesia (up 16 per cent), not its two historic trade/finance entrepots Singapore and Hong Kong.
However, the Straits Times index is up nine per cent since the US Presidential election, a participant in the fabled "Trump rally". The stock market was among the cheapest in Southeast Asia at 10.4 times earnings while Singapore's REIT sector was devastated by the surge in US Treasury bond yields. It is no coincidence that Singapore real estate trusts offer the world's highest dividend yields at 7.5 per cent and trade at just below book value. This spells money making opportunities for me, as a "convert" value investor.
True, Singapore's GDP growth will not sizzle in 2017 and earnings growth is mediocre at five per cent yet there are tangible single stock investment opportunities in the netherworld of the Lion City's Singapore Exchange (SGX). While Southeast Asia has been gutted by the 30 per cent rise in the US Dollar Index since mid-2014, the region has far better growth metrics than China or even India in the short term. The Strait Times index offers the highest yields in Southeast Asia, thanks to the large weighting of its property REIT's telecoms and Big Three banks.
DBS, the largest bank in Southeast Asia and the flagship lender in Temasek's international banking portfolio, was a speculative buy last spring at 14 Singapore dollars and chump change. It has delivered a stellar 35 per cent return, easily outpacing even its historic rivals OCBC and United Overseas Bank. The steepening of the US Treasury yield curve, of course, is ballast for DBS's bottom line. Singapore's interbank funding rate Sibor has begun to rise since November as the bond market prices in additional Federal Reserve rate hikes in 2017. While the easy money in DBS has been made, I would book profits now as the bank that Piyush Gupta runs has bad loans to corporate to borrowers vulnerable to interest rate shocks or Trump's antipathy to global trade. DBS has no valuation rerating potential above 19 Sing dollars or 12 times earnings.
The Straits Times index trades at 3,064 as I write, up 200 points since Trump won the election and gate crashed into world economic history. So I would now focus only on megacap dividend yield plays in Singapore SingTel shares are down since 10 per cent last summer after an Australian telecom received a fourth operator license in Singapore. Yet the real hit to mobile revenues will be felt by StarHub and M1 Ltd, not the dominant incumbent SingTel. In any case, SingTel's growth ballasts are its emerging Asia crown jewels (India, Indonesia), its Big Data/cybersecurity businesses and its digital marketing arms. SingTel is not cheap at 15 times earnings but its eight per cent EPS growth and five per cent dividend yield means that it can easily offer a 20 per cent total return if acquired at 3.60 SGD a share.
Singapore has witnessed Southeast Asia's worst office, residential and hospitality bear markets, thanks to the surge in the US dollar, the Chinese growth scare and a government crackdown on leveraged speculation. Residential property prices have fallen by 20 per cent in the past three years. However, unlike the GCC, the Singapore dollar has depreciated 20 per cent even as home prices fell, making residential property attractive relative to Shanghai, Beijing and Hong Kong. Temasek property crown jewel City Development, which boasts the best land bank in the city-state founded by Lee Kwan Yew but which trades at a mere 0.9 times book values and 10 times earnings. City Development is an ideal proxy for a Singapore home price pop.
 
Matein Khalid is a global equities strategist and fund manager. He can be contacted at mateinkhalid09@gmail.com

By Matein Khalid

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