Wednesday, June 29th, 2022

Singapore Strategy: We keep our end-FY21 FSSTI target at 3,140 pts

To avert a repeat of a circuit breaker, Singapore will reintroduce pre-emptive phase 2 safety measures from May 8 to 30.
With the FSSTI at 3,179 and trading at mean prices (14.4x CY22F), we believe profit taking among the YTD outperformers is probable in the immediate run.
DBS, OCBC, SATS, SIA, CD, retail REITS, GENS, Jumbo are short-term losers.
■ SEA, Sheng Siong, Dairy Farm, UG Healthcare, Riverstone, and industrial REITS were among the winners (MLT, KDC REIT, AREIT and MINT).
Phase 2 is a preventative measure to avoid CB, but it does not rule out the possibility.
Singapore is re-entering phase 2 with tightening measures to be enforced from May 8 to May 30 in order to prevent a circuit breaker (CB), however the government has not ruled it out. Some of the reinstated rules include limiting social meetings to five per group (down from eight previously) and limited workplace capacity at 50%. (from 75 percent ). Inbound travelers from most countries will have their stay-at-home notice extended to 21 days (from 14 days). Other changes can be seen in Figure 11. At any one time, pre-event testing would be expected for groups of more than 100 people, with a maximum of 250 persons. Travelers from Bangladesh, Nepal, Pakistan, and Sri Lanka have been unable to cross the border since May 1.

Today, there are more variant instances, better testing, and contact tracking.
In recent weeks, the number of locally transmitted Covid-19 cases and unrelated community cases has increased, with 60 new cases and more variants discovered in South Africa, the United Kingdom, India, and Brazil. With the South African variety, there were also occurrences of re-infection. Singapore currently has significantly stronger testing and contact tracing capabilities than it did when Covid-19 first appeared in February/March 20. As of April 18, 2.2 million people had received the first dose of the vaccine, with 849k having received the entire vaccine.

Plays will not be reopened for the time being.
Given their YTD outperformance, we see some profit taking in banks and travel-related equities (SIA and SATS). Reduced activity would have an effect on transportation equities (CD, SBS Transit), retail REITs (FCT, MCT, SPH REIT, SG REIT, LREIT, and SUN), as well as other re-opening beneficiaries (GENS and Jumbo). The present hybrid work-from-home/office structure has a lesser impact on office REITS. If transaction volumes take a break from more virtual vs. physical viewings, sentiment among developers and realtors may be marginally affected. On peak ADV, SGX might be neutral.

SEA Limited, supermarkets, and a few REITs may be able to withstand the storm.
Because of the uncertainties surrounding a possible lockdown, pandemic beneficiaries such as SEA Limited supermarkets (Sheng Siong and Dairy Farm) and the glove industry may find renewed interest (UG Healthcare, Riverstone). Healthcare proxies are likely to benefit from a faster pace of testing (Q&M and Raffles Medical). MLT, KDC REIT, AREIT, MINT, and other industrial REITS (MLT, KDC REIT, AREIT, MINT) may provide some relief. During the period of March to May 20, these REITS outperformed the FSSTI.
For the time being, we’re keeping our end-of-FY21 FSSTI objective at 3,140 points, based on 14.2x 12M forward P/E.

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