S'pore bourse seen as dividend play
The Business Times
A HIGH dividend yield, coupled with an appreciating Singapore dollar, will probably be one of the main attractions of the Singapore stock market next year, HSBC said in its latest report.
In Asian Equities in 2014, Mr Neel Sinha, head of research of South-east Asia at HSBC, said Singapore's estimated dividend yield of about 3.7 per cent for fiscal year 2014 is among the highest in Asia-Pacific countries.
"It is also the only market in the region hedged against potential interest-rate increases as the regulator, MAS (Monetary Authority of Singapore), uses the currency band as its monetary tool for inflation targeting," he wrote.
"M&A activity, notably in the property sector, is likely as has been seen in prior low-growth cycles in the market."
At 13.5 times its estimated FY14 earnings, Singapore's market is trading at a small 4 per cent discount to the five-year average of 14 times.
"Hence, we think the current valuations are reasonable despite forecast average earnings growth of 8 per cent for the year", he said.
The report noted that Singapore is a stable market, with low earnings volatility and a high dividend yield. This is, in part, due to special dividends and capital reductions as the managements in a large number of firms are incentivised by capital efficiency and a large universe of listed property Reits and business trusts.
Inflation pressures should increase next year as growth improves and, as a result, HSBC expects MAS to maintain a tightening bias through appreciation of the Singapore dollar.
Among its stock picks, HSBC likes DBS because it is the cheapest Singapore bank stock and its earnings are most sensitive to a rising-rate environment.
"By our estimate, a 25-bp hike in the three-month SGD Sibor could enhance DBS's 2014e EPS by 6 per cent," HSBC said. Its target price for DBS is $19.80 a share. DBS ended at $16.99 yesterday.
Property group Keppel Land is also among the buys. HSBC noted that group sales for the first half of this year have exceeded those recorded for the entire FY2012 and sales momentum has spilled over to higher-priced projects.
It also noted the potential divestment of Marina Bay Financial Centre Tower 3.
"We believe part of the divestment proceeds could be returned back to the shareholders in the form of a special dividend (we estimate this could be in the range of SGD0.10-0.15 per share), which could act as a positive catalyst for the stock," HSBC said. Its target for KepLand is $4.90 a share. The stock ended at $3.70 yesterday.
KepLand's core earnings per share are expected to be driven by strong Singapore and China residential-sales momentum.
Elsewhere, Asia is expected to play catch up with global markets next year, having underperformed this year.
"However, we expect only single-digit gains from Asian markets, as ROE (return on equity) is under pressure," said Mr Herald van der Linde, HSBC head of equity strategy, Asia Pacific. He has an overweight call on South Korea, Taiwan and Indonesia, and an underweight call on India, Thailand and Hong Kong.
Four themes that will define Asian equities next year are: shifting leadership in various industries; operational leverage; structural trends and reform; and the coming election cycle.