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Tuesday, June 18, 2013

DBS Vickers says small mid-caps can continue to outperform


As DBS Economics Research’s view is that the FED will sit tight on QE, we take the view that the outcome of Wednesday’s press conference will please markets and STI’s correction ended last Thursday in the short-term at c c.3100.
At that level, valuation had fallen to 13.1x (-0.5 SD) 12-mth forward PE. The immediate support is 3120-3130. STI should rebound to 3235 (38.2% upward retracement) or even 3280 (50% upward retracement). 

Compared to the dangers of another GFC (global financial crisis), the roots behind the recent correction are much less menacing.
Between earlier stimulus cut-back, a rise in interest rates rise from record low levels down the road as the economy improves in a sustainable manner versus another GFC, no prize for guessing which situation investors would rather be in.
Small mid Caps (SMCs) can continue to outperform supported by stronger growth and lower valuations. 

midas_factoryMidas' factory produces aluminium alloy extruded products which are primarily used in the body frames of high-speed passenger trains and metro trains. Photo: CompanyWe believe the selloff in SREITs is overdone. 

As values emerge, we pick SREITs with identifiable and achievable growth like Mapletree Greater China Commercial Trust (TP: S$1.22), Mapletree Commercial Trust (TP: S$1.53), Cache (TP: S$1.47) and Mapletree Industrial Trust (TP S$1.63). 

Besides the S-REITs, we see bargain hunting opportunity for Religare(TP: S$1.05) as yield improves to 9.7%. 
As macro recovery remains modest, we pick stocks where earnings growth is highly visible and sustainable: Ezion(TP S$3.00) will continue to outperform on secured contracts and its unique market positioning;Tat Hong (TP: S$1.80) is positioned to benefit from the regional infrastructure boom; Del Monte(TP: S$0.97) is a proxy to Philippines, SEA’s 2nd largest consumer market. 

Kreuz (TP: S$0.78) is our top pick in the O&G services sector for its proven execution track record while Midas (TP: S$0.60) is poised for earnings recovery backed by its growing order book.
For value, Vard (TP: S$1.46) is a bargain at 6.3x FY14PE vs normalized 10x PE. 

We believe the Myanmar theme will continue as reforms continue to attract FDIs. Results of telecom license and Yangon Airport development contracts are imminent events. 

Picks are Yoma (TP: S$1.05) and Yongnam (TP: S$0.41).

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