In the previous article, we highlighted three stocks that DBS is optimistic about for the month of May. In this article, we will be highlighting five stocks that DBS Research suggests investors should avoid holding in May as they have either been fairly priced or are exposed to potential headwinds in their respective sectors.
1. City Developments Limited
According to DBS, City Developments Limited (SGX: C09) has been outperforming the STI on a one-month, three-month and six-month basis. Its current share price has also closed above DBS’s fundamental target price of $10.52. As such, DBS believes that City Developments could be in for an underperforming month as investors take profit from City Developments’ outperformance over the past few months.
2. United Overseas Bank Limited (UOB)
Another stock that might face worries is UOB (SGX: U11). Similar to City Developments, UOB has also been outperforming the STI. DBS also notes that UOB has already closed above its current target price of $22.70. DBS suggests that investors avoid UOB for now as it is fairly priced without much room to run.
3. SPH REIT
Headwind in retail sub-sector
The Monetary Authority of Singapore (MAS) foresees anaemic growth in the local sectors. In particular, the retail and food serving sub-sectors face both “cyclical and structural challenges” as we face softness in the labour market.
The weak consumer confidence and tight competition among the above-mentioned sub-sectors are not helping the situation either. Thus, DBS recommends avoiding SPH REIT (SGX: SK6U), which is highly geared towards the domestic retail sub-sector.
4. CapitaLand Mall Trust
Challenging retail environment
Another retail stock to avoid is CapitaLand Mall Trust (SGX: C38U). The tough retail environment had a negative impact on CapitaLand Mall Trust’s quarterly result in 1Q17. Due to the challenging retail environment, CapitaLand Mall Trust’s mall portfolio saw a rent reversion of -2.3 percent during 1Q17. This is in contrast to the positive rent reversion of one percent in 1Q16.
Growth engines stalling; negative rent reversion expected
Key growth engines such as tenant sales and shopper traffic also continue to suffer from the challenging retail environment. With 14.5 percent of leases up for renewal this year, investors should be prepared for flat to negative rental reversion as analysts foresee the negative rent reversion to continue through 2017.
Moreover, CapitaLand Mall Trust is not making any yield-accretive acquisition to enhance its DPU. DBS expects CapitaLand Mall Trust manager to focus on maintaining stable DPU over the next couple of years.
5. Keppel Corporation Limited
Uncertainty about crude oil is back on investors’ minds
The stabilisation of crude oil prices might become a driving factor for development expenditures to be sanctioned by large oil players. However, with crude oil prices falling in recent weeks, fears of a return to the sluggish offshore and marine environment are now back on investors’ minds.
Long term focus on data centres doesn’t help its near-term worries
Keppel Data Centres and Hong Kong’s PCCW Global launched the PCCW Global-Keppel International Carrier and Exchange in Hong Kong in April 2017. Keppel T&T is capitalising on this collaboration to set its foot into the data centre space in Hong Kong with the help of PCCW Global’s “extensive global network connectivity”.
Keppel Corp’s (SGX: BN4) move is seen more of a long-term growth engine than a near-term one. Thus, term price support is unlikely to come from the data centre focus, according to DBS.