If you are thinking of investing in 2018, then heads up. According to DBS, Singapore is one of its most recommended market to invest in 2018. DBS believes that the Singapore market has a strong mix of earnings growth, low valuation and good dividend yield among the ASEAN markets. Moreover, based on the MSCI Singapore Index valuation of 14 times price-to-earnings (PE), Singapore is one of the most attractive markets in the world, not just in ASEAN.
To guide investors in pursuing the right investments, DBS has three recommended investment themes that investors should pursue in 2018.
Investors Takeaway: 3 Investment Themes DBS Would Pursue In 2018
1. Recovering Oil & Gas Sector
If you have been shunning the oil and gas (O&G) sector in 2017 because of the low oil prices, DBS thinks you should rethink your investment position in 2018. This is because DBS is forecasting another bout of recovery in oil prices following some positive developments.
DBS notes that there could be healthy growth in oil consumption of around 1.4-1.5 million barrels per day in 2018. Furthermore, there are signs of increasing consumption in the US and Europe owing to the prolonged period of low oil prices. Demand from oil-hungry emerging nations like China and India continues to grow as well.
An O&G play that DBS recommends is Sembcorp Marine. As a pure oil play, Sembcorp Marine has much to gain in share price if oil price recovers. In addition, Sembcorp Marine has sizeable new orders for non-drilling solutions worth about $3 billion in its order pipeline to add visibility to its recovery. Lastly, DBS is optimistic that a potential merger and acquisition (M&A) play from consolidating other shipyard players could catalyse Sembcorp Marine’s share price.
BUY, TP $2.30 (current share price: $1.94)
PACC Offshore Services Holdings
According to DBS’ analysis, offshore supply vessel (OSV)-to-rig ratios have peaked in 2017. As such, the market is close to bottoming. Due to an easing supply-side glut, as well as signs of a pickup in the working offshore rig count, DBS foresees 2018 to be the start of a long and gradual recovery in the OSV space. PACC Offshore Services Holdings is DBS’ top OSV pick to ride the gradual offshore service sector upturn given its minimal debt, positive operational cashflow and strong backing by Kuok Group.
BUY, TP $0.41 (current share price: $0.34)
2. Beneficiaries Of Fed’s Interest Rate Hikes
One thing that is clear to the market is that the Fed will continue on its interest rate hike cycle, regardless of rhetoric from President Trump. With a rate hike cycle, SIBOR is expected to pick up at a much faster pace in 2018. DBS’ economist expects 3-month Singapore Interbank Offering Rate (SIBOR) to rise from 1.4 percent to 2.15 percent in 2018 and 2.65 percent in 2019. This should help to lift net interest margin (NIM) for banks.
Big 3 SG Banks
All three local banks are the main beneficiaries of Fed’s rate hike cycle. For every 25 basis points rise in interest rates, it will lift the average NIM by three basis points and bring about a two percent increase in sector earnings.
3. The Tech Bull Is Still Running
The tech sector has been bullish for quite some time now, but DBS is confident that the bull run will continue further. DBS believes that a synchronised global recovery and the proliferation of disruptive technologies will continue to boost demand for the technology sector. Artificial Intelligence, Virtual Reality, Big Data, Internet-of-Things (IoT), and Robotics are secular themes that will continue to drive the sector.
Venture Corporation (Venture) stands out among the tech stocks for its unique positioning at the forefront of innovation and a proven track record. In recent times, Venture has been on a tactical switch to a high mix low volume strategy. Venture has seen significant margin improvements, which has also been buoyed by its diversification into new segments. Right now, consensus expects double-digit growth in Venture’s key industry clusters, which translates to strong visibility for Venture’s revenue growth prospects.
BUY, TP $26.00 (current share price: $20.16)
Driven by new products in the Wireless and IoT segments, Hi-P International (Hi-P) is set to continue driving its strong earnings momentum. With more than half of its earnings derived from the Wireless (smartphone) and Computer Peripherals (IoT segment, e.g. smart home) segments, DBS expects Hi-P to grow at 34 percent CAGR for FY16-19.
BUY, TP $2.30 (current share price: $1.84)