The Straits Times Index (STI) was one of the best performers among ASEAN markets in 2017. Moving forward, Maybank Kim Eng (MBKE) expects STI to continue to rally into 2018 with an end-2018 index target of 3,670, which reflects an about an eight percent upside for the year. For investors who are seeking alpha above the STI returns, there are three investment themes that MBKE recommends.
Investors Takeaway: 3 Investment Themes To Beat STI In 2018
1. Disruption From Fast Growing New Economy
MBKE foresees e-commerce growth to be at its tipping point in ASEAN. Despite being a developed economy in ASEAN, Singapore still has ample room to grow further for online transactions. MBKE notes that bottlenecks in logistics and payment systems are fast evolving. The market should expect more efficient, cost-effective last mile access and smart warehousing that will become key drivers of industry growth.
Singapore Post: BUY, TP $1.50 (Current share price: $1.24)
MBKE also foresees the rapid growth of e-commerce that would urge companies to invest in or broaden their online marketing strategies. Retailers will need to re-evaluate and rationalize their brick-and-mortar network as online grow towards becoming a significant purchasing channel for consumers. Retail asset owners in Singapore (especially REITs) will need to stay nimble and retail REITs will need to ensure a good asset mix and focus on niche product and service strategies to mitigate the impact from e-commerce.
Mapletree Commercial Trust: SELL, TP $1.45 (Current share price: $1.67)
2. Finding The Break Out Stock
Jumbo Group: Getting The Stage Ready For 2018
The Jumbo Group saw its share price decline by six percent in 2017, resulting in an underperformance against STI by 22 percent. This was despite a reasonable revenue growth of six percent for three quarters in FY17. But MBKE believes that things are going to turn around in 2018.
MBKE expects Jumbo to register double digit growth in core profits in FY18-19. This is because Jumbo’s profit declined in FY17 due to higher expansion costs in the year. Jumbo opened more outlets than usual for its regional expansion. MBKE views the expansion as a positive for Jumbo in 2018 as it sets the stage for Jumbo to grow its revenue.
Jumbo: BUY, TP $0.70 (Current share price: $0.605)
3. Oligopoly Under Fire
The big three telcos in Singapore are going to have to deal with two unwanted newcomers in 2018 (TPG and MyRepublic). MBKE foresees an aggressive handset subsidies strategy from the two newcomers, which could draw customers away from the incumbents. Another worry is the risk of aggressive long-term pricing war of airtime and data pricing, which could drive down the industry’s average revenue per user (ARPU). As such, MBKE isn’t too optimistic on Singapore telco industry’s medium-term earnings prospects. MBKE believes that the oligopoly is ending soon.
Starhub: Under Fire From Few Business Fronts
MBKE highlights that Starhub’s fixed broadband pricing and growth are under stress. Starhub’s pay TV segment also continues to be pressured by unchecked online content piracy. The hook of bundled packages that have been key to Starhub’s household retention strategy and revenue growth in the past will likely dampen.
Starhub: SELL, TP $2.17 (Current share price: $2.92)