KGI recently released its investment strategy for the Singapore market in the next one year. Over the next 12 months, KGI recommends investors to sell into strength and start rebuilding into a defensive portfolio.
Investors Takeaway: 3 Blue Chips To Make Your Portfolio Go On The Defensive
- Singapore Telecommunications
Singtel has a well-diversified portfolio with 50 percent of pre-tax profits coming from regional associates. Its indicative dividend yield also looks attractive at 5.5 percent. Furthermore, consensus expects earnings to rebound by FY20 driven by potential earnings recovery of its Indian associate Bharti Airtel. Singtel has been showing significant recovery since hitting its low of $3.02. As such, KGI continues to recommend Singtel to be a part of the defensive portfolio.
- ST Engineering
Following the recent pullback in ST Engineering’s share price, KGI thinks that an opportunity to buy has emerged for investors. ST Engineering has a forecasted dividend yield of 4-5 percent, which is attractive for a blue chip. Fundamentally, ST Engineering’s near-record high order book of $13.4 billion provides visibility and stability to revenues.
One thing that KGI likes about ST Engineering is its diversified businesses across different segments, i.e. in aerospace (50 percent of profit before tax), electronics (34 percent), land systems (12 percent) and marine (six percent). Moreover, ST Engineering remains the world’s largest commercial airline Maintenance, Repair, and Overhaul (MRO) provider. As such, ST Engineering has a strong economic moat in its core business with high barriers to entry. Going forward, KGI expects earnings growth to be driven by smart city initiatives, cybersecurity and the Internet of Things (IoT).
- Sembcorp Industries
Due to the challenging Offshore & Marine industry and lack of clarity from its Indian operations, Sembcorp Industries’ share price has fallen 50 percent from its 5-year peak of $5.59. However, the latest earnings results showed more clarity and increased traction with its India operations and a possible bottom of its marine business.
On that note, valuations on a price-to-book basis is at a historic low of 0.8 times compared to its 15-year average of 1.8 times Thus, at the current price level, Sembcorp Industries is a good defensive addition to the portfolio as its defensive businesses (utilities and industrial parks) now contribute close to all its net profits. Any upside from its marine business will be an additional bonus to its share price. Furthermore, the IPO of its India operations could unlock value and strengthen Sembcorp Industries’ balance sheet, potentially leading to positive re-rating for its share price.