Despite Singapore’s healthy economic fundamentals and strong corporate earnings performance in 2Q18, analysts are striking a more cautious tone. Analysts are touting that earnings momentum is expected to decelerate, bringing an end to 18 months of earnings upgrades.

For 2018, consensus has slashed earnings per share (EPS) forecasts for the MSCI Singapore by 0.7 percentage point during August. The telecommunication sector, in particular, saw the greatest earnings downgrade.

Management commentary during the 2Q18 earnings season also turned less positive as compared to three months ago. Corporations cited the growing trade tensions and recent property cooling measures as the reasons behind their gloomy outlook. Only a few companies experienced a material impact from trade war but the situation remains fluid and unpredictable.

Nonetheless, consensus is still projecting that EPS will grow 14.7% in 2018, which compares favourably to 7.2% in 2017. MSCI Singapore index is trading at forward 12-months P/E ratio of 11.9 times, which is a discounted price as compared to its historical average of 13.2 times.

Here are four stocks that UBS expects to outperform the benchmark in the coming 12 months.

United Overseas Bank

Asset quality downcycle is bottoming for Singapore banks. Banks finally shook off the oil and gas loan burdens for the past two years and look set to rebound. With the continued momentum in the domestic economy as well as global trade and a rising rates outlook, growth prospects for net interest margins and credit expansion are set to improve. United Overseas Bank (UOB) is beneficiary of these macro trends and its growing return on equity (ROE) should support a structural re-rating of valuation multiples. Meanwhile, UBS anticipates an adjustment in dividend payout owing to its excess capital buffers.

UOB shares closed at a price of $27.27 each, which translates to a forward-FY18 price-to-book (P/B) ratio of 1.2 times and a forward-FY18 dividend yield of 4.3 percent.

DBS Group Holdings

Like UOB, DBS Group Holdings (DBS) is also beneficiary of rising interest rates. The declining cost-to-income ratio from digitalisation and lower credit costs will further drive earnings growth higher.

According to UBS, the current valuation of DBS is attractive relative to its long-term average. At the current price of $26.05, DBS is trading at forward-FY18 price-to-earnings (P/E) of 11.6 times and forward-FY18 P/B of 1.4 times. Also, DBS is offering a forward-FY18 dividend yield of 4.6 percent.

Singapore Technologies Engineering

UBS opined that Singapore Technologies Engineering (ST Engineering) is leveraged to cyclical recovery, given its earnings resilience even during negative macroeconomic environment. ST Engineering is expected to deliver earnings growth with its strong order book, including recognition of armored combat vehicle sales, record electronics order wins, the scale up of new aerospace businesses and acceleration in US business activities. On top of that, ST Engineering has a good track record of paying stable dividends which are sustainable given its strong balance sheet.

At the current share price of $3.55, ST Engineering is trading at forward-FY18 P/E of 20.4 times, forward-FY18 P/B of five times and a forward dividend yield of 4.3 percent.

Singapore Telecommunications

In view of rising competition in Singapore’s mobile industry, Singapore Telecommunications (Singtel) provides a defensive shelter due to its geographical and product diversification. Further underpinned by its strong free cash flow and dividend stability, Singtel is also an attractive play on data growth in emerging Asia.

At the current price of $3.22, Singtel is trading at a forward-FY18 P/E of 15.4 times, forward-FY18 P/B of 1.7 times and offers a forward-FY18 dividend yield of 5.5 percent.