For the past seven quarters, STI failed to beat earnings expectations as there were more misses than beats. However, in 4Q18, STI finished the quarter where the beats exceeded misses.
That being said, the quality was less than ideal with most of the beats coming from one-off gains. Besides that, conservative estimates also helped some STI stocks to emerge as beats. Moving forward, CIMB recommends investors to invest in quality stocks that have the potential to become solid earnings beater.
Investors Takeaway: 4 Large Caps To Invest In If You Are Looking For Quality
CapitaLand finished FY18 with a strong finish, locking in ROE of 9.3 percent for the full year. With strong capital deployment from $4.1 billion worth of divestments and $6.1 billion of new investments in 2018, CIMB foresees CapitaLand’s ROE expansion to drive forward. China’s residential contribution and pick-up in Singapore’s residential segment will bring steady revenue growth for CapitaLand in FY19.
CIMB likes CapitaLand for its new phase of growth following the acquisition of Ascendas-Singbridge from Temsaek. Following the acquisition, CapitaLand’s asset under management will expand to $116.5 billion with fee income contributing to about 40 percent. CIMB is confident that the transaction will be earnings and ROE accretive for CapitaLand. Investors can also expect further upside from RNAV.
BUY, TP $3.56; Current share price $3.52
- CDL Hospitality Trust
With lower supply of hotels in 2019, CDL Hospitality Trust will be riding on the overall improvement in RevPAR. Besides that, CIMB highlights a few earnings growth driver for CDL Hospitality Trust in FY19 including the completion of refurbishment of Orchard Hotel, opening of the rebranded Maldives Resort and a full year’s contribution from the acquisition of Hotel Cerretani Florence in Italy in end-Nov 2018.
Overall, CIMB likes CDL Hospitality Trust as a proxy to the recovering hospitality sector in Singapore. CDL Hospitality Trust currently trades at a higher distribution per unit compared to other bellwether stocks in the retail and office REIT sub-sectors.
BUY, TP $1.80; Current share price $1.67
- City Developments
With $2.2 billion of pre-sales already locked in from FY18, City Developments will be recognising the sales over the next 2-3 years. This will create a healthy revenue base for City Developments. Furthermore, City Developments plans to roll out 2,434 new units in 2019, which will further supplement its revenue.
City Developments has also been executing strategic plans to grow, enhance and transform its asset portfolio and business operations. This is part of its goal to achieve a recurrent income target of $900 million by 2028.
As part of its plan, City Developments secured a mandate to jointly manage a A$300 million office asset in Sydney. City Developments also acquired the remaining 60 percent stake in Central Mall office tower with plans to explore its redevelopment potential. With a healthy net debt to equity ratio of 31 percent, CIMB notes that City Developments has deep pockets for new investments to achieve its goal.
BUY, TP $10.66; Current share price $8.93
ComfortDelgro has been at the mercy of disruptors in the last few years. However, it has since been clearing its business deadweight and revamping its business. With an affirmed expansion of its taxi fleet in the coming months, CIMB expects the share price of ComfortDelgro to be re-catalysed.
Right now, ComfortDelgro is trading at 16 times 12-months forward PE. This is below its 7-year historical average of 16.7 times. Besides the discount, ComfortDelgro also offers a 4.5 percent dividend yield for investors. Its robust net cash position also means that ComfortDelgro is able to gear up to pursue earnings-accretive acquisitions in developed cities.
BUY, TP $2.74; Current share price $2.56