The impact of the ongoing trade war between China and the US can be seen in 2Q19 results of which 16 out of 61 stocks that were under RHB Invest’s active coverage reported earnings that were below estimates. Meanwhile, earnings revisions for the Straits Times Index (STI) have turned negative again. On top of that, there exist risks of further downgrades to consensus estimates if China-US trade tensions escalate.
Despite a 7.4 percent decline from its 2019 peak, the STI is trading at a very reasonable valuation – 12.6 times one-year forward price-to-earnings (P/E), which is at its minus one standard deviation band. Meanwhile, the 4.4 percent forward yield remains attractive and is the highest amongst Asian markets.
In the face of slower economic growth in Singapore and an uncertain global economic environment created by the trade war, analysts believe that it would be tough for the STI to generate strong positive returns in 2H19. Thus, analysts have lowered the STI’s year-end target to 3,250, which is based on 13 times target P/E.
Despite volatility continuing to unsettle markets, analysts believe the market volatility has created opportunities for long-term investors to buy stocks on the dip. Here are the two stocks that the RHB Invest has recently upgraded to Buy.
Amid the expectations of further cuts in interest rates, real estate investment trusts (Reits) should continue to perform well. Within the Reits sector, Suntec REIT is the top pick.
The analyst sees better earnings clarity from the flow through of positive rental reversions, completion of three development assets (9 Penang Road, Olderfleet and 21HS) by 1H20 as well as higher income contribution from two Australian asset acquisitions. Meanwhile, the recent placement that raised gross proceeds of $158.9 million (of which 79.5 percent of the gross proceeds are used to finance the Australian acquisitions) also removed an overhang of any imminent fund raising.
At the current share price of $1.94, Suntec REIT is trading at a price-to-book (P/B) value of 0.91 and a forward-FY19 distribution yield of 5.2 percent. RHB Invest upgraded Suntec REIT to BUY with a new target price of $2.80 amidst attractive below book valuations and higher-than-sector yields.
Despite the volatile economic environment, Venture Corporation (Venture) still delivered a flat year-to-year (yoy) earnings in 1H19, in spite of its weaker 2Q19 figures.
Management expects the volatile economic environment to persist, but will focus on its long-term strategy and build its ecosystem to chart future growth. On top of these, with a few new product introduction (NPI) scheduled in between 3Q19 to 4Q19 and a ramp-up in production likely to happen in 4Q19, the analyst sees better profit margins in 2H19.
Coupled with the recent sizeable share price correction to its current level of $15.89, analyst upgraded Venture to BUY with an unchanged target price of $16.30. At its current trading price, Venture is trading at a forward-FY19 recurring P/E of 12.8 times and a forward-FY19 dividend yield of 5.1 percent.