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Which Government-Linked Defensive Stock Have You Voted For?
In the Spotlight | 15 June 2010
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By: Louis Kent Lee
Articles (199) Profile

In issue 381 of Shares Investment, we featured 5 Government-linked defensive stocks. Apart from that, we also did a poll on which of those defensive stocks would people pick on our website. In case you forgot the results for the poll of which consists counters like Keppel Corp, SMRT, SingTel, SPH and ST Engineering, the results of the poll indicated favoritism towards Keppel Corp, as majority voted for this particular counter.

In simple definition terms, defensive stocks are stocks that are able to remain ductile and stable during difficult economic conditions. These stocks are mainly able to remain stable under such circumstance because its demand will not decrease as much as it might have in other sectors. Having said that, these stocks might also be the ones that are left behind during economic expansions as demand does not soar as drastically in an up market.

Keppel Corp has traded from lows of $3.75 since Oct 08 to $8.40, the price its trading at currently where it witnessed a high of $10.44 in late Apr 10 before dropping to $8.43 in late May (-20%).

SMRT has traded from lows of $1.47 since Oct 08 to $2.17, the price its trading at currently where it witnessed its drop from a high of $2.28 to the low of $2.06 in the month of May (-9%).

SingTel has traded from lows of $2.06 since late Oct 08 to $2.91, the price its trading at currently. It has gone into a downward fall since late Marc 10 from $3.27 to $2.76 in late May (-15%).

SPH has traded from lows of $2.32 since mid Mar 09 to $3.71, the price its trading at currently. Before reaching $3.71, SPH reached an all time high of $4.15 before starting its fall to $3.68 since May (-11%).

ST Engineering has traded from lows of $1.99 since late Oct 08 to $3.12, the price its trading at currently. Before reaching $3.12, ST Engineering reached an all time high of $3.34 before going downwards and hitting lows of $3.05 in early May 10 (-8%).

The Epiphany Of “May”

The keyword that resonates deeply from the above would be the word “May”. If you have no idea what took over the market like a plague in May, it would be the Eurozone crisis. The repercussions of the crisis have clearly spread to the markets in Asia including Singapore. The prices of the counters listed above all dropped in May when the uncertainties of Eurozone and the world markets dampened investor’s goodwill. Let’s take a look at the brief run through of the companies listed above.

Keppel Corp, voted as the stock majority picked, witnessed its price drop of almost 20 percent in May. This is of course taking into consideration of the Eurozone punch that everyone took to their chin plus the oil spill effect aftermath which caused its price to plunge. On the lighter note, Keppel Corp’s recent acquisition and capacity expansion in Brazil has been seen as a competitive edge boost where it has now been upgraded to a “Buy” status and raised to a target price of $11.50 buy DBS Group.

Tracking back from issue 381, Deutsche Bank picked SMRT as its top pick in the land and transport space and have substantiated its stand of a “Buy” call on the stock itself, with a target price of $2.34. In addition to that, UBS investment’s valuation for SMRT was also a “Buy” call, but with a target price of $2.50. With the upcoming circle line running on full capacity, it is expected that increased revenues from advertising, retail space leasing to grow at least 10% in FY2011 and 11% in FY 2012.

SingTel’s operational turnaround remains in the “Hold” status in Deutsche Bank’s view as the high operational outlays of SingTel’s Bangladesh operational arm, Pacific Bangladesh Telecom, is looking discouraging judging from the performance of its pre tax profits. However, SingTel’s strong performances in Singapore and Optus should not be neglected as well. Nomura maintains its “Buy” status for SingTel as it believes the solid footings SingTel and its associates have judging from its balance sheet and earnings outlook despite rising competition in the regional markets.

According to Daiwa Research, SPH is now “Fully Valued”. Daiwa Research believes that SPH property development’s land bank is facing exhaustion and feels that more upside movements can be seen if SPH were to grow to become more aggressive in its property development sector. However, it seems difficult to achieve this as SPH’s management seemed more focused on preserving cash to fund their debt commitments instead.

ST Aerospace, aerospace arm of ST Engineering has been awarded a Maintenance-By-The-Hour contract by Jet Airways. Worth $1b, the contract is spanned across the time frame of 10 years. Its massive orderbook has led the company to raise its earnings forecast for the next 3 years. Deutsche Bank has also raised its target price from $3.55 to $3.65, with a “Buy” call.

It is a blatantly known fact that market conditions change price expectations. With the Eurozone crisis slapping across everyone’s cheek, the defensive stocks are still living up to their titles pretty well as not one of the above stocks have dropped more than 20 percent. No one knows how far this bandwagon of solidity can be sustained, until then, opinions shall always change. This also prompted me to inevitably question, do you want to change your vote?

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

Keppel Corp  5.980 +0.04 +0.67%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Singtel  3.170 -- --   
Business: Asia's leading communications group. [FY19 Turnover] Mobile Comm (31.1%), Data & Internet (19.2%), Infocomm Technology (17.5%), Sale of Eqmt (16.5%), Digital Biz (7.2%), Fixed Voice (5.2%), Pay-TV (2.1%), Leasing (0.8%), others (0.4%).

Insight: May-19, FY19 operating revenue remained flat at $1... Read More
Singapore Press Hldgs  2.160 +0.01 +0.47%   
Business: Co is S'pore's main newspaper & magazines publisher that also has investment in properties. [FY18 Turnover] Media (66.7%), property (24.7%), others (8.6%).

Insight: Apr-19, 1H19 operating revenue fell 3% to $477.6m ... Read More
Singapore Technologies Engineering  4.010 +0.02 +0.50%   
Business: An integrated engineering group providing solutions & services across many sectors. [FY18 Turnover] Aerospace (39.5%), electronics (32%), land systems (19.1%), marine (8.6%), others (0.8%).

Insight: May-19, 1Q19 revenue rose 5.1% to $1.7b attributed... Read More


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