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With $20.4b AUM, Deutsche Adds GLP To Top Picks
Aspire, Hot Picks | 11 March 2015
By: Lim Si Jie
Articles (169) Profile

Aside from ComfortDelGro and City Development, Duestche Bank (DB) set its sights on three other stocks that it feels will outperform its benchmark, the MSCI Singapore Index. As mentioned in the previous article, the prospect of rising interest rates will boost the value of investing in banks. In addition, stocks of properties are reaching all-time lows.

Here’s the remaining three stock picks that DB made as well as a surprising substitution!

DBS Group Holdings: Interest Rate Key To Performance

(Buy, TP of $23.20)

DB believes that DBS should continue to “re-rate and has the ability to outshine its peers” due to its lower exposure to the ASEAN markets (excluding Singapore) and higher exposure to Greater China. DBS’s NIM (net interest margins), non-interest income (propelled by capital, trading and WM fees), solid asset quality and deposit franchise will likely “exceed those of its peers,” according to DB.

DBS also has a cheaper valuation than its peers, at 1.2x 2015E P/B and 11 percent 2015E RoE (Return on Equity). Compared to the rest of the Singapore banks, DBS’s fundamental metrics still stand out with the best deposit franchise, best overall CASA (Current Accounts and Savings Accounts) franchise (57 percent of the deposit base) and an Singapore dollar CASA of 89 percent.

DB expect margins to see “further upward momentum” if interest rates maintain at elevated levels. DBS’s Singapore dollar LDR (Loss Disallowance Rule) of 79 percent is still the best among its peers, which would be critical when interest rates start to pick up.

Key Downside Risks

A few key downside risks remain for DBS:

(i) Asian exposure in India and Indonesia – potential growth and asset quality concerns

(ii) Severe property price correction

Global Logistic Properties: Dominance In Core Complemented By Expansion Plans

(Buy, TP of $3.10)

Global Logistics Properties (GLP’s) dominant network across the market – one of its key competitive edges – allows the group to attract demand on a national and a global level. The strong development pipeline, particularly in China will help secure GLP’s leading position in the country. Furthermore, it should provide the group with strong earnings growth over the next few years through development gains and recurring earnings.

The recent expansion into the US through its fund management platform and the potential establishment of CLF2 should help ensure strong growth momentum for GLP’s fee income. Most importantly, GLP should finally turn from a negative earnings cycle to a positive earnings cycle from March 2015 (FY16) onwards, as a result of the China stake sale and various capital recycling measures. DB also expects GLP’s ROE to improve to double digits by March 2017 (FY18).

YZJ v.s. GLP

Interestingly, DB replaced Yangzijiang Shipbuilding with Global Logistics Properties in its top five picks. DB cited the outlook for shipbuilding to be “increasingly uncertain, with low dry bulk shipping rates (BDI) and lower oil prices affecting orders in the oil & gas sector”. On the other hand, DB foresees “positive earnings cycle for GLP being a key driver of stock price performance over the next 12 months”.

Key Downside Risks

A few key downside risks remain for GLP:

(i) Operating earnings matrix does not stand out – revaluation and development gains contribute more than 50 percent of PATMI

(ii) GLP’s under-appreciated NAV valuation will take time to return to fair value and longer to see profits

Singapore Telecom: Benefitting From Value-Adding Associates

(Buy, TP of $4.60)

Singtel only always performs as well as Optus and it’s associates. DB believes that the group is “hitting another such growth stage” as structural improvements at Optus should start delivering results starting from next year.

Moreover, the associates are well positioned with positive pricing trends in place in India and Indonesia, with room for growth potential. Singtel’s associates are generally seeing improving positioning due to market consolidation in India, Indonesia and the Philippines. On top of that, Singtel’s dividend yield of 4.3-4.7 percent in FY15-16E looks relatively attractive compared to most of the Singapore market.

Singtel’s recent 4Q results indicate that Optus is performing well, driven by significant ARPU (average revenue per user) expansion, as new price plans drove data usage and monetisation. Meanwhile, Bharti, Telkomsel and Globe led the 29 percent improvement in the associates’ contribution.

Key Downside Risks

However, Singtel faces a few risks that might result in negative effects.

(i) Adverse FX movements (especially SGD appreciation versus the AUD, IDR, INR)

(ii) Significant emerging market sell-off

(iii) A deteriorating macro-economic outlook in markets to which SingTel has exposure

(iv) Political and regulatory risks across all markets

(v) Increasing competition in Australia and Singapore

(vi) The potential impact of the Singapore and Australia NBNs

(vii) The potential for SingTel to undertake M&A with the risk of overpaying for assets

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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