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Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 75/10/2016 Ref. No.: SG2017_0226

Phillip Singapore Monthly

October 2017: Trump Trade Redux

6 October 2017

Market: STI weakened again in September, by 1.75%. We remain neutral on the market with

STI year-end target of 3270. Attention has swung to Trump tax cuts and their ramifications.

The odds of some tax cuts getting passed by the Republicans are fairly good, in our view,

given the mid-term elections in November 2018. Politicians would need to deliver on some

of their promises. There are various estimates on the effect of the Trump tax cuts and more

importantly, deductions for capital spending - on US growth. The most optimistic estimate

come from the US administration, namely a 1%-point uplift to US GDP. This sugar rush

should benefit global growth. That said, we think a more significant influence will be the

trajectory of interest rates. This fiscal impetus should provide cover for the Fed to raise rates

in December. Even prior to the tax plan, the Fed dot plots were bandied around three rate

hikes to 2.25% for 2018. The likelihood of this occurring has certainly crept up. Turning back

to macro data in Singapore, the external environment continues to be vibrant. PMIs are

close to 3-year high with electronics PMI at 7-year high and exports are on pace for the

fastest growth in 6-years. We believe this strength will eventually percolate down to better

domestic demand. This would position Singapore banks for the triple tailwinds of rising rates

(SIBOR now at 18-month high), strong loans growth (with an added boost from property

sales) and vibrant capital markets (for the wealth management business). The event to note

in October will be the MAS monetary policy statement. Despite the upside in economic

growth, muted core inflation and a still subdued labour market, MAS is expected to maintain

its neutral stance on SGD. Of less certainty is how much longer MAS will keep its neutral

stance on a so-called "extended period".

Global Market Watch

Asia-Pacific Level 1M (%) YTD (%)

Nikkei 225 20,356 3.6 6.5

KOSPI 2,394 1.3 18.2

CSI 300 3,837 0.4 15.9

HSCEI 10,910 (3.4) 16.1

Taiex 10,330 (2.4) 12.2

Hang Seng 27,554 (1.5) 25.2

Sensex 31,284 (1.4) 17.5

Nifty 9,789 (1.3) 19.6

SET 1,673 3.5 8.4

KLCI 1,772 (1.0) 6.9

STI 3,220 (1.7) 11.8

JCI 5,830 0.6 11.4

Phil Comp 8,171 2.7 19.5

S&P/ASX 200 5,682 (0.6) 0.3

US/Europe Level 1M (%) YTD (%)

DJIA 22,405 2.1 13.4

NASDAQ Comp 6,496 1.0 20.7

S&P 500 2,519 1.9 12.5

FTSE 100 7,373 (0.8) 3.2

DAX 12,829 6.4 11.7

CAC 40 5,330 4.8 9.6

Euro STOXX 50 3,595 5.1 9.2

VIX 10 (10.2) (32.3) *Prices as at 31 September 2017

Paul Chew (+65 6212 1851) Head of Research

[email protected]

Recommendation: In September, we initiated coverage on Micro-Mechanics. Its know-how

and precision manufacturing capabilities allow it to enjoy massive 60% gross margins and

30% ROE. It is our proxy for the present surge in semiconductor sales. Another company we

initiated was Dairy Farm. We believe its earnings are back to growth, supported by margin

expansion from more fresh products, private labels and a streamlined supply chain.

Sector: Echoing the recovery in Singapore exports, container throughput is similarly poised

for 6-year high growth rates. We saw a large spike in the value of construction contracts

awarded. This together with a reduced emphasis on pricing in awarding public projects

should help sector margins. Property maintained its momentum with sales up 62% YoY in

August. Sales volume is on track for its best performance in four years. Recovery in

hospitality industry fizzled out as tourist arrivals eased in July. Nevertheless, RevPAR

approached a 2-year high.

FSSTI Top Performers (1 Month)

FSSTI Top Gainers S$ 1M (D) 1M (%) YTD (%)

UOL 8.200 0.470 5.8 42.2

Keppel Corp 6.590 0.360 5.7 15.0

DBS 21.330 0.950 4.6 23.4

Genting (S) 1.205 0.050 4.3 32.6

OCBC 11.250 0.330 3.0 26.6

Jardine C&C 40.470 1.070 2.7 (1.4)

FSSTI Top Losers S$ 1M (D) 1M (%) YTD (%)

ComfortDelgro 1.985 (0.200) (9.1) (19.4)

SIA Engineering 3.220 (0.220) (6.5) (4.1)

ST Engineering 3.400 (0.210) (5.8) 4.6

CMT 2.030 (0.070) (3.3) 7.2

GoldenAgri 0.380 (0.010) (2.6) (11.6)

HPH Trust 0.435 (0.010) (2.2) 0.0

Singapore Indices Market Watch

Singapore Indices Level 1M (%) YTD (%)

FTSE ST Straits Time 3,220 (1.7) 11.8

FTSE ST Financial 928 (0.8) 18.9

FTSE ST Real Estate 829 (1.2) 18.7

FTSE ST Industrials 798 (2.0) 11.1

FTSE ST Consumer Service 728 (2.8) (0.9)

FTSE ST Telecommunicate 927 (0.5) 0.1

FTSE ST Oil & Gas 356 2.5 7.0

FTSE ST Consumer Good 502 (3.0) (3.3)

FTSE ST Utilities 370 (1.9) 2.8

FTSE ST Healthcare 1,225 0.4 (15.2)

FTSE ST Technology 242 (1.6) 11.8

FTSE ST Basic Material 95 (2.0) (2.4)

FTSE ST Mid-Cap 734 (0.7) 8.1

FTSE ST Catalist 457 0.9 3.5

http://www.stocksbnb.com

Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

Phillip Monthly Report October 2017

The Phillip 20 Portfolio - Our top technical picks Company Name Ticker L Entry Date Entry price Stop Loss Last price Current gain/loss (%)

BLACKGOLDNATURAL 41H Long 6-Jul-17 0.137 0.103 0.117 -14.60%

COGENT KJ9 Long 22-Mar-17 0.780 0.725 0.965 23.72%

ELLIPSIZ BIX Long 3-Aug-17 0.645 0.575 0.830 28.68%

FRENCKEN E28 Long 20-Jul-17 0.525 0.445 0.535 1.90%

F & N F99 Long 24-Mar-17 2.220 2.220 2.530 13.96%

GOLDEN ENERGY AUE Long 2-Aug-17 0.425 0.360 0.455 7.06%

HANWELL DM0 Long 13-Sep-17 0.345 0.295 0.340 -1.45%

HAW PAR H02 Long 18-Aug-17 10.930 10.500 12.140 11.07%

HI-P H17 Long 3-Oct-17 1.410 1.265 1.505 6.74%

JUMBO 42R Long 22-Sep-17 0.575 0.525 0.560 -2.61%

MIYOSHI M03 Long 23-Aug-17 0.074 0.062 0.078 5.41%

PANUNITED P52 Long 22-Aug-17 0.550 0.500 0.590 7.27%

RIVERSTONE AP4 Long 12-Jul-17 1.065 0.995 1.045 -1.88%

SPH T39 Long 25-Sep-17 2.750 2.530 2.690 -2.18%

SINGAPORE O&G 1D8 Long 14-Sep-17 0.490 0.420 0.470 -4.08%

THAIBEV Y92 Long 14-Mar-17 0.955 0.825 0.910 -4.71%

UMS 558 Long 29-Sep-17 0.985 0.885 1.020 3.55%

VALUETRONICS BN2 Long 14-Jul-17 0.825 0.740 0.970 17.58%

*Average gain is calculated based on equal weight of 5% placed on each trade from their respective entry dates Average Unrealised Gain/loss: 4.77%

Monthly Phillip 20 realised performance:

May 17 performance 3.37%

June 17 performance 0.33%

July 17 Performance 2.73%

August 17 Performance -1.26%

September 17 Performance 1.36%

Cumulative return since inception 11.30%

*Take profit will be updated accordingly in the future technical pulse report

Technical Analysis : Straits Times Index – stuck in a range between 3274 range high and 3195 range low STI Daily Chart Current Sentiment: Neutral

Source: Bloomberg, Phillip Securities Research Pte Ltd Red line = 20-period moving average, Blue line = 60-period moving average, Green line = 200 period moving average

September was another month bogged down with the Korea war scare as the US and North Korea exchanged heated words. North Korea stated that President Trump had declared war on North Korea and Pyongyang reserved the right to take countermeasures such as shooting down US bombers even if they are not in its airspace. The Straits Times Index (STI) remained depressed due to the escalating tensions between North Korea and the US. The STI was down -1.75% in September, and the price action suggests further downside if the 3189 critical support area gives way. On the daily timeframe, more signs of weakness appeared after the 20-day moving average crossed below the 60 day moving average on 7 September while the 3195 critical support area held up once again proving its significance. We might see a range bound action between the 3274 range high and 3195 range low moving forward. Watch the range extremes closely as the breakout will dictate the next course of action. Keep in mind the weekly RSI is still in the midst of mean reversion off a recent overbought peak of 72 in July. Moreover, the average correction that follows after the overbought RSI mean reversion tends to drag the STI down by -7.7% suggests a bearish bias here.

http://internetfileserver.phillip.com.sg/POEMS/Stocks/Research/EconomicPulse/SG/TA170706.pdf


















https://internetfileserver.phillip.com.sg/POEMS/Stocks/Research/EconomicPulse/SG/Portfolio20170602.pdf







PHILLIP SINGAPORE SECTOR UNIVERSE

Best performing sectors in Sep17 were: Shipping, REIT-Hospitality and REIT-Industrial. The gains in shipping were from both SembCorp Marine (+9.7%) and PACC Offshore (+13.3%). REIT-Hospitality modest gains was led by OUE Hospitality (+3.9%). REIT-Industrial managed to chalk up some gain, driven by Keppel DC REIT (+3.1%). The Top 3 gainers under our coverage were Cogent (+24.2%), Micro-Mechanics (+11.8%) and SembCorp Marine (+9.7%). Worst performing sectors in Sep17 were: Transportation, Commodities and Consumer. In Transportation, there were losses across, with biggest from ComfortDelgro (-9.2%) and SATs (-4.6%). Commodities fell due to plantation counters Golden Agri (-5.1%) and Wilmar (-4.2%). The decline from Consumer was due to Dairy Farm (-5.1%) and Thai Beverage (-3.2%). Major Top 3 decliners under our coverage include ComfortDelgro (-9.2%), CapitaLand Mall Trust (-7.8%) and CapitaLand (-5.3%).

SUMMARY OF SECTOR AND COMPANY VIEWS

1. Commodities Overweight with BUY calls on China Aviation Oil (aviation growth in China), Geo Energy (increased production volume) and Golden Energy (volume growth and improved balance sheet liquidity).

2. Conglomerate / Utilities

Neutral. We have an Accumulate on SembCorp Industries. The upcoming strategic review is an opportunity to re-rate the company and remove the inherent conglomerate discount. China Everbright is a BUY for their stable pipeline of projects.

3. Consumer Overweight. Our top picks are Sheng Siong, ThaiBev and Old Chang Kee. We are expecting a recovery in consumer spending from the improving macro environment. We initiated coverage on Dairy Farm.

4. Finance We upgraded to Neutral. We have an Accumulate on DBS and Neutral on OCBC. Our recommendation on UOB remains on Reduce.

5. Healthcare Overweight. Our BUY calls are HMI and Singapore O&G (upgraded due to more attractive valuation). Raffles Medical is a NEUTRAL. The slowdown in hospital traffic in Singapore is an increasing concern for all operators.

6. Industrial Overweight. We have BUY calls on 800 Super, Cogent and Nam Lee. We initiated coverage on Micro-Mechanics with a BUY.

7. Property Overweight. Our preference are Singapore centric developers such as CDL. Property sales momentum has been better than expected. We have a Trading BUY recommendation on Wheelock Properties. Other BUYs are Chip Eng Seng and Banyan Tree. For Banyan Tree, Vanke and Accor will open up a significant pipeline of management contracts.

8. REIT – Hosp. No coverage at present but outlook turning positive as hotel supply will tail off by 2018. 9. REIT – Ind. Overweight. We have Accumulate recommendation on Ascendas REIT and Mapletree Industrial. 10. REIT – Office Neutral. Only coverage is CapitaLand Commercial Trust with Accumulate on improving office sector. 11. REIT – Retail Neutral. Retail spending and rental reversions remain problematic for this sector. 12. REIT - Others Overweight. We have BUY call on Asian Pay TV with a BUY. We find the 11% dividend yield and

monopolistic conditions extremely attractive. 13. Shipping Neutral. We have a Reduce on SembCorp Marine. 14. Telecomm. No coverage at present. 15. Transport. Neutral. We have a BUY on ComfortDelGro. Whilst, taxi business is under pressure, the operating

environment for buses and rail is improving.

Phillip Singapore Sectors 1 Mth 3 Mth YTD PSR Target Mkt Cap PE P/BV Dividend ROE EPS Growth

(105 companies) Perf. Perf. Perf. Recomm % change (US$ m) FY16 FY17e FY18e FY16 Yield FY16 FY17e FY18e

Commodities - Plant./Others -3.5% -2.1% -7.9% Overweight 11.1% 25,960 13.8 13.3 11.7 1.8 2.0% 10.2% 4% 14%

Conglomerate/Utilities -2.0% -0.1% 18.2% Neutral 6.3% 119,221 26.7 23.9 21.7 1.1 2.2% 14.1% 12% 10%

Consumer - F&B/Gaming/Media -2.6% 0.3% 11.1% Overweight 15.4% 45,173 24.3 21.5 20.0 4.0 3.1% 24.3% 13% 8%

Finance -0.3% 1.7% 19.5% Neutral -3.4% 108,517 13.2 12.0 10.9 1.5 3.1% 11.4% 10% 10%

Healthcare -1.0% -3.2% -13.6% Overweight 9.5% 13,852 60.6 51.0 40.7 2.5 0.7% 6.2% 19% 25%

Industrial - Electronics/Others 0.3% 13.1% 42.4% Overweight 10.2% 14,214 22.4 19.1 17.3 4.3 3.4% 19.4% 17% 10%

Property -1.9% 5.3% 27.5% Overweight 11.8% 63,520 14.7 17.9 16.6 1.0 2.4% 10.2% -18% 8%

REIT - Hospitality 0.8% 2.4% 16.1% N/A 1.1% 6,958 27.0 19.6 18.3 1.0 6.5% 4.1% 38% 7%

REIT - Industrial 0.4% 1.2% 15.8% Neutral 4.5% 15,951 21.0 15.8 15.1 1.2 6.3% 7.0% 33% 5%

REIT - Office -0.9% 1.2% 13.3% Neutral 3.2% 11,928 18.0 20.9 20.7 0.9 5.6% 6.0% -13% 1%

REIT - Retail -2.1% 0.0% 9.7% Neutral 4.0% 16,425 13.6 17.9 17.1 1.0 5.8% 8.8% -24% 5%

REIT - Others/Foreign/Biz Trust -2.2% 1.1% 9.4% Overweight 0.5% 7,573 16.9 20.0 18.9 1.0 9.4% 5.1% -15% 6%

Shipping - Yards/Vessel owners 1.9% 14.8% 53.2% Neutral 2.7% 7,313 -148.1 19.9 20.2 3.8 8.4% 3.8% n.m. -1%

Telecommunications -0.5% -5.7% 0.0% N/A 13.4% 48,737 15.2 15.4 14.6 3.6 5.0% 23.3% -1% 5%

Transportation -3.9% -6.1% -1.3% Reduce 10.4% 18,718 20.1 21.0 21.0 1.7 3.1% 8.3% -5% 0%

-1.4% 0.7% 15.0% 6.6% 524,060 18.1 17.3 16.0 1.9 3.3% 13.4% 4% 8%



SECTOR COMMENTARY CONSUMER F&N's Times Publishing gets nod to buy Penguin units on anti-discrimination pledge F&N’s Times Publishing has been granted conditional approval from the Competition Commission of Singapore to acquire Penguin Random House Pte Ltd and Penguin Books Malaysia from Penguin Random House, after pledging no discrimination against book retailers. The acquisition consideration amounts to S$8 million. Comment: Successful acquisition of Penguin’s sales and distribution offices will immediately scale up FNN’s distribution channels. Printing & Publishing (P&P) segment contributed 15.5% of FY2016 Revenue and -2.9% of FY2016 EBIT. In view of a highly competitive market for book distribution, we do not expect a strong earnings turnaround for its P&P business in FY2017 should the deal went through. Vietnam moves one step closer to majority stake sale in brewer Sabeco Vietnam's prime minister has approved a plan to sell a majority stake in brewer Sabeco. The Vietnamese government also plans to sell a further sliver of Vinamilk, around 3%, at 154,000 dong each, higher than the previous estimate Comment: As mention in our report dated 10 Aug-17, we expect the second stake sale of Vinamilk to be completed in Oct-17, and are awaiting the State Capital Investment Company (SCIC) to release detailed information relating to the sale, such as initial price, trading mode and minimum volume, in Sep-17. We expect a more competitive stake sale this time as SCIC plans to remove all restrictions placed previously and push for a more transparent sale. This could lead to increased interest built up and thus a higher sale price. The price tag of VND154,000 per share is about 6% to 14% higher than its earlier estimated valuation of about US$285.9mn to US$307.9mn. We expect FNN to fund any acquisitions via borrowings and/or internally generated fund. Net gearing ratio is at 6.9% as at 30 Jun-17, i.e. over S$2,000mn further headroom before hitting its ceiling of 80%. Vinamilk commands about half of Vietnam’s domestic market share for dairy goods and has a steady earnings growth track record. FNN currently has 18.74% stake in Vinamilk with the representation of two directors on the Vinamilk Board. Successful acquisition of additional stakes in Vinamilk would provide a re-rating catalyst to the Group. Meanwhile, there has yet to be any detailed information related to the stake sale in Sabeco. ThaiBev has previously announced its intention to acquire Sabeco. The acquisition could be done (i) via ThaiBev itself, a strategic expansion of its Beer business; or (ii) via F&N, which act as ThaiBev’s acquisition vehicle for companies outside Thailand. New excise taxes in Thailand will cause "moderate" rises in the prices of alcoholic beverages, sugary drinks and cigarettes The new excise system is based on the retail price, while the previous system was based on ex-factory or CIF (cost, insurance and freight) prices. The new excise rate takes into account both value and quantity, as opposed to the previous legislation which targeted either value or quantity, depending on which one is higher. Comment: New excise tax effective 16 Sep-17: 1.Beer tax will be taxed THB0.50 higher per can and THB2.66 higher per bottle 2.White spirits will be taxed THB0.84-3.49 more per bottle 3.Brown spirits will be taxed THB8-30 more per bottle based on alcohol content 4.Sugary drinks also face higher taxes. Carbonated soft drinks will be THB0.13-0.50 per bottle, whilst green tea will be THB1.13-2.05 per bottle. In the future, the tax will increase based on alcohol content, with high levels of alcohol subject to higher taxes, and taxes on sugary drinks will rise to reflect the proportion of sugar they contain.

Soh Lin Sin Investment Analyst (Healthcare / Consumer) [email protected] DID: 6212 1847

mailto:[email protected]



The new tax system will be more transparent as it is based on the suggested retail price proposed by manufacturers. ThaiBev, alongside other players in the industry, has submitted respective retail prices for government’s approval. The exact price adjustments could only be finalized after approval, which could take up to two to three weeks. Nonetheless, the Group is expecting a 2-5% price increase for Beer and Spirits; and a c.10% price increase in Green Tea. The higher spirits tax costs could lead to consumers trading down to lower-priced items. We think that ThaiBev could still maintain its overall market share for spirits as consumers could switch from its Brown spirits to White spirits. Meanwhile, the additional costs on beer, carbonated soft drinks and green tea are relatively insignificant in value term (additional THB0.13-2.66, which is equivalent to S$0.01-0.10). We maintain our view that the Group could sustain, if not expand, its margin during the excise tax levy in Sep-17. In near term, we expect 4Q17 demand for alcoholic beverages to remain slow as we enter the dry season in the fourth quarter (Jul-Sep). However, we might see a volume spike in early-Sep as agents build up inventories two weeks prior to the tax hike. We believe alcoholic beverages sales volume to pick up in FY18 after the effect of a mourning period in Thailand subside in Oct-17 and a broader economic recovery takes effect in Thailand. COMMODITY Geo Energy Resources issued USD-denominated 300mn senior notes Geo Energy Resources issued USD-denominated 300mn fixed rate senior notes with a coupon rate of 8% due 2022. The net proceeds will be redeemed the outstanding S$100 million 7.0% medium-term notes, repaid in full the advances received from ECTP (between US$15mn and US$25mn), supported potential acquisitions of coal mines, and funded the operation. Comment: The share overhang whether Geo Energy is capable of repaying the MTN is cleared as of now. However, investors do bear in mind that Geo will be subject to US$24mn of interest burden each year in next five years time. Assuming Geo manages to maintain average US$20/tonne of cash profit, 1.2mn tonnes of coal sales are needed to cover the interest expenses. The group needs to ramp up production and sales next year to maintain or even enhance the current profitability. With approximate US$200mn of war chest after redeeming the MTN, Geo has stronger capital support to grapple expansion opportunities in the future. FINANCE SGX to 'invest strategically' to boost fixed income business SGX to identify fixed income and foreign exchange (FX) as key parts of a strategy to grow across asset classes. FX asset class will be marketed as a complementary risk hedging or margin offsetting instrument. SGX currently offers 21 currency futures contracts. Comment: FICC (Fixed Income, Currency and Commodities) are traded Over-The-Counter (OTC) as opposed to being traded on the exchange. The largest participants in these markets are universal and investment banks. However, as regulations continue to be stringent and as the recent low volatility has made trading condition tougher for the banks, we think that exchanges like SGX can seize the opportunity to play a more significant role in the FICC market. Unlike the banks who would trade FICC on their own books for profit, we see SGX more as a liquidity provider for market participants who trade in FICC. Presently, the 2 most active FX futures on SGX are Indian Rupee/USD futures and USD/CNH futures.

Chen Guangzhi Investment Analyst (Oil & Gas / Energy) [email protected] DID: 6212 1859 Jeremy Teong Investment Analyst (Banking / Finance) [email protected] DID: 62121863





MARINE Sembcorp Marine signs LOI for first pair of CGL vessels Sembcorp Marine has signed a letter of intent with Houston-based SeaOne Caribbean LLC that may mark the design and construction of the group's first pair of compressed gas liquid (CGL) carriers. Sembmarine's Brazilian subsidiary wins US$145m contract The contract given to Estaleiro Jurong Aracruz Ltda (EJA) for hull carry-over works from Tupi BV - a consortium controlled by Petrobras Netherland BV - is for the FPSO P-68 Tupi Project Comment: By the end of Sep-17, crude oil (Brent) climbed to the 2-year high of close to US$60/bbl from the recent dip of US$44/bbl in Jun-17. However, the price recovery did not eminently revive the upstream oil and gas sector. The two contracts that SMM secured were not from drilling solutions segment which used to have higher margins. Though the contracts can replenish the order book thereby, the sizes are insufficient to turn the weakening profitability around. However, it is a good start for the group to shift businesses to non-drilling solutions. We believe there will be more orders of vessels in the near term. TRANSPORT SMRT Trains beat SBS Transit to win the tender to operate the Thomson-East Coast Line (TEL), which opens in stages from 2019 The Land Transport Authority (LTA) on Friday awarded SMRT Trains the contract to run TEL for an initial nine-year period. Comment: This comes as a disappointment for SBS Transit, in view that it has a better reliability track-record than SMRT Trains. It is also a surprise that SMRT Trains’ bid was 30% lower than SBS Transit’s; yet promises better quality. There is one less price catalyst for SBS Transit (and consequently ComfortDelGro Corp), now that it has failed to secure the bid to operate the TEL. Over 2,000 ComfortDelGro cabbies express interest in joining Grab More than 2,000 ComfortDelGro cabbies could jump ship and join rival taxi operators partnering Grab or switch to become drivers of its private-hire car service, less than two weeks after Grab dangled heavily-discounted rentals to entice them Grab’s offer, originally slated to end Sep 15, will be extended by another fortnight to Sept 29. Comment: Impact to ComfortDelGro Corp’s taxi idle rate should be less than 2,000 taxis. Actual impact would be dependent on the shift arrangements among the 2,000 cabbies; as well as the number of “casual” drivers included in the 2,000. ComfortDelGro Corp faces a double whammy of higher taxi idle rate and having to keep taxi rental competitive.

Chen Guangzhi Investment Analyst (Oil & Gas / Energy) [email protected] DID: 6212 1859

Richard Leow Investment Analyst (Transport/ REITs (Industrial)) [email protected] DID: 6212 1848





Phillip On The Ground – excerpts from our various conversations Property: Singapore developers 1. For en bloc, the location is better and able to secure freehold status as GLS is 99 years.

GLS also require 40-60% PPVC. In en bloc land, conventional building methods can be used and able to save S$40-50 psft compared to PPVC. Main worry for en bloc is dissenting resident who can slow down the whole process. There are parties who pay developer to tear down the building, as they want to collect the scrap metal.

2. PPVC process saves cost on labour on the site but faces higher logistics and transport cost. Also for small land plots, very challenging to undertake PPVC. Most of the PPVC is sourced from Johor.

3. En bloc will help provide some demand to future projects. A corollary benefit of en bloc is it renews old buildings and intensify the land use of present site.

Healthcare 1. Private hospitals in Singapore are losing some high-value patients as facilities

overseas such as Indonesia are also improving. Furthermore, foreign patients from Malaysia may go to Singapore for opinion but procedure is done back home.

2. The environment for M&A in Singapore is more benign at mid to high single digit PE, partly due to inability to guarantee profits. Another factor is the slower revenues specialist clinics are facing this year.

3. Market is consolidating and costly for new entrants as cost of medical suites is high. Public doctors moving to private sector find it challenging to bring their own patient load. Doctors are very poor in marketing. For young doctors better to start with small footprint and then scale up.

Internet 1. The strength of these platforms cannot be underestimated. Some hotel chains have

20-30% of the business from these so-called OTAs (online-travel-agency such as booking.com). Cannot ignore them because of their large contribution and they can de-emphasize your hotel if they wish. OTAs are paid 10-20% commission. For e-commerce marketplaces, the commission can be 2-15%. Easy to list your product online but selling profitably is a challenge. Need to optimize for the right product the customer wants and get the awareness. Some products harder to sell online like shoes (need large stock due to size), clothing (high return rates) and electronics (low margins).

2. Many logistics providers in the market. Logistics delivery is a commoditised business and they compete for lower rates virtually every month.

3. China adoption of technology has surpassed Singapore. Marketing products in Taobao is very challenging. The videos and pictures posted are of the highest quality and hard to compete against.

Board Games 1. Use Kickstarter to fund new games. Funded means pre-order of games and this is not

equity. Kickstarter began in 2009. Game developer can receive money upfront then commercialise it. Buyers of the games through Kickstarter comprise of early adopters that can receive limited edition items like miniatures. Dropout rate is low, only 3-4%. Of the 10 games launched, usually 2 are ducks but even then already have pre-orders to fund it.

2. Kickstarter takes 8-10% of the total funds raised. Money raised through Kickstarter recognised as deferred revenue. Prefer Kickstarter than Indigogo. If not for Kickstarter, have to sell through wholesalers. Margins on games sold through Kickstarter are higher.

3. Millennials play board games for the face to face interaction and families play them with their kids. Interest for board games growing in China.

Paul Chew Head of Research [email protected] DID: 6212 1851




1. SINGAPORE ECONOMICS – exports, industrial production, PMI, property sales robust

Business Activity Industrial production in August sustained its momentum following the steep jump in July. It was ahead of market expectations of 14%. Electronics continue to be fastest growing segment, up 38% in August. The electronics numbers was impressive as base effect did not seem to impact production. Recall that electronics rebound began in Jun16 (+20%). PMI is on its 4th consecutive month of acceleration. PMI is now close to 3-year high. Electronics PMI’s trajectory is even stronger, close to 7-year high.

Trade/Consumer Export growth rebounded sharply in August. The 17% jump is the 2nd fastest growth for the year. Singapore exports in 2017 is on pace to be fastest in 6 years. Retail sales still soft, up 1.8% in July. YTD17 retail sales growth is lacklustre, up only 1.2%. This is below even 2016 poor growth rate of 1.3%.

Tourism Any hopes of June visitor arrivals momentum to continue fizzled out. July saw flat YoY visitor arrivals. YTD, arrivals are only up 3.8%, (2016 +7.7%). YTD, arrivals from China is up 6.6% YoY, this is significantly off last year’s growth of 36%. A weaker response to property sales in Johor may be a contributing factor. RevPar is only up 2% in July. Nevertheless, stabilised for two months after 13 consecutive month of decline in Singapore. Industry Revpar of $218 is close to two-year highs. Passenger traffic at SIA continues to be resilient. YTD, passenger traffic is up 1.8% Y-o-Y.

Source: CEIC, PSR

Month IPI IPI-Elec

Previous Jul-17 21.2% 49.4%

Latest Aug-17 19.1% 38.7%

Month PMI Order

Previous Jul-17 51.0 51.9

Latest Aug-17 51.8 52.7

Month SG:NODX

Previous Jul-17 7.6%

Latest Aug-17 17.0%

Month Credit Card Retail

Previous Jun-17 9.4% 1.9%

Latest Jul-17 14.1% 1.8%

Month Visitors China

Previous Jun-17 9.2% -1.6%

Latest Jul-17 0.6% 12.3%

Month Revpar SIA


Latest Jul-17 2.1% 1.0%



Monetary Loans growth in Singapore slowed again in August. This is the 11th month of positive growth but also the 2nd consecutive month of deceleration. Reason for the weaker growth is business related loans. It has decelerated to 5.8% in August, slowest pace in 6 months. Housing loans saw a pick-up to 4.3%, almost 2-year high growth rate. Liquidity conditions remain healthy. Money supply did slow to 6%. But foreign reserves are up US$26.5b YTD. This is the highest inflows in 7 years.

Transport/Healthcare Taxi fleet close to 8-year lows. Worrying is the pace of decline is accelerating. The decline of ~11% YoY in August, is the highest on record. Taxi fleet is falling almost 2% per month. Private hospital admissions recovered in August following two months of flat growth. YTD, private hospital admission is up 2.4% (2016: +10%). Public hospital admission is almost double this pace at 4.1%. Dental and specialist admission rebound in July was not sustainable. July surge was due to festive Raya period. YTD dental admission is up 1% (2016:+5%) and specialist up 2% (2016: +5%).

Construction/Property Construction experienced a big spike in contracts awarded in July, up 52% YoY. We similarly saw RMC demand start to stabilise in July. It is still declining for 21 straight months, but the pace of decline is slowing down for RMC. YTD property transactions (primary and secondary) are up by 43%. August experienced a 62% YoY jump in sales. 2017 average monthly sales of 2443 units is on track for the best performance in 4 years.

Source: CEIC, Realis, Bloomberg, PSR

Month Total Business


Latest Aug-17 5.1% 5.8%

Month FX M3

Previous Jul-17 3.4 6.4%

Latest Aug-17 3.4 5.8%

Month % YoY

Previous Jul-17 -9.7%

Latest Aug-17 -10.9%

Month Pv Hosp Dental Specialist

Previous Jul-17 0.0% 8.8% 8.2%

Latest Aug-17 4.2% -3.9% 1.4%

Month Const RMC

Previous Jun-17 -21.2% -8.6%

Latest Jul-17 52.1% -1.5%

Month Total Primary Secondary

Previous Jul-17 3040 2078 962

Latest Aug-17 2808 1561 1247



2. US ECONOMICS – PMI, imports, sentiment and jobs healthy; Loans stabilising and auto still weak

Business Activity / Jobs US ISM new orders hovering at 60 levels. These are healthy ISM numbers considering the average in 2015-2016 was 53-55 level. New orders less inventory recovery had interestingly declined, this implies there is some overstocking appearing. Payrolls in August of 156k was marginally below consensus expectations of 180k. Service sector added fewer jobs than anticipated. YTD, net jobs of 176k/mth is close to 2016 pace of 187k/mth.

Trade / Banking Import and port activity remain buoyant. YTD port throughput is up 6%. Major reversal from 2016 decline of 6%. YTD imports growth of 7% is also the best in 5 years. Loans growth continues to soften. This is the 10th consecutive month of slower loans growth. However, the pace of slower loans seems to be waning. C&I (or business) loans growth has seen a pick-up in growth for August, after 9 consecutive months of slower growth.

Sentiment / Consumer Despite all the rhetoric in politics, consumer confidence is at almost 17-year high. The strong job growth must be supporting confidence levels. Small business sentiments are similarly at multi-year highs. Retail sales excluding auto are healthy. YTD retail sales are up 3.9%; this is the fastest pace in 4 years. US auto sales continue to be sluggish with August is the 8th consecutive month of decline.

Source: CEIC, PSR

Month New New - Inv.


Latest Aug-17 60.3 4.8

Month Payrolls Hourly

Previous Jul-17 189 2.5%

Latest Aug-17 156 2.5%

Month Imports Port


Latest Jul-17 5.8% 13.1%

Aug-17 n.a. 8.0%

Month Total C&I


Latest Aug-17 3.5% 2.3%

Month Consumer Small Biz.


Latest Aug-17 120.4 105.3

Sep-17 119.8 n.a.

Month Retail Auto

Previous Jul-17 2.9% -6.8%

Latest Aug-17 4.2% -1.7%



3. CHINA ECONOMICS – Strong PMI and all activity indicators (steel, electricity, railway) healthy Business Activity Following up on the healthy reading last month, September PMI came in better than expected (consensus: 51.6). This is close to a 5 1/2 year high. The reading is better than small-medium enterprise Caixin PMI that declined. Electricity consumption was weaker in August. The YTD 7% YoY growth in electricity consumption is fastest for the past 2 years. Railway freight, while growing slower in August, is clocking up 7-year high growth rates. YTD rail freight is up 15% YoY (2016: -0.18%).

Construction/Property/Monetary Steel production remained buoyant in August, following the jump in July. Steel production may be ramping ahead of the environment led production curbs for this winter. The YTD, 5.6% growth, is lining up to the fastest growth in 3 years. Property sales enjoyed a mild bounce in August. 3Q17 sales look to be the weakest YoY reading in almost two years. YTD property sales is up 10% less than half the pace of 2016 27% jump. Foreign reserves rose around US$11b in August, the seventh consecutive month of increase. Loan growth was stable at 13%. Loans growth at low teens is 10-year lows for China.

Inflation/Retail China PPI moderated for the 6th consecutive month, albeit at a slower pace. Meanwhile, CPI rose faster than expected at 1.8% (consensus 1.6%). Falling food prices are now bottoming out. CPI is below 2016 2.1% reading. China retail sales growth remain stable in August. It has been at 10 to 11% growth range for the past 17 months. Online sales in August of 39%, is the highest on record.

Source: CEIC, PSR

Month PMI NewOrd. NonManuf.

Previous Aug-17 51.7 53.1 53.4

Latest Sep-17 52.4 54.8 55.4

Month Elect. Railway


Latest Aug-17 6.4% 13.1%

Month Steel Resi.


Latest Aug-17 8.8% 2.3%

Month Reserves Loans

Previous Jul-17 23.9 13.2%

Latest Aug-17 10.8 13.2%

Month CPI PPI


Latest Aug-17 1.8% 7.2%

Month Retail Online


Latest Aug-17 10.1% 39.4%



4. GLOBAL ECONOMICS - Electronics accelerating

Germany and Japan German IFO expectations index came of it recent 3.5-year highs. The headline business climate index reading of 115.2 was below consensus 116. Record high was achieved in August at 115.9. Bundesbank said 3Q17 growth momentum would be slightly lower than 1H17. The stronger EURO and unexpected support of the anti-immigrant political party in recent German election may dampen business sentiment. Japan industrial production in August rise to 5.4% (Consensus: 5.2%). Nevertheless, it is the 10th consecutive month of growth and 3 year high readings.

Electronics Asian electronics exports are in their 4th month of accelerating growth and 10 consecutive months of positive growth. This is the best export performance in 7-years. Semiconductor sales are extremely robust. July 24% YoY growth, is the fastest rate in 7 years. and 12 consecutive months of acceleration in growth rate.

Global growth The global surprise index peaked in Feb17. It then started to decelerate until June. Since June bottom we have seen a rebound in this index. Latest September reading is the best in 4 months. Yield curve spread continue to fall but at a slower pace. Market look to be pricing in much slower growth for the US economy in the next 18-24 months. The unwinding of Fed balance sheet may help steepen the yield curve.

Source: CEIC, Bloomberg, PSR

Month IFO

Previous Aug-17 107.8

Latest Sep-17 107.4

Month IPI

Previous Jul-17 4.7

Latest Aug-17 5.4

Month Exports

Previous Jul-17 15.4%

Latest Aug-17 15.5%

Month Sales

Previous Jun-17 23.7%

Latest Jul-17 24.0%

Month Index

Previous Aug-17 8.6

Latest Sep-17 17.5

Month Yield

Previous Jul-17 0.92

Latest Aug-17 0.78



Contact Information (Singapore Research Team) Head of Research Research Operations Officer Paul Chew – [email protected] Mohamed Amiruddin - [email protected]

Consumer | Healthcare Oil & Gas | Energy Macro Soh Lin Sin - [email protected] Chen Guangzhi - [email protected] Pei Sai Teng - [email protected] Transport | REITs (Industrial) REITs (Commercial, Retail, Healthcare) | Property Technical Analysis Richard Leow, CFTe, FRM - [email protected]

Dehong Tan - [email protected] Jeremy Ng - [email protected]

Banking and Finance US Equity Jeremy Teong - [email protected] Ho Kang Wei - [email protected]

Contact Information (Regional Member Companies) SINGAPORE

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