Singapore Investment Themes 2025 - RHB Invest 2024-12-16: Looking Beyond The Index For Strong Performance

• The Straits Times Index (STI) has delivered strong returns in 2024. While market valuations are not stretched, the STI could generate modest returns in 2025 as earnings growth moderates.
• - Read this at SGinvestors.io -

Looking beyond the index for strong performance.

• We see opportunities for outperformance in specific stocks and sectors and advise investors to buy:
  1. Stocks that offer sustainable earnings growth or are undervalued;
  2. Stocks offering sustainable high yields (except for the REITs sector);
  3. counters that will help mitigate the increased volatility risk during the next few quarters;
  4. small-cap stocks with earnings tailwinds; and
  5. - Read this at SGinvestors.io -

Theme 1: Stocks that have sustainable earnings growth or are undervalued

Long term sustainable earnings growth:

• Centurion (SGX:OU8). We expect Centurion to deliver ~20% EPS growth pa in 2024-2025. This is a global owner and manager of worker and student accommodation. Investment thesis:
  1. Near-term bed rates are positive for Centurion as Singapore’s worker dormitory beds supply remains tight;
  2. it is expecting growth ahead (driven by better capacity, occupancy, and rental rates); and
  3. it expects more dormitory project wins (with at least seven new purpose-built dormitories (totalling 47,000 beds) planned to be completed over the next five years).
• ComfortDelGro (SGX:C52). We expect ComfortDelGro to deliver 16% y-o-y earnings growth in 2025, aided by:
  1. A continued improvement in UK public transport margins;
  2. contributions from Australian bus tender wins;
  3. contributions from the acquisition of A2B as well as Addison Lee; and
  4. we also expect to see contributions from an improving China taxi business.
• SingTel (SGX:Z74). We estimate SingTel’s earnings to grow at 12% in FY25 and further 15% in FY26. We like SingTel's for its:
  1. Improving ROIC, which is projected to hit 10% in FY25F from 9.3% in FY24 and 8.3% in FY23;
  2. planned cost savings of S$200m annually into FY26F from the consolidation of the Singapore operations (consumer + enterprise) and cost efficiencies at Optus;
  3. mid-term capital recycling target of S$6bn, which will support variable realisation dividends (VRD) on top of core 70-90% dividend payout ratio;
  4. improving market dynamics and re-pricing of tariffs in Australia, India and Thailand; and
  5. strong balance sheet with net debt/EBITDA at 1.6x and 90% fixed-rate debt
• ST Engineering (SGX:S63). We like ST Engineering for its record-high orderbook that provides close to three years of revenue visibility; and sustained dividends of at least 16 cents each year, which is paid quarterly. We expect ST Engineering to deliver 2023-2026F profit CAGR of 15%, which will be aided by:
  1. A recovery in earnings, driven by strong aviation maintenance, repair and operations (MRO) work, which will benefit the Commercial Aerospace (CA) segment;
  2. contributions from TransCore and the restructuring of the Urban Solutions & Satellite Communications (USS) segment should boost growth; and
  3. the gradual delivery of its orderbook should support the Defence & Public Security (DPS) segment’s profitability.
• Outside of our coverage universe, we see similar opportunities in SATS (SGX:S58).

Undervalued or laggard plays:

• Read more at SGinvestors.io.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2024-12-16 SGinvestors.io

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