Despite our muted earnings outlook next year, we believe that the Straits Times Index (STI) can nevertheless witness P/E multiple expansion given the prevalence of blue-chip defensive stocks with strong cash flow generation and relatively high dividend yields.
Despite its 3Q rally, the STI remains inexpensive in our view, trading at a forecast 2025 P/E and P/B of 11.5x and 1.2x respectively and paying a yield of 5.3%.
2025 EPS Growth Forecast
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Our modest below-consensus 1.2% EPS growth forecast for our covered STI stocks for 2025 belies the fact that there are a number of stocks within our universe that should deliver strong returns in the near to medium term, backed by strong cash flow and sustainable dividend yields.
The key sectors that will contribute to the positive earnings growth in UOB Kay Hian’s coverage universe for 2025 are the plantation, property, REITs, industrials, technology, telecommunications and “others” sectors.
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Industrials, technology and telecommunications should continue to experience strong earnings growth on a y-o-y basis.
The gaming segment will drive 2025 earnings growth within the “others” sector.
We expect the large-cap finance and aviation sectors to be two key sectors that will degrade the positive earnings growth in 2025. Upside earnings surprise could come from lower-than-expected US interest rate cuts.
We highlight that for the STI component stocks, Bloomberg consensus forecasts 2.7% y-o-y EPS growth for 2025.
“Safer than houses”.
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Above is an excerpt from a report by UOB Kay Hian Research. Clients of UOB Kay Hian may be the first to access the full PDF report @ https://www.utrade.com.sg/.
