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Betting on big caps? 40% of them on SGX beat market yield
DO BIG-CAP stocks offer safer bets? So far this year, those listed on the Singapore Exchange seem to have done that and more.
Of the 98 primary-listed stocks on the Singapore Exchange (SGX) with a market capitalisation above S$1 billion, almost two in five generated a dividend yield above 4 per cent, outperforming the benchmark Straits Times Index's (STI) yield of 3.2 per cent.
The 37 stocks averaged a total year-to-date return of 19.1 per cent and a yield of 6.1 per cent, said SGX's My Gateway report on Thursday.
Of the 37 counters, more than 70 per cent are either in the real estate industry or real estate investment trusts (Reits), while nine of the 37 are constituents of the STI.
The report said that year-to-date, the five best performing stocks were Hi-P International (+183.8 per cent), CDL Hospitality Trusts (+31.6 per cent), Frasers Centrepoint (+29.7 per cent), Lippo Malls Indonesia Retail Trust (+25.3 per cent) and Mapletree Logistics Trust (+25.3 per cent). Their total return averaged a stunning 58.8 per cent.
Meanwhile, the four highest yielding stocks are Hi-P International (13.8 per cent), Lippo Malls Indonesia Retail Trust (8.1 per cent), Hutchison Port Holdings Trust (7.7 per cent), and Frasers Commercial Trust (7.1 per cent), with an average yield of 9.1 per cent.
The fifth highest yielding stocks - OUE Commercial Reit, Keppel Infrastructure Trust and OUE Hospitality Trust - all offer a yield of 6.8 per cent.
Do these high-return stocks still have legs?
Hi-P International, an integrated contract manufacturer serving the telecommunications, consumer electronics, medical devices and industrial devices sectors, reported a profit of S$23.5 million in H1 2017, a turnaround from a loss of S$4.7 million a year earlier.
While not many research outfits cover the stock, DBS Research initiated coverage in May with a "Buy" call and target of S$1.07. The counter closed at S$1.435 on Thursday, up over 200 per cent in a year. In its Aug 4 report, DBS Treasures maintained a "Buy". It said: "Hi-P is in a sweet spot now as more than half of its earnings are derived from the wireless (smartphone) and computer peripherals (IoT segment, eg. smart home) segments, which are expected to continue to do well in the next one to two years."
For Lippo Malls Indonesia Retail Trust, the only Indonesian Reit on SGX, macro trends in its operating country will be key.
The company said it may be affected by the country's economic growth, inflation and consumer demand. In a recent report, OCBC Investment Research downgraded its "buy" call to "hold", with a fair value of S$0.45 (The stock closed at S$0.43 on Thursday). "Looking forward to the next few years, we continue to find LMIRT's long-term growth story compelling given its exposure to Indonesia's urbanisation and rising middle-class expenditures. Nonetheless, current unit prices could be more attractive."
Following Hutchison Port Holdings's first-half results, DBS Treasures issued a "hold" recommendation. The company, which invests in, develops, operates, and manages deep-water container ports in Guangdong in China, Hong Kong, and Macau, said in its Q2 2017 financial statement that the improving economies of Europe and the US supported outbound cargoes to these destinations, but added that uncertainty remains as to whether this positive trend is sustainable.
DBS's July report said HPH was fairly valued given its current prospective yield of 5.9 per cent. It said "any improvement in operating earnings would likely be eroded by higher interest costs".
Yeo Zhi Bin, analyst at CIMB Securities, said Mapletree Logistics Trust (MLT) is expected to continue to deliver steady strides, supported by acquisitions in FY17, as well as stronger Singapore and Hong Kong growth. Active capital recycling and accretive acquisitions in the second half of the year could catalyse MLT's unit price, he said.
On prospects for CDL Hospitality Trusts, Mr Yeo said: "Though we expect higher supply pressure in H2 2017 versus H1 2017, we believe that decline in CDL Hospitality Trusts' Singapore revenue per available room (RevPAR) would moderate. Gearing is expected to decrease to 33-34 per cent (Q2 2017: 38.7 per cent) at end-Q3 2017, post the completion of its rights issue. With available debt headroom, CDREIT could continue to scour for acquisition opportunities," he added.
In terms of the broader market, Morgan Stanley said in its Asean equity strategy report on Wednesday that the global trade trajectory is an important driver of market sentiment and domestic demand.
It noted that its Morgan Stanley Global Trade Leading Indicator (MSGTLI) fell again in July to 0.19 - the lowest reading since late 2016 - so its macro team expects MSGTLI "to moderate further in the coming months because of base effects".
It also believed that the more elevated multiples the market has seen are a result of the pricing in of expectations of a better earnings outlook.