Bright spots for investors as virus safety measures ease

WHILE prolonged border closures and vaccine uncertainty will continue to weigh on sectors that are reliant on travel, there are several bright spots for investors as virus safety measures start to ease.

The outlook for the economy and for markets is grim with forecasters from the Ministry of Trade and Industry (MTI) expecting a year-on-year contraction of between 5 per cent and 7 per cent, compared with 4 per cent to 7 per cent before.

Meanwhile, total earnings of 134 companies that reported earnings for the quarter ended June were down 47.3 per cent to S$2.588 billion from a year earlier, according to data compiled by The Business Times (BT).

Still, analysts are bullish on several sectors that have either remained resilient or are expected to recover from the economic fallout.

This comes as investors can expect a further loosening of the lockdown in Singapore as community cases stabilise or dwindle away even more, head of research at Phillip Securities Research Paul Chew told BT.

One sector that will stand to benefit is land transport, said Mr Chew, citing ComfortDelGro as a potential beneficiary.

The transport giant is expected to benefit from the increased ridership as more workers return to workplaces after stints of working from home.

In addition, ComfortDelGro has a strong track record of earnings accretive M&A (mergers and acquisitions) overseas, said Maybank Kim Eng analysts.

Meanwhile, agri-food giant Wilmar International is also favoured by Maybank Kim Eng and CGS-CIMB analysts on the back of higher soy crush margins as well as the initial public offering of its Chinese unit.

Selected real estate investment trusts (Reits), on the other hand, continue to be popular yield instruments.

" With no sign of an interest rate recovery in the near future, one has no choice but to play the yield game of the market," said CGS-CIMB head of research Lim Siew Khee in a report.

With banks forced to cut dividend payouts and telcos suffering from earnings cuts, Reits are the only ones that offer decent above-market yields of more than 4 per cent, she said.

Among the Reits, CGS-CIMB's top picks are Frasers Centrepoint Trust for its focus on suburban malls that may drive faster recovery, and Frasers Logistics and Commercial Trust for its "visible inorganic growth potential and income resilience".

Industrial Reits that have proven to be more resilient amid the virus outbreak were among Maybank Kim Eng's picks. These include Ascendas Reit, Mapletree Logistics Trust and Mapletree Industrial Trust for their strong growth fundamentals and overseas presence.

Aside from Reits, another promising sector is the tech space, which thrived despite supply chain disruptions early on.

"The electronics sector outperformed, whereby earnings was resilient despite production disruptions in Q2 2020. Demand has held up well even though overall economy has turned softer," said Phillip Securities' Mr Chew.

Analysts cited semiconductor equipment-related companies such as AEM Holdings, UMS Holdings and Frencken Group among picks amid robust semiconductor sales outlook.

For telcos, analysts are favouring NetLink NBN Trust for its dividend visibility over Singtel and StarHub that have a weaker earnings outlook.

Glove players, which have been a beneficiary of the pandemic, continue to be favoured by CGS-CIMB, citing Riverstone Holdings as a top pick. The research house expects an even stronger showing for glove players on the back of higher average selling prices and production capabilities.

Small-caps in the consumer space were also among CGS-CIMB's picks. Koufu, for one, has seen significant improvement in footfall and revenue at most venues with the exception of those at tourist locations and near offices and education institutions, said CGS-CIMB analysts.