M&A, yield play to drive Singapore equities market: Credit Suisse report

MERGERS and acquisitions (M&A) and high dividend yield will drive Singapore's equities market in 2020 amid modest economic recovery, according to a Credit Suisse report.

Credit Suisse is hence recommending a portfolio of restructuring opportunities and high yield in the market, in part due to a trailing dividend yield of 4.2 per cent, outperforming other markets in the Asia-Pacific.

In the offshore and marine (O&M) sector, there has been a wave of consolidation and partnerships. For instance, McDermott's acquisition of CB&I and subsequent partnership with Baker Hughes. However, the report noted that there is unlikely to be a strong surge in new rig orders until pricing power and profitability recover materially in the services sector.

The consolidation trend is expected to extend to Singapore yards amid lacklustre new rig orders and competition from Chinese yards. Credit Suisse is projecting combined new orders for Singapore yards to recover to S$5.5 billion in 2020 and S$6 billion in 2021, below the average of S$10 billion between 2004 and 2014. The completion of Sembcorp Marine Tuas integrated yard will likely limit the recovery of utilisation rate and profitability of Singapore yards, according to the report.

Among Reits (real estate investment trusts), those with strong acquisition pipelines and asset recycling and enhancement opportunities are likely to outperform. Credit Suisse favours retail Reits for their rental resilience through economic cycles and growth potential through acquisitions, portfolio reconstitution and asset enhancement.

Singapore Reits (S-Reits) are also likely to remain attractive to income investors for their absolute yield levels given the low interest rate environment.

While Singapore banks face profitability pressures, they have a strong capital cushion to support more than the current dividend payout ratio that translates to an expected 2020 yield of 4.7 to 4.9 per cent.