Monday 8 June 2009

Worst is over for economy: UOB-Kay Hian report

Upcoming IRs expected to boost tourism, services & construction sectors

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Guanyu said...

Worst is over for economy: UOB-Kay Hian report

Upcoming IRs expected to boost tourism, services & construction sectors

By NISHA RAMCHANDANI
8 June 2009

The darkest hour has passed for Singapore’s economy, says a research report by UOB-Kay Hian.

The 10.1 per cent contraction year-on-year in first quarter 2009 gross domestic product (GDP) was mainly due to sharp declines in the manufacturing and services sectors, it pointed out.

‘The two upcoming integrated resorts (IRs) which are scheduled to open by Q409 and Q110, will boost the services and construction sectors and may even partially cushion the economic downturn,’ the report said, adding, however, that the Singapore government does not expect the domestic economy to stage a decisive rebound this year.

According to UOB Economic-Treasury Research, Q209 and Q309 is forecasted to be in deep recession with GDP growth of -9.7 per cent to -7.5 per cent, before a ‘more meaningful recovery’ by year-end with a GDP growth of -2.6 per cent in Q409.

Tourism numbers and receipts are also expected to get a shot in the arm with the IRs coming onstream. UOB-Kay Hian reckons that tourist arrivals will post a 12 per cent year-on-year decline in 2009 before rebounding by 20 per cent in 2010.

‘A recovery in tourist arrivals will benefit service segments such as hospitality, aviation, land transport, retail and healthcare,’ the report said.

Meanwhile, Singapore’s residential property market is expected to attract foreign buyers thanks to the IRs. ‘Property developers with a high exposure to this segment will benefit,’ said the report.

Top picks in the property sector include City Developments (Target price: $10.90) and Allgreen Properties (Target price: $1.30).

Other top picks include DBS Group Holdings (Target: $13.64), Singapore Press Holdings (Target: $3.90) and SMRT Corporation (Target: $1.86).

However, it doesn’t quite look like smooth sailing for the aviation and shipping industries, UOB- Kay Hian said.

Excess capacity will continue to put pressure on yields while low cost carriers offer stiff competition to full service carriers such as Singapore Airlines (SIA).

While airlines are grounding planes, they are also expected to take delivery of new planes later in the year, which further compounds the problem.

Passenger yields are only expected to improve if premium traffic picks up. But as companies are keeping an eye on containing costs, UOB-Kay Hian reckons this is unlikely.

While SIA appears to be faring better than its competitors, it traditionally derives some 40-45 per cent of revenue from premium seats. UOB-Kay Hian has a sell on SIA, with a fair price of $9.80.

Similarly, it maintains an ‘underweight’ view of the shipping sector due to the massive oversupply of dry bulk newbuilds scheduled to hit the waters from H209.

At the same time, it maintains a ‘market weight’ view on the three Singapore-listed shipping trusts - First Ship Lease Trust, Pacific Shipping Trust and Rickmers Maritime.