Singapore Equity Strategy, CITIGROUP RESEARCH, Jan 9

Single-digit earnings growth to limit market upside in 2007: Our Straits Times Index target of 3,023 suggests a flat market for Singapore in 2007 after four years of positive returns. Valuation appears rich with PE at 17 times FY07 against forecast EPS growth of 8 per cent. The market's price-to-book is now at 2.1 times compared to a historical average of 1.7 times. Singapore is also not cheap relative to the region.

Macro outlook steady: Although our economics team forecasts GDP growth will moderate to 5.6 per cent in 2007, the economy is diversified and hence more resilient. The economic 'boom' appears more sustainable and less vulnerable to the global tech cycle.

Sector weightings: Our overweights on conglomerates, media and telcos reflect our bias towards companies that are reasonably valued and have strong cash flows and yields. We underweight banks on valuation grounds. While we remain positive on the property market, we are 'neutral' on the sector and prefer Keppel Land, Wing Tai and Allgreen. For the Reits, our top pick is CMT.

Focus on value and earnings visibility: We like companies with good earnings visibility and reasonable valuations such as Keppel Corp, SembCorp Industries and ST Engineering. We also prefer companies with strong cash flows and attractive dividend yields such as SPH, ComfortDelGro and SingTel. Our preferred small-cap names are Tat Hong, Datacraft, CSE Global, Biosensors and Inter-Roller.

《The Business Times》