Asia ASEAN Singapore
Strategy Update
29 January 2009
Singapore Strategy
Recession bites
A difficult 1H ahead
DB forecasts 2009 GDP growth of -4%,
the worst recession in history, even after
the SGD20.5bn stimulus package. The
Singapore dollar is likely to weaken with
the risk of a devaluation rising. Further
downgrades to market EPS are likely and
could continue to overhang the market.
Worsening recession, deflation, weakening currency
Gregory Lui, CFA
Strategist
(65) 6423 5958
gregory.lui@db.com
Deutsche Bank AG/Hong Kong
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Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Index and Volume Graph
STI performance 1M 3M 12M
Abs chng -39.3 -60.4 -1298.4
% chng -2.3 -3.5 -43.5
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an I0n9dex (m unit)
DB 10 Singapore Portfolio
Stock REC Price TP
Ascendas Real Estate Buy 1.30 1.89
ComfortDelgro Buy 1.39 1.75
DBS Group Holdings Ltd Buy 8.38 11.90
Keppel Corp Ltd Buy 4.10 7.10
M1 Buy 1.57 2.20
SembCorp Industries Ltd Buy 2.25 3.55
SMRT Buy 1.59 1.95
Singapore Telecom Buy 2.53 3.27
ST Engineering Buy 2.28 3.30
Starhub Buy 2.08 3.30
Updated 23/01/09
Singapore Research Team
Analyst Coverage/Contact
Gregory Lui Property
(65) 6423 5958
Michael Chang Banks
(852) 2203 6203
Kevin Chong Conglomerates
(65) 6423 5549
William Bratton Telecoms
(852) 2203 6186
Joe Liew Transportation
(852) 2203 6198
James Tan Mid & Small Caps
(65) 6423 5139
Global Markets Research Company
Deepening recession; cost cutting and currency depreciation in focus
Economic activity deteriorated sharply in 4Q as GDP contracted 16.9% QoQ, the
sharpest in history. We expect the economy to worsen in 1H09. DB forecasts a
4% GDP contraction this year, the sharpest slowdown in the region. The 2009
budget helps address business costs, SME credit and the lower income, and adds
an estimated 1ppt to GDP. As asset and commodity prices fall and wages
compress, the government expects inflation to fall to a range of 0 to -1% in 2009.
We believe that the macro backdrop also sets the stage for a one-off currency
devaluation.
Further downgrades likely in 4Q reporting season; full effect now being felt
The deterioration in the economy accelerated towards year end, and we believe
that this will be reflected in weak 4Q results, guidance and plans. Moderating cost
pressures will likely help, and depreciation in the SGD could provide a boost to
companies’ foreign earnings. We currently forecast an EPS decline of 5% for FY08
and 12% for FY09, and this remains at risk based on previous recessions. While
large corporate and household balance sheets are stronger than in 1998, SMEs
face greater difficulty in obtaining credit. Liquidity issues, weakening cash flow
and dilutive capital raisings could dampen market sentiment.
Market valuations inexpensive, but likely to remain under pressure
At 10.3x FY09F and 9.7x FY10F PERs, Singapore is approaching the Asian
Economic Crisis low of 9.3x (on the MSCI), and below its 2001-07 average of 18x
(this translates to 9.2x FY08F and 9.8x FY09F on the FSSTI vs. 11.6x in 1998). We
have a market target of 1,018 on the MSCI, representing 7.6% upside potential,
and we are Neutral on a regional basis. Continued downgrades to 2009 earnings
are likely to cap the markets. Historically, the market turns in tandem with the
worst of the economic contraction (we expect this in 2Q), which suggests that a
bottom could be seen as early as mid-2009, assuming no further deterioration.
Defensives with resilient earnings that benefit from cost cutting and SGD
We focus on companies with relatively visible and resilient earnings that benefit
from macro-led cost cutting measures, that benefit from SGD weakness, and that
have strong balance sheets. As such, ST Engineering and SCI have long
orderbooks and benefit from SGD weakness, CD has seen relative resilience
during downturns, DBS has strengthened its balance sheet and has less earnings
risk, and SingTel is a key beneficiary of SGD weakness. Buy list: ST Engineering,
ComfortDelgro, Sembcorp Industries, Sing Tel and DBS. Sell list: Cosco,
Capitaland, Parkway, SIA, and Golden Agri.

Table of Contents
Monthly strategy bullets................................................................... 3
Top picks, macro data, consensus data sheet ..........................................................................4
Recession bites .................................................................................. 5
Potentially the worst recession in Singapore’s history .............................................................5
Expansionary budget for deflationary times..............................................................................8
Devaluation of the currency ....................................................................................................11
Full impact yet to be felt; 4Q results will provide early indications .........................................14
Valuations closing in on recession levels ................................................................................15
Banks: Focus on asset quality, capital and margins ................................................................18
Risks ......................................................................................................................................18
DB 10 Singapore Portfolio .............................................................. 19
Sector rotation................................................................................. 20
1. Performance – F&B outperformed on three-month view....................................................20
2. Growth and value: value in most sectors; earnings risk......................................................21
3. Momentum/marginal change..............................................................................................22
4Q results season has just begun...........................................................................................22
4. Sentiment/flows/liquidity.....................................................................................................22
5. Volatility/risk ........................................................................................................................25
Asset allocation ............................................................................... 26
DB macroeconomic thoughts ......................................................... 27
Macro view .............................................................................................................................27
Policy adjustment forthcoming…............................................................................................28
An export-based economy cannot escape a recession...........................................................29
Fixed income outlook: growth projections are moving targets...............................................30
Fiscal and monetary responses are incomplete......................................................................30
Reason to expect the MAS to ease policy..............................................................................31
Containing SGD weakness will affect deposit growth ............................................................31
Depressed deposit growth suppresses demand for SGS.......................................................33
Risky/risk free valuation the key for long-end demand............................................................33
Conclusions and recommendations........................................................................................35
Appendix A - Growth ...................................................................... 38
Appendix B - Value.......................................................................... 39
Appendix C - Risks........................................................................... 40