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“Resilient”/ “Unresilient” stocks : MayBank Kim Eng

In Energy, Property on 23/09/2015 at 6:26 am

Under the worst test scenario – this assumes that a 10 per cent cut in revenue, 10 per cent foreign exchange depreciation and 100 basis-point hike in interest rates happen all at once next year – three sectors emerged as the most resilient: China water-utility stocks, healthcare and manufacturing. So says MayBank Kin Eng in a report in mid Sept.

Don’t know about the Chinese utlities but the rest of list (see below)l ooks about right.

Healthcare stocks such as Q&M and Raffles Medical: “buffered by the largely non-elective procedures they offer”: “Under (the worst scenario), their earnings could drop 12 to 16 per cent when revenue declines, while foreign exchange and interest rate changes do not really move the needle,” said the report.

It added that manufacturers such as Innovalues, Valuetronics Holdings and Venture Corporation – which earn the bulk of their revenues in US dollars – should benefit from the strengthening greenback as they reap cheaper production costs.

Unsafe 

Offshore and marine, property and banking sectors – already under pressure – which could be “severely tested” by falling oil prices, rising interest rates and depreciating currencies, noted the report.

In the event of a market shock, highly geared offshore and marine asset owners like Vard Holdings, Pacific Radiance and Swiber Holdings may need to “recapitalise their equity, restructure their debt or face consolidation”, it said.

Developers CapitaLand and OUE would also be at risk of cash-flow constraints as their earnings before interest, tax, depreciation and amortisation (Ebitda) fall to “dangerous levels”, while the local banks could well see profits slump by up to 80 per cent.

S’pore along with Thailand and India, appears to be more resilient compared with others in the region, said Maybank Kim Eng.

China and Indonesia stood out as the most vulnerable, with China the only country to log a negative free cash flow in the stress test.

“This could be a consequence of excess capacity in China, meaning a shock has a greater impact on cash flows,” noted the report.

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