8th Jan 2009

8th Jan 2009
Lean pickings
• Consumer activity appears to be holding up so far but a weaker economy will cause lower spending in coming months. We see thin pickings in the consumer sector; defensives like BAT and BToto are trading at 14% and 41% PE premium to the market. At its worst, BAT has previously traded at a 48% discount to market.
• We suggest that investors look beyond the sector and recommend a switch to either Tanjong or PLUS, which offer better value, net dividend yields of 5% and clean corporate governance.
• Meanwhile, discretionary names like Resorts and Genting which outperformed global gaming peers last year are likely to lag the upswing in markets, especially, following the recent related party transaction by Resorts. If Resorts were to return to its historical P/BV trough of 0.9x, this implies 39% potential downside from current levels.
• Genting is trading at a 10% premium to the market and currently ranks as the fifth most expensive gaming stock in the world. If Genting were to return to its historical P/BV trough of 0.9x, this implies 24% potential downside from current levels.
• Foreign shareholdings for both Resorts and Genting remain high at 33% and 35% respectively compared to around 20% for the broad market and hence, share price performance could suffer should there be sector rotations or redemptions.