SG:Sticking with Singapore ’s Stalwarts- STE and SPH

Summary: With the see-saw vacillation of the market expected over the next 1-3 quarters, following the domino effect from the subprime fallout, there is a de-rating of the market due to slowing growth. The increased risk premium will mean investors are less willing to pay higher multiples for uncertain growth stories. Investors are shifting into defensive stocks with high dividends, high earnings visibility and cash flow stability. We like tried-and-proven Singapore stalwarts such as ST Engineering and SPH as these have strong cash flow and an anticipated high dividend yield of >5% to ride out the choppy market. STE has historically returned all of its net profits to shareholders while SPH has historically paid out all of its recurring earnings from its print business. We upgrade our call to BUY as valuations now look attractive for STE (fair value: S$3.92) and maintain our BUY call for SPH (fair value: S$4.87).