ed: TH / sa: YM

STI : 2802.51 Analyst Janice CHUA +65 6682 3692 janicechuast@dbs.com

YEO Kee Yan +65 6682 3706 keeyan@dbs.com

LING Lee Keng +65 6682 3703 leekeng@dbs.com

Key Indices

Current % Chng STI Index 2,802.51 1.1% FS Small Cap Index 390.11 0.3% USD/SGD Curncy 1.41 2.2% Daily Volume (m) 1,255 Daily Turnover (S$m) 928 Daily Turnover (US$m) 658

Source: Bloomberg Finance L.P. Market Key Data

(%) EPS Gth Div Yield 2015 (6.3) 4.0 2016F 6.6 4.0 2017F 7.8 4.0 (x) PER EV/EBITDA 2015 14.9 12.1 2016F 14.0 11.3 2017F 13.0 11.0

Source: DBS Bank

STOCKS

Prices as of 27 May 2016 Source: DBS Bank

DBS Group Research . Equity 31 May 2016

Singapore Market Focus

Monthly Strategy Refer to important disclosures at the end of this report

From Cautious to Cautiously Optimistic

Key events - 15 June FOMC Meeting outcome & 23 June BREXIT referendum

STI – Correction halted at 2700, initial recovery to 2835 followed by 2870/2900

Bargain hunt blue chips

Tactical trade – Bank stocks OCBC & UOB to benefit from higher rates if economy stabilises or recovers

FED rate hike likely in July not June. The outcome of the June 15 FOMC meeting is the first macro event to watch. Consensus thinks the FED will wait till July before hiking rates. If rates are going up, we say whether the hike happens in June or July matters little. The focus should be on what gradually rising interest rates, which implies better US economic numbers, mean for Asia. Upcoming US rate hikes will be taken positively if the lift from the US economy eventually benefits Asia and Singapore.

BREXIT referendum. The 23 June referendum is the next key event to watch. Latest polls show around a 10% lead for people wanting “stay” rather than “leave“. A “stay” outcome removes one uncertainty while “leave” means more volatility. We will know in a little more than three weeks.

STI correction halted at 2700, guarded recovery for now. While acknowledging uncertainties that still exist, we turn from cautious in the past 1-2 months to neutral or cautiously optimistic going forward. The recent low of 2715 coincided with 11.32x (-1.5SD) blended FY16/17 PE level. We think this level should hold up unless BREXIT becomes a reality. Until the 23 June referendum passes, the initial STI recovery is likely guarded. We see near-term technical resistances at 2835 and 2870-2900.

Bargain hunt oversold blue chips. With stock prices retreated from their April highs; we look to bargain hunt blue chips on which we have a BUY recommendation and offer good upside to our fundamental TP. Picks include property names UOL and City Developments that could benefit from a perceived policy-loosening stance as well as SembCorp Industries as oil price stabilises. We will also bargain hunt SIA on any moderate downside as its valuation has fallen to an attractive 0.9x P/BV. We also like ST Engineering for its defensive nature and beneficiary of the Smart Nation project.

Tactical trade for banks. We expect bank stocks OCBC and UOB to be underpinned by higher US interest rate expectations that also implies an improving US economy. From a technical perspective, their recent correction looks to have ended. We see trading opportunities for both stocks.

Price Mkt Cap Target Price

Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

Bargain hunt oversold blue chips UOL Group 5.68 3,278 7.39 (0.2) (24.3) BUY City Developments 8.35 5,503 9.60 16.0 (19.3) BUY Sembcorp Industries 2.81 3,640 3.10 5.2 (32.5) BUY Singapore Airlines 10.62 9,146 12.50 (7.9) (7.0) BUY ST Engineering 3.21 7,226 3.55 12.6 (8.0) BUY Tactical trade for banks OCBC Bank 8.56 25,528 9.40 6.7 (17.1) HOLUOB 18.21 21,214 18.80 6.8 (23.0) HOL

Market Focus

Monthly Strategy

Page 2

June Market Outlook

Looking back at May

The stock market correction that started on 21 April continued into May with the benchmark Straits Times Index down by 38pts to 2800. US rate hike concerns, outcome of the June 23 BREXIT referendum, weak corporate earnings and the uncertain economic outlook continued to weigh down on the local bourse. Still, the STI managed to find support around the 2700 level that coincided with the 11.32x (-1.5SD) blended FY16/17 PE level. Individual stock performances were influenced by their quarterly results. Shares of Jardine C&C, Genting Singapore, Wilmar International, GLP and SIA were among the losers while Thai Beverage was the top blue chips performer.

Outlook

The two key events this month are the outcome of the FOMC meeting on June 15 and the BREXIT referendum on June 23.

Next rate hike likely in July, not June

While rate hike expectations have picked up in the past two weeks following “hawkish” comments by various FED officials, we think a June rate hike is less likely given the uncertainty of the BREXIT referendum just the week after. But a July hike is possible if economic data continues to be supportive of one.

Consensus expects a 28% chance for a FED rate hike that increases to 60% in July. DBS Research believes that the FED will leave rates unchanged in June but sees a rate hike in 3Q and another in 4Q that will lift the FED funds rate to 1% by year-end.

BREXIT – Opinion polls favour ‘stay’, fallout hard to predict in event of exit

The next key event is the BREXIT referendum on 23 June.

Our economist says the fallout in the event of a BREXIT is hard to predict. Under a ‘gentle exit’ scenario, a short-term selldown and jump in volatility might be followed by the EU and UK returning to talks to re-establish agreements, especially on the trade and investment front. By contrast, a bitter BREXIT would surely hit sentiment and risk appetite harder, with market impacts felt beyond the EU/UK. It would be more difficult to re-establish trade/investments later. Worse, a BREXIT would extend beyond the UK. A yes vote carries political ramifications for the EU bloc, running the risk of emboldening other euro-sceptic/ nti-EU parties that could hurt EU stability.

Fortunately, the latest opinion polls show around a 10% lead for people wanting “stay“ rather than “leave“. The British pound has rebounded against major currencies in recent weeks.

Key Events

Date Event Comments June 14-15 FOMC meeting Consensus expects a 28% chance for a FED rate hike that

increases to 60% in July. DBS Research believes that the FED will leave rates unchanged in June but sees a rate hike in 3Q and another in 4Q that will lift the FED funds rate to 1% by year-end.

June 23 BREXIT referendum Latest polls show around a 10% lead for people wanting “stay“rather than “leave“.

Source: DBS Bank

Watchful of currency movement

Keep an eye on the movement of Asian currencies against the US dollar as the prospect of US rate hikes return to the forefront. Historically, there is a correlation between the direction of Asian equity markets and Asian currencies against the US dollar. Rising Asian currencies coincide with periods of rising Asian equities and vice versa.

The decline in the MSCI Asia-Pacific Ex-Japan Index that began from 21 April at 516 down to 474 coincided with the decline in Bloomberg JPMorgan Asia Dollar Index (ADXY) from 108.88 down to 106.4. Technically, we see support for the ADXY around the 106.4 level that should halt its decline and trigger a technical rebound in the short term. This should halt the recent decline in Asian equities, including Singapore. Beyond the short term, we are watchful on Asian currencies' behaviour as the FED rate hike cycle progresses.

Market Focus

Monthly Strategy

Page 3

Bloomberg JPMorgan Asia Dollar Index (ADXY) and MSCI Asia Ex-Japan

Source: DBS Bank

Odds favour STI holding above 2700 level

In our previous Monthly strategy update on April 26, we warned that following the February to April run-up, the Singapore equity market was due for a pullback given the weak 1Q corporate results season. The Singapore market corrected as expected with the STI falling to a low of 2715, below our initial support level of 2800.

The recent low of 2715 coincided with 11.32x (-1.5SD) blended FY16/17 PE level. We think this level should hold up unless BREXIT becomes a reality. The odds currently favour a benign outcome –opinion polls show a higher chance that Britain will remain in the EU.

Initial June recovery off 2715 likely guarded

A recovery from the 2715 level is likely guarded in the short term given the weak corporate earnings growth and the uncertain economic outlook and pending the 23 June BREXIT referendum outcome. We see technical resistances at 2835 followed by 2870-2900.

We currently expect STI EPS growth of just 2.1% for 2016 and 6.6% for 2017. Consensus expectation is even lower at 0.25% for 2016 and 5% for 2017. Meanwhile, the latest data showed Singapore’s services sector contracted 5.9% q-o-q in 1Q16 while the manufacturing sector contracted by 5.7% if the boost from the volatile biomedical cluster is excluded.

What lies beyond?

If opinion polls results are reliable and assuming that Britain remains in the EU, the next key focus to drive equity markets is the implication of US rate hikes. We believe that the debate should not be whether rates are going up in June or July, one month makes little difference. Instead, the focus should be on whether investors take rising interest rates positively. FED Chair Janet Yellen has consistently stressed that the FED will be data dependent. That is, higher rates mean better economy. Asian equity markets (Singapore included) will strengthen if the gradual pace of US rate hikes going forward is seen as a

sign of confidence that the US economy is getting stronger that will eventually benefit Asia.

Some “ifs” at this stage but uncertainties are common at a low point. For now, let’s first get past 23 June.

Strategy

We had adopted a cautious tone on the previous two monthly strategy updates, preferring to either stay with dividend yield names or to take profit into strength on blue chips (example: banks, O&G) that have risen during the February to April short-covering rally.

The benchmark STI corrected as much as 8.2% from the April high of 2964 and valuation has retreated to modestly above 11.32x (-1.5SD) blended FY16/17 PE level. While acknowledging that uncertainties such as weak economic data trend and corporate downward earnings revision trend remains, we switch our stance to neutral or even cautiously optimistic on the conditions that:

1) BREXIT referendum on 23 June will see Britain remaining with the EU.

2) FED continues with the policy of tying rate hikes with economic data strength and the pace of US rate hikes will be gradual.

3) Oil price has seen its worst point at the start of the year and prices should stabilise around the USD40pbl mark.

Market Focus

Monthly Strategy

Page 4

Straits Times Index (Daily)

Source: DBS Bank

Bargain hunt oversold blue chips

We wrote in our previous monthly strategy to take profit on blue chip stocks such as Genting Singapore, SembCorp Marine, Keppel Corp and SPH as well as be watchful of short-term pullbacks on OCBC, SembCorp Industries, ST Engineering, Wilmar International and City Developments.

These stocks have corrected over the past month with Genting Singapore and Wilmar International underperforming the STI by a significant 11% and 6% respectively over the past month.

Going forward, we look to bargain hunt blue chips on which we have a BUY recommendation and offer good upside to our fundamental TP (refer to table below).

Property developers UOL and City Developments are among our Model Portfolio picks. Despite the prospect of rising US interest rates, property developer stocks can still be underpinned by the perceived policy loosening stance from the Singapore government. At 0.5x P/NAV (-2SD historical average), UOL is the cheapest large-cap landlord in Singapore and we believe that negatives from a weakening operating outlook have been priced in. City Developments has the largest exposure to the Singapore residential market at 27% of its RNAV. Possible inclusion into the FTSE EPRA/NAREIT

Global Developed Index (review date 2 June) could also underpin the stock.

Shares of SIA underperformed the STI over the past month, sold down after core earnings for the full year came in below expectations due to soft yields and wider losses at SIA Cargo. The stock fell to a low of $10.50 recently. The stock currently trades at 0.9x FY17F P/BV. We see limited downside from here and look to bargain hunt the stock should there be any moderate weakness to around the $10.25 level.

SembCorp Industries remain our preferred pick among the rig builders given its diverse earnings stream. SCI’s utilities business is valued at an undemanding 0.7x P/BV and 7.8x FY16F PE vs historical mean PE of 11x. It is one of the stocks in our Model Portfolio. The stock has corrected from a high of $3.28 in mid-March. Technically, the correction looks to have ended at the recent low of $2.60. Near-term support is at $2.72.

We like ST Engineering for its defensive nature with a healthy balance sheet and secure dividend payouts. Earlier this month, the Singapore government projected S$2.82bil of ICT tenders across fiscal year 2016. The Electronics division is well positioned to benefit from Smart Nation projects in Singapore going forward.

Switching from a cautious tone to a neutral or even cautiously optimistic one

Market Focus

Monthly Strategy

Page 5

STI Component stocks

Company Price ($) 27 May

Target Price

Target Return

Rcmd PER 16 (x)

PER 17 (x)

EPS Growth 16 (%)

EPS Growth 17 (%)

Div Yield 16 (%)

Net Debt / Equity 16 (%)

P/BV 15 (x)

1m Perf Rel STI

GLP 1.790 2.47 38% BUY 22.9 19.8 nm 15.6 3.8 0.4 0.7 (6)

Yangzijiang 0.925 1.25 35% BUY 8.0 7.9 12.9 0.5 4.5 cash 0.8 (5)

UOL 5.680 7.39 30% BUY 10.0 9.4 32.2 5.7 2.6 0.3 0.6 (5)

HPH Trust (US$) 0.445 0.57 28% BUY 20.9 19.9 -15.7 4.9 8.5 0.4 0.7 1

CapitaLand 2.980 3.70 24% BUY 16.4 13.9 -27.2 17.5 3.0 0.6 0.7 (3)

SIA 10.620 12.50 18% BUY 14.5 12.8 5.7 13.8 4.7 cash 1.0 (5)

ComfortDelgro 2.770 3.23 17% BUY 17.9 16.1 9.7 11.0 3.7 cash 2.5 (1)

CityDev 8.350 9.60 15% BUY 13.8 13.2 26.4 4.0 1.4 0.3 0.8 (0)

CCT 1.410 1.61 14% BUY 16.9 16.2 3.1 4.8 6.4 0.4 0.8 2

ST Eng 3.210 3.55 11% BUY 19.7 18.8 -4.5 5.0 4.7 0.0 4.7 2

SCI 2.810 3.10 10% BUY 9.4 8.5 -2.8 10.5 3.6 0.7 0.8 (2)

AREIT 2.320 2.50 8% BUY 15.7 15.5 8.4 1.0 6.4 0.3 1.1 (3)

Thai Bev 0.895 0.92 3% BUY 21.2 19.6 3.6 8.2 2.9 0.2 5.0 22

SPH 3.900 3.50 -10% FV 23.5 24.1 -7.2 -2.3 4.9 0.1 1.7 (2)

SMM 1.560 1.24 -21% FV 14.6 13.5 nm 8.3 2.4 0.9 1.3 (4)

SingTel 3.930 - - - - - - - - - - 5

Wilmar 3.340 3.75 12% HOLD 14.6 13.8 -6.8 6.1 2.5 0.8 1.0 (6)

OCBC 8.560 9.40 10% HOLD 9.0 8.4 -0.1 6.4 4.2 cash 1.0 (2)

CMT 2.050 2.20 8% HOLD 17.2 17.0 5.5 1.6 5.8 0.3 1.1 1

Genting 0.735 0.79 7% HOLD 26.0 21.2 47.1 22.6 1.4 cash 1.2 (11)

UOB 18.210 18.80 3% HOLD 9.0 8.5 2.3 6.2 4.1 cash 1.0 (1)

SIA Eng 3.790 3.84 1% HOLD 23.3 22.4 0.9 4.2 3.8 cash 2.9 2

SGX 7.640 7.70 1% HOLD 23.2 22.0 1.3 5.8 3.9 cash 8.4 2

SATS Ltd 4.180 4.18 0% HOLD 19.2 18.8 9.2 2.6 3.8 cash 3.1 7

StarHub Limited 3.520 3.30 -6% HOLD 16.5 16.9 3.5 -2.4 5.7 2.4 32.5 9

Source: DBS Bank

Tactical trade on banks

Bank stocks can be underpinned by rising expectations that the FED will hike rates at the July FOMC meeting and possibly another time before year-end. Investors are likely to be comforted that US rate hikes are dependent on economic data strength. That is, better economy equals higher rates.

Our banking analyst currently has HOLD recommendations on both OCBC and UOB.

But on the charts, we believe that OCBC shares had found support recently at slightly below the $8.30 level. We lift near-term support to $8.50 and see upside bias to around $8.85 followed by $9.10. The recent correction for UOB shares looked to have found support at $17.45. We lift near-term support to around $18 and sees upside bias to $18.90.

Bank stocks are sector leaders in the event of an economic recovery. While it is still early days, bank stocks could eventually rise to or even take out their April highs if Singapore’s economic data improves and corporate earnings' downward revision trend halts or turns up.

Bank stocks – Edging higher

Banks Price ($)

April high ($)

Technicals Fundamental

Support Resistance Rec'n TP ($)

OCBC 8.56 9.45 8.50, 8.35 8.85, 9.1 HOLD 9.4

UOB 18.21 20 18, 17.77 18.90, 19.20 HOLD 18.8

Source: DBS Bank

Market Focus

Monthly Strategy

Page 6

Our Picks

Pric e Ta rge t Entry Entry Div

Mkt Ca p (S$) Pri c e ups ide Da te Pric e P/E (x) P/E (x) Yld (%) Re c 'n

(S$m) 26-Ma y ($ ) (%) ($) FY16F FY17F FY16F FY17F FY16FConse rva ti veFrasers Centrepoint Trust 1,835.2 1.98 2.10 6.1 10-Feb-16 1.90 4.2 18.3 18.0 (2.0) 1.6 5.8 BUYSheng Siong Group 1,308.1 0.875 1.04 18.5 10-Feb-16 0.845 3.6 21.5 20.5 7.0 5.3 4.3 BUY

Ba la nce dARA Asset Mgt 1,321.4 1.350 1.57 16.3 10-Feb-16 1.055 28.0 15.9 15.3 (7.3) 4.0 3.8 BUYUOL Group 4,506.6 5.70 7.39 29.7 18-May-16 5.72 (0.3) 10.0 9.4 32.2 5.7 2.7 BUY

GrowthJapfa 1,297.0 0.72 1.10 52.8 10-Feb-16 0.49 46.9 9.0 6.4 52.9 39.8 - BUYSembCorp Inds 4,932.5 2.79 3.10 11.1 10-Feb-16 2.46 13.4 9.2 8.4 (2.8) 10.5 3.7 BUY

Blue ChipsCapitaLand 12,597.6 2.94 3.70 25.9 10-Feb-16 2.90 1.4 16.2 13.8 (27.2) 17.5 3.0 BUYSembcorp Inds 4,932.5 2.79 3.10 11.1 10-Feb-16 2.46 13.4 9.2 8.4 (2.8) 10.5 3.7 BUYUOL Group 4,506.6 5.70 7.39 29.7 18-May-16 5.72 (0.3) 10.0 9.4 32.2 5.7 2.7 BUYCity Dev 7,465.4 8.33 9.60 15.3 26-May-16 8.33 0.0 13.5 13.0 26.4 4.0 1.4 BUY

Divide ndARA Asset Mgt 1,321.4 1.35 1.57 16.3 10-Feb-16 1.06 28.0 15.9 15.3 (7.3) 4.0 3.8 BUYFrasers Centrepoint Trust 1,835.2 1.98 2.10 6.1 10-Feb-16 1.90 4.2 18.3 18.0 (2.0) 1.6 5.8 BUYSheng Siong Group 1,308.1 0.88 1.04 18.5 10-Feb-16 0.85 3.6 21.5 20.5 7.0 5.3 4.3 BUY

Compa ny EPS Growth (%)

ga in /(loss ) % e xc l d iv

Source: DBS Bank

Company Reasons for Picks / Potential Catalysts

Frasers Centrepoint Trust Strong earnings resilience among REITs with downside risk protection Upside to earnings growth from AEI on major asset (northpoint) Yields of c.6% atttractive

Sheng Siong On track towards its 50-store target; margin expansion trend is performing to our expectations Dividend attractive at c.4%

ARA Asset Management Attractive valuations and yield of c.4% to 5%. ARA has a S$150m war chest, and is well positioned to capture opportunities that may arise in 2016.

UOL Cheapest large-cap developer in town, trading at an attractive 0.5x P/NAV, which is close to its – 2SD historical average

Japfa Growth drivers intact; expect EBITDA CAGR of 23% between FY15 and FY18F, mainly driven by higher dairy volumes.

To double dairy farm production capacity in China by constructing another five farm hubs in Inner Mongolia. SembCorp Industries Utilities business valued at an unjustifiably low valuation of 5x PE and 0.5x P/BV

SMM privatisation chatter unsubstantiated

CapitaLand Main business units delivering steady increases in performance Asset recycling of mature assets into REITs/Funds Growing recurring income base as retail malls in China stabilise

City Developments Possible inclusion into the FTSE EPRA/NAREIT Global Developed Index (review date 2 June) Improving investors’ sentiment towards property developers on hopes that the government may ease measures

Source: DBS Bank

Market Focus

Monthly Strategy

Page 7

Revisions to recommendations

Source: DBS Bank, Bloomberg Finance L.P.

Significant reports

Date Title Subtitle

Strategy

5 May, 2016 Small Mid Cap Monthly May resilience prevail

9 May, 2016 Wired Weekly 09-May-16

10 May, 2016 ASEAN Strategy Philippines : Downgrade to Underweight

16 May, 2016 Wired Weekly 16-May-16

16 May, 2016 Global ETF Strategy Weekly Global ETF Commentary

23 May, 2016 Wired Weekly 23-May-16

23 May, 2016 Global ETF Strategy Weekly Global ETF Commentary

Sector

3 May, 2016 DBS Driller ONGC jumps onto the shale bandwagon

9 May, 2016 DBS Driller Petrobras launches tender for floatel

16 May, 2016 ASEAN Telecom Sector Spotting winners & losers

16 May, 2016 DBS Driller Slower pace of inventory increases in 2H16

18 May, 2016 Asian Cloud & Data Centre Sector What to do in the face of Public Cloud?

23 May, 2016 DBS Driller Iran gives priority to Chinese oil giants

25 May, 2016 ASEAN Consumer: Food for thought Positive start to 1Q; steady plays  

Source: DBS Bank

Stock Name Current Previous Change Date

Indofood Agri Resources

HOLD

BUY

3 May, 2016

OCBC HOLD BUY 3 May, 2016 Innovalues Ltd HOLD BUY 4 May, 2016 Cosco Corporation HOLD FULLY VALUED 9 May, 2016 Riverstone Holdings HOLD BUY 9 May, 2016 UMS Holdings HOLD BUY 11 May, 2016 Wilmar International HOLD BUY 11 May, 2016 Pan -United Corporation FULLY VALUED HOLD 12 May, 2016 SIA Engineering HOLD BUY 12 May, 2016 Ascendas Hospitality Trust BUY HOLD 13 May, 2016 Vard Holdings HOLD FULLY VALUED 13 May, 2016 Croesus Retail Trust BUY HOLD 16 May, 2016 AIMS AMP Capital Industrial REIT Equity Explorer NOT RATED 24 May, 2016

 

Market Focus

Monthly Strategy

Page 8

STI Key Event Chart

‐2,500

2,550

2,600

2,650

2,700

2,750

2,800

2,850

2,900

2,950

3,000

Volume m-o-m

RMB devaluation

catch-up with regional markets' loss after CNY

Weak China trade data; Lower FED rate hike expectation before Fed meeting

Weak corporate results

Sliding oil prices Depreciation of RMB

STI valuation attractive at -2SD

Expectations of further monetary policies easing Pullback in USD Rebound in oil price

ST Index @ 26 May: 2773; -3.1% m-o-m; -3.4% YTDSTI

Average daily volume YTD: 1.58bn

PBOC cut requirement ratio rates by 50 basis points

ECB cut interest rates further

Fed left rate unchanged; scales back rate-hike forecasts to 2 in 2016

Funds inflow on weak USD/SGD

STI valuation moved up to -1SD

Downbeat global macro data, declining corporate earnings, likely US rate hike in Jun/ Jul

FOMC meeting suggested rate hike in Jun/Jul

Source: DBS Bank, Bloomberg Finance L.P. Best and worst performing stocks in DBS coverage in May

Big Caps (>US$2bn) Small & Mid Caps (<US$2bn)

-22 -17 -12 -7 -2 3 8 13 18

JardineC&C

First Resources

Genting

GLP

Yangzijiang

Wilmar

Singapore Airlines

UOL

UOB

SembCorp Marine

Singapore Exchange

Mapletree Greater China Commercial …

Keppel REIT

SIA Engineering

Raffles Medical

F & N

SATS Ltd

Olam

StarHub Limited

Thai Beverage

-40 -30 -20 -10 0 10 20

Noble Group

Ezra Holdings

Trendlines Group

Pan-United Corp

Starburst

Pacific Radiance

Tat Hong

Nam Cheong

Super Group

Mapletree Logistics Trust

OUE Commercial REIT

SMRT

Religare Health Trust

Keppel Infrastructure Trust

Courts Asia

Japfa Ltd

CWT Limitd

ARA Asset Management

MM2 Asia

China Merchants

Source: DBS Bank, Bloomberg Finance L.P.

Market Focus

Monthly Strategy

Page 9

Macro Data

Key Data Period m-o-m / y-o-y chg

Prev./ Consensus (y-o-y)

GDP 1Q16 +0.2% / +1.8%

+1.8% / +1.9% Singapore's economy in the first quarter of this year was largely within expectations with a 1.8% y-o-y expansion, as the manufacturing posted a better showing than predicted earlier while the services sector slipped. The headline number remained unchanged from the flash estimates. On the back of this, the Singapore government is maintaining its forecast of a 1-3% growth in 2016 for the economy.

NODX Apr-16 +4.5% / -7.9%

-15.6% / -8.4% Singapore’s non-oil domestic exports (NODX) continued to tumble in April from a year ago. Last month's NODX fell 7.9% y-o-y - not as bad as the 8.4% decline consensus was looking at, or March's 15.7% plunge. Month-on-month, the NODX rose a seasonally adjusted 4.5% to extend the 0.1% increase a month earlier. After sinking 30.9% in March, pharmaceutical shipments bounced back with a 17.9% jump last month. But the overall non-electronic NODX still slipped 8.1% in April, following an 18% fall in the previous month. Electronic NODX fell 7.4%, against a 9.1% drop in March. Taiwan, South Korea and Indonesia were the biggest contributors to the NODX decline last month.

CPI Apr-16 -0.1% / -0.5%

-1.0%/ -0.7%

April CPI dipped 0.5% y-o-y. This was a smaller drop than the 1% fall in March. It also beat market consensus. Core inflation, which strips out accommodation and private road transport costs, also increased at a faster pace in April. It went up by 0.8% from a year ago, as compared to 0.6% in March.

PMI Apr-16 49.8 49.4/ 49.5 Singapore’s manufacturing sector, though still stuck in a ten-month recession, saw a broad-based recovery in activity in April. April's reading was 49.8, a 0.4-point improvement from March. The index for new orders rose by 0.6 point to 49.8 in April - the highest level in nine months. New export orders rose, too, by 0.5 point to 49.6, its highest in five months. Order backlog expanded for the first time after previously recording 14 consecutive months of contraction. It was at 50.5, up from 49.4 in March.

Retail Sales Mar-16

-1.4% /+5.1%

-3.2% / +3.6% Car sales continued to inflate the overall retail sales numbers, even as headline figures continued to soften. On a y-o-y basis, March headline retail sales jumped 5.1%. This was boosted by a 41.3% increase in car sales, which account for 10.8% of the total weightage in the headline figure. When compared to February, headline figure for sales in March had softened by 1.4%; motor sales fell by 4.8%. Excluding motor sales, sales recorded a 2.2% y-o-y fall. This comes after a 9.5 % y-o-y fall in February. Similarly, March recorded a 0.6% fall from February's numbers, which extends softening sales into the fourth straight month.

Manufacturing Output

Apr-16 +4.8% / -2.9%

-0.5% / -0.2% Manufacturing output in Singapore rose a surprise 2.9% in April from a year ago, boosted by strong growth in the biomedical and semiconductor sectors. Excluding the biomedical sector, factory output was down 0.1 for the month. The biomedical manufacturing cluster’s output jumped 14.9%, driven by a 17.7% output increase in the pharmaceuticals segment and a 5.4% increase in the medical technology segment. Output of the electronics sector rose 10.9%, boosted by a 24.2% increase in the semiconductor segment.

Source: DBS Bank, Bloomberg Finance L.P.

Market Focus

Monthly Strategy

Page 10

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd,

its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may

be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard

to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of

addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal

or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of

profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This

document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it

may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 31 May 2016,

the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities

recommended in this report (“interest” includes direct or indirect ownership of securities).

Market Focus

Monthly Strategy

Page 11

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in

Ascendas Hospitality Trust, Ascendas REIT, CapitaLand, CapitaLand Commercial Trust, CapitaLand Mall Trust, City Development,

ComfortDelgro, Cosco Corporation, Croesus Retail Trust, Frasers Centrepoint Trust, Genting Singapore, Global Logistic Properties, Hutchison

Port Holdings Trust, Indofood Agri Resources, Jardine Cycle & Carriage, Keppel Corporation, OCBC, SATS, Sembcorp Industries, Sembcorp

Marine, Sheng Siong Group, Singapore Airlines, Singapore Exchange, SingTel, SPH, ST Engineering, StarHub, Thai Beverage Public Company,

UOB, UOL Group, Wilmar International, Yangzijiang Shipbuilding recommended in this report as of 30 Apr 2016

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity

securities of Croesus Retail Trust as of 30 Apr 2016.

4. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity

securities of Croesus Retail Trust as of 30 Apr 2016

5. Compensation for investment banking services:

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from ARA Asset Management, Ascendas REIT, CapitaLand Commercial Trust, City Development, Croesus Retail

Trust, Global Logistic Properties, Keppel Corporation, Sembcorp Industries, Singapore Airlines, SingTel as of 30 Apr 2016.

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek

compensation for investment banking services from Croesus Retail Trust as of 30 Apr 2016.

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for

ARA Asset Management, Ascendas REIT, CapitaLand Commercial Trust, City Development, Croesus Retail Trust, Global Logistic Properties,

Keppel Corporation, Sembcorp Industries, SingTel in the past 12 months, as of 30 Apr 2016.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

6. Directorship/trustee interests:

Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of CapitaLand as of 29 Feb 2016.

Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Chairman of CapitaLand Malls Trust Mgmt Ltd as of 29 Feb

2016.

Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 29 Feb 2016.

Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 29 Feb 2016.

Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 29 Feb 2016.

Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Deputy Chairman of Singapore Airlines as of 29 Feb 2016

Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Director of Starhub as of 29 Feb 2016.

Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 29 Feb 2016.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Market Focus

Monthly Strategy

Page 12

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982

Tel. 65-6878 8888

Company Regn. No. 196800306E