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Impact of Japan quake on Singapore stocks limited

Singapore Market Strategy: Impact of Japan quake on Singapore stocks limited
Summary Impact of Japan quake on Singapore stocks limited

Following Japan’s 8.9-magnitude earthquake and the subsequent tsunami, widespread damage has been reported and a nuclear power plant in Fukushima has also encountered radiation leaks. Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said the economic impact will exceed the JPY20t (US$243b) in the damage sustained in the 1995 Kobe earthquake. In this report, we examine its impact on SGX-listed companies.

Amongst the STI constituent stocks under our coverage, SIA’s (BUY, TP:S$17.20) impact is probably larger than the rest. SIA has a high flight capacity exposure (Nagoya, Osaka, Fukuoka and Narita), which could face a risk of poor load factor. While management has yet to disclose the exact capacity exposed in its Japanese routes, we estimate that SIA risks recording low load factor for 15%-18% of its total capacity. For Tiger Airways (BUY, TP:S$1.65), a budget airline, we do not expect any negative impact from the Japan quake as it currently does not operate any flights to Japan. In fact with the catastrophe in Japan, tourists will be deferring their holiday plans there hence there may likely be an increase in travel to other destinations which Tiger services.

The impact is minimal for most of the other sectors.

The Singapore banks are primarily exposed to the ASEAN and HK markets and have minimal exposure to Japan.
As for the oil & gas segment, Keppel Corp (BUY, TP:S$13.94) has a stake in a Japan unit involved in fabrication and supply of specialized steel parts, but this unit’s earnings contribution share to Keppel is insignificant.
The REITS under our coverage have no significant assets in Japan, except for ParkwayLife REIT, which has some exposure in Japan (33% of portfolio value), but most of their properties are located in regions which are relatively less affected by the earthquake, and none are within the evacuation zones of the nuclear plants.
Small impact on commodity counters. Noble (BUY, TP:S$2.58) and Olam (BUY, TP:S$3.70) have little exposure to Japan. Straits Asia Resources (SAR) (NEUTRAL, TP:S$2.49) sells coal to Japan and coal power as an alternative to nuclear could lead to higher coal prices, a positive for SAR.
Negligible impact on telcos. Singtel (NEUTRAL, TP:S$3.00) has the largest proportion of mobile revenue coming from roaming at 20-25% but Japan is not a key contributor in terms of outbound roaming revenue.

adapted from DMG research

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