CIMB analysts’ Alpha picks for 2017 (Large Cap)
- We reshuffled some of our Alpha picks due to outperformance.
- We remove Dairy Farm on outperformance and replace it with FCL.
- We keep STE, Venture Corp, UOL and First Resources in the big-cap alpha list.
- Singpost is on our watch list for post impairment and new CEO.
First Resources (TP S$2.32)
- First Resources trades at P/Es of 13x for FY17 and 10x for FY18, below the regional plantation sector average P/E of 18x for FY17. Our target price of S$2.32 is based on an FY18 P/E of 13x, the stock’s average historical P/E.
- First Resources is our top pick among the Singapore planters due to its superior operating efficiency compared to peers, strong FFB output growth prospects and attractive P/E valuations vs. peers.
- A potential re-rating catalyst is stronger-than-expected earnings. Key risks are lower CPO prices and production.
Frasers Centrepoint Ltd (Add, TP S$2.02)
- FCL is trading at a 43% discount to RNAV and offers a potential dividend yield of 5.2%, one of the highest among listed developers. With strong earnings visibility and a robust balance sheet and gearing of 65%, we see any reinvestment of capital into new projects as a catalyst.
- The planned launch of Seaside Residences in 2QFY17 further extends Singapore’s residential earnings visibility. There is a remaining S$0.7bn of unrecognised billings from Singapore projects.
- Meanwhile, we expect Australian residential recognition to pick up, with a further 2,700 homes to be completed in the rest of FY17. There is a balance of S$2.3bn of unrecognised residential billings from the Australian projects.
- A potential restructuring of ThaiBev’s associate stake in FCL could re-rate the stock.
ST Engineering (Add, TP S$3.82)
- We like STE as a proxy for the stronger US economy and US$. Its net cash is a plus in a higher interest rate environment.
- The worst could be over for land systems and marine after the disposal of its loss-making Chinese operations and recovering oil price for the latter.
- Smart nations and technology awareness will continue to support order wins in electronics.
- US MRO hangars could see a higher number of shop visits riding on better profits for the airlines.
UOL SP (Add, TP S$7.96)
- We continue to like UOL for its high recurrent income base, making up c.83% of EBIT (including UIC).
- Residential earnings stream is visible with a good take-up rate from ongoing projects and planned new launch of The Clement Canopy in 1Q17.
- Potential for corporate exercise for its associate UIC as the group raises its total deemed stake in the latter to 49.6%.
- The stock trades at c.30% discount to its RNAV.
Venture Corp (Add, TP S$11.50)
- Venture is trading at FY17F and FY18F P/E multiples of 14.2x and 12.9x, respectively, vs. core EPS growth of 15.4%/10.1%. The company is well managed with a net cash balance sheet and strong free cashflow generation.
- Venture reported an excellent 4Q16 with strong growth in the higher margin test & measurement/others segment. The well-sustained S$0.50 DPS (4.8% yield) with room for possible dividend upside is well liked by the market.
- 1Q17 results will provide some colour if Venture is headed for a period of higher earnings growth. This could be a key share price re-rating catalyst.
CIMB analysts’ Alpha picks for 2017 (Small Cap)
Best World (Add, TP S$2.97)
- The stock’s valuations are undemanding at just 11x forward P/E. This is below peers’ 16x and its historical peak band of 15-18x during its last earnings upcycle.
- FY17 is poised to be another record year as Best World converts its distribution in China to its core direct selling model. This is set to propel the group to a new level of profitability. Also, sales growth momentum in Taiwan remains strong on the back of increased product acceptance. The stock offers a 3% yield.
- Risks include regulatory changes or poor execution in China.
CSE Limited (Add, TP S$0.59)
- CSE Global looks to repeat FY16’s core net profit (US$21.0m) in FY17, signalling a bottom to the earnings slide. FY16 was a tough year, with core net profit narrowing 31.4% yoy (vs. US$34.1m in FY15).
- Its guidance is heartening; implies improved contract flows and several large greenfield projects given end- 16 order backlog was low at S$163m (vs. FY15: S$192.7m).
- Stock is a safe bet, with net cash position of S$70.2m (13.6 Scts/share); guaranteed DPS of 2.75 Scts (c.5.7% dividend yield).
- Target price is S$0.59, based on 12x FY18F P/E (historical 5-year average mean).
Cityneon (Add, TP S$1.27)
- FY16 was only the start of multi-year earnings growth for Cityneon, having secured and developed the licensing rights for Avengers S.T.A.T.I.O.N. and Transformers.
- Our current Add call and target price are premised on 15x FY18 P/E (10% discount to peers’ average) and 34-120% EPS growth in FY17-18F.
- We believe catalysts could be more travelling sets and the potential acquisition of more IPs in 2017.
Sunningdale Tech (Add, TP S$1.56)
- Sunningdale Tech trades at 8.7x/8.4x FY17F/FY18F P/E. Earnings growth is muted at 4.3% for FY18F with low ROEs of 8%.
- Over the years, despite the challenging industry conditions, Sunningdale has managed to stay profitable and has been rewarding shareholders with dividends. FY16 DPS was raised to S$0.06 (FY15: S$0.05).
- We believe that the company will continue to improve its cost efficiency and capitalise on its global manufacturing footprint. Trading at just 3.0x/2.5x FY17F/FY18F EV/EBITDA, it could also be of interest to private equity funds.
Talkmed (Add, TP S$1.83)
- Talkmed’s surprise decision to propose a 1 for 1 bonus issue nudges us to believe that major shareholders are now more receptive to improving shareholder value.
- We believe that accretive M&As are the way to go for fast growth. Talkmed has a strong net cash balance sheet (zero debt) to fund potential acquisitions.
- While there is some worry over any negative outcome from Dr Ang’s appeal against the Singapore medical Council, any positive outcome could also re-rate the shares immediately.
UMS Holdings (TP S$0.82)
- UMS has successfully renewed its manufacturing contract with key customer Applied Materials for another three years (with an option to renew for a subsequent three years). This removes market concerns over the loss of business.
- Industry forecaster SEMI expects the global semiconductor manufacturing equipment industry to grow by 9.3% in CY17. Applied Materials is also expecting a strong 2017.
- The company has been a consistent dividend payer due to its limited capex. Dividend yields over FY17F- 19F are 8.9%.
Valuetronics (Add, TP S$0.72)
- We think Valuetronics is still cheap at 9x FY17 P/E (4x ex-cash), given its sustainable earnings growth of 6- 13% for FY3/17-19F, and cash-generative business.
- Its penetration into the automotive sector and increasing exposure to Internet of Things (IOT) have not been fully priced in, in our view. The stock also offers a 6% dividend yield.
- Continued order wins and higher-than-expected dividend payout could catalyse the stock; key risk is unexpected order delays or cancellations.