Alpha picks for 2017 (Large Cap) - CIMB Research 2017-03-04: Hunt for laggards

Singapore Strategy - CIMB Research 2017-03-04: Hunt for laggards Analysts Alpha Picks 2017 Singapore Stock Large Caps FRASERS CENTREPOINT LIMITED TQ5.SI SINGAPORE TECH ENGINEERING LTD S63.SI VENTURE CORPORATION LIMITED V03.SI UOL GROUP LIMITED U14.SI FIRST RESOURCES LIMITED EB5.SI

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.



Also Read





LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-03-04
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.020 Same 2.020
ADD Maintain ADD 3.820 Same 3.820
ADD Maintain ADD 11.500 Same 11.500
ADD Maintain ADD 7.960 Same 7.960
ADD Maintain ADD 2.320 Same 2.320





MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......


Analysts Say...


loading.......



Advertisement