Singapore Stock Alpha Picks - UOB Kay Hian 2017-09-05: Updating Picks For September 2017

Singapore Stock Alpha Picks - UOB Kay Hian 2017-09-05: Updating Picks For September Singapore Stock Picks Singapore Stocks to buy now CITYNEON HOLDINGS LIMITED 5HJ.SI WING TAI HLDGS LTD W05.SI CITIC ENVIROTECH LTD. CEE.SI MEMTECH INTERNATIONAL LTD BOL.SI SATS LTD. S58.SI

Singapore Stock Alpha Picks - Updating Picks For September


STRATEGY – SINGAPORE 

  • We add Wing Tai and Cityneon as our new conviction calls and remove ISDN.


WHAT’S NEW


Reviewing August picks. 

  • Our 2017 August alpha picks had a mixed performance in August. Tianjin was a standout performer, rising 13% mom in August, whereas Memtech was disappointing as the stock declined 5% mom. 
  • We keep our faith in Memtech as we expect near-term earnings momentum to remain intact with a potential dividend surprise when 4Q17 results are released. 
  • SATS was flat whereas Thai Bev declined 2.6% mom compared to the FSSTI’s 1.6% mom decline in August.


ACTION 


Adding Cityneon and Wing Tai. 

  • We include Cityneon and Wing Tai in our alpha picks list and remove ISDN in view of market volatility. 
  • Cityneon looks attractive given its inexpensive valuation, at FY18F PE of 10x compared to peers’ 15x, and its recent acquisition of Jurassic Park Exhibitions (JPE) at 5x earnings is accretive. 
  • Wing Tai is an attractive developer with low gearing and trading at a steep discount of 39% to our RNAV estimate of S$3.48.


Wing Tai – BUY (Vikrant Pandey) 

  • BUY with RNAV-based target price of S$2,61. Our target price is pegged at a 25% discount to RNAV of S$3.48/share. Wing Tai is trading at a P/B of 0.52x (lowest within our coverage) and a deep 39% discount to its RNAV.
  • Wing Tai has a low gearing of 2.4% (lowest within our coverage), positioning it well to deploy its sizeable debt headroom of S$1.5b (assuming comfortable net gearing level of 50%). We believe Wing Tai will further deepen its footprint in Singapore, Malaysia (post privatisation completion) and Australia.
  • Share Price Catalyst Event: Launch of the recently-acquired Serangoon North Avenue 1 site. Wing Tai plans to develop over 600 homes on the 99-year leasehold residential site with a GFA of 462,561sf, situated within a mature residential estate in the Serangoon Garden area. We also see potential for Wing Tai to buy more landbank given its S$1.5b acquisition headroom.
  • Timeline: Potential 6-9 months for landbank acquisition or launch of its Serangoon North Avenue 1 site.


Cityneon – BUY (Nicholas Leow/Andrew Chow) 

  • Accretive acquisition of JPE at 5x earnings with a profit target. This would be Cityneon’s third Intellectual Property (IP) and is a new growth driver.
  • We have a street-high PE-based target of S$1.50. Cityneon’s FY18F PE of 10x is cheap compared to its peers’ valuation of 15x.
  • Share Price Catalyst Event: Further orderbook wins and possibly more new IP rights over the next 12 months. Stronger-than-expected performance from the traditional business could be a catalyst.
  • Timeline: We expect new orderbook wins over the next 3-6 months to provide further earnings visibility.


SATS – BUY (K Ajith) 

  • Potential beneficiary of Qantas’ return to Changi Airport after a five-year hiatus, making Changi its largest hub outside of Australia. SATS is already providing catering and ground handling services to Qantas’ sister airline Jetstar.
  • SIA’s pax yields have shown sequential improvement for two quarters, with yield declining just 1.9% yoy in 1QFY18. SATS’ inflight catering ASP will likely stabilise in the coming quarters as pressure on airline yields abates.
  • We expect SATS to benefit from higher gateway services revenue, driven by strong global cargo volumes. We think SATS is a better play compared to SIA on stabilising pax yields or higher cargo throughput given SIA’s exposure to volatile fuel prices.
  • Our target price of S$5.40 implies FY18F PE of 23.5x and dividend yield of 3.5%. 
  • Share Price Catalyst Event: Higher cargo volumes, stabilising inflight catering ASP. 
  • Timeline: Release of 2QFY18F results in November.


Thai Beverage – BUY (Thai Wei Ying/Andrew Chow) 

  • An excise tax hike is expected on 16 Sep 17. We expect increased sales volume in 4Q17, as sales agents typically build up inventory ahead of excise tax hikes. Also, there could be margin expansion as THBEV is able to pass through 100% or more of the excise tax increase to customers through higher ASPs.
  • We have a SOTP-based target price of S$1.09 for THBEV. THBEV is trading at 2017F PE of 20.0x, which is still lower than global average of 32.7x 2017F PE for spirits peers, 23.7x for beer companies and 27.5x for NAB companies 
  • Share Price Catalyst Event: Recovery of alcohol consumption will likely enhance earnings for 4Q17. We also expect increased sales volume in 4Q17 prior to the excise tax hike in September and the end of the mourning period.
  • Timeline: Excise tax hike in 16 Sep and 4QFY17 earnings release.


Tianjin ZhongXin – BUY (Edison Chen/Yeo Hai Wei) 

  • BUY with a US$1.66 target price, based on peers’ average FY18F PE of 15.5x A renowned TCM pharmaceutical giant, TJZX presents a unique opportunity with a deep discount between its A- and S-shares.
  • The latest reforms could unlock great value with delisting possible while its strong brand equity and R&D efforts (851 patents) make it a winner in a growing TCM pie.
  • We expect ASP hikes to lead to a 14.9% net profit CAGR in 2016-19 with 2018 net cash of US$0.17/share and 3.8% yield.
  • Share Price Catalyst Event: Earnings/dividend upside or M&A newsflow.
  • Timeline: 3Q17 results as higher ASPs gradually flow through to earnings and potential upside from SOE reforms.


Memtech – BUY (Nicholas Leow/Edison Chen) 

  • Memtech’s R&D team specialising in material sciences has given the company a competitive edge in this industry. The company holds more than 120 patents.
  • Its crown jewel is its manufacturing process for liquid silicone rubber (LSR) which allows it to break into the Beats by Dre supply chain. Our channel checks indicate Memtech is one of the world’s leading precision engineering manufacturers of LSR products.
  • Maintain BUY and PE-based target price of S$1.15, pegged at sector FY17 PE of 12.5x. 
  • Share Price Catalyst Event: Better-than-expected earnings and dividends.
  • Timeline: 3Q17 results in November.


Citic Envirotech – BUY (Edison Chen/Nicholas Leow) 

  • We have a street-high DCF-based target price of S$1.10, implying a 43% upside.
  • Citic Envirotech is the best in class with superior technology know-how protected by a suite of intellectual property rights.
  • Riding on favourable industry dynamics and the entry of a new strategic shareholder, investors can look forward to new areas of growth in river rehabilitation, sludge treatment and the circular economy.
  • Share Price Catalyst Event: Potential contract wins that could underpin FY17-18 earnings.
  • Timeline: 3-6 months as clean water is a high priority for the Chinese government. This would benefit the company, which has an impressive track record and technology.




Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-09-05
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.500 Same 1.500
BUY Maintain BUY 2.610 Same 2.610
BUY Maintain BUY 1.100 Same 1.100
BUY Maintain BUY 1.180 Same 1.180
BUY Maintain BUY 5.400 Same 5.400



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