Singapore Small Mid Cap Stocks Strategy - DBS Research 2017-12-05: More room to grow for second-liner property stocks and construction-related plays



Singapore Small Mid Cap Stocks Strategy - DBS Vickers 2017-12-05: Property-driven Recovery Plays Singapore Small Mid Cap Stock Picks SMC Strategy Stocks To Buy APAC REALTY LIMITED CLN.SI LIAN BENG GROUP LTD L03.SI TIONG SENG HOLDINGS LIMITED BFI.SI HONG FOK CORPORATION LTD H30.SI CHIP ENG SENG CORPORATION LTD C29.SI KEONG HONG HOLDINGS LIMITED 5TT.SI TIONG SENG HOLDINGS LIMITED BFI.SI PAN-UNITED CORPORATION LTD P52.SI

Singapore Small Mid Cap Stocks Strategy - More room to grow for second-liner property stocks and construction-related plays 

  • With the economy projected to register GDP growth of 3.2% this year and 3.0% in 2018, this should provide a backdrop for these economy-dependent sectors. We believe that there is still room for growth for the SMC property and construction-related plays, as we are expecting the property market to continue its recovery path.
  • Within this space, we like Chip Eng Seng and APAC Realty, and also highlight several other potential beneficiaries including Hong Fok, Hock Lian Seng, Lian Beng, Tiong Seng and Keong Hong.



Chip Eng Seng (BUY, TP: S$1.18).

  • With over S$1bn in presales to be recognised in coming years and upcoming launches in 2018/2019, we believe that integrated property developer Chip Eng Seng (CES) has strong capability to leverage on the upcoming property upturn. In addition to revenue visibility from a construction net order book of S$458.4m (as at end-3Q17), a growing investment and hotel portfolio also offers stability – strengthening its earnings profile.
  • The group has also built up a sizeable hotel and commercial portfolio and the potential unlocking of its undervalued crown jewel, Park Hotel Alexandra, carries potential upside of 27 Scts to current NAV.
  • We have a BUY call on CES with an SOTP-based TP of S$1.18, which is based on a conservative 45% discount (vs larger peers’ 10%) to RNAV of S$1.88 and valuing its construction business at peers’ average of 8x FY18F PE. A prospective 4.2% yield is also on offer.
  • Report: Chip Eng Seng - DBS Research 2017-11-06: Unwarranted Correction A Buying Opportunity


APAC Realty (BUY; TP: S$1.12) 

  • APAC Realty is the purest proxy to Singapore residential volumes. Our property team is expecting transaction value to hit S$40.0bn for FY2017F (+40% y-o-y), S$42.2bn for FY2018F (+5% y-o-y) and S$44.3bn for FY2019F (+5% y-o-y) for the total private residential market, including both primary and secondary markets. 
  • ERA Realty, a wholly-owned subsidiary of APAC Realty, is one of Singapore’s largest real estate agencies with approximately 6,176 registered agents, as at 10 July 2017.
  • We believe that APAC Realty remains poised to deliver a robust 10% 2-year CAGR in EPS on the back of an upturn in the Singapore residential market.
  • Report: APAC Realty - DBS Research 2017-11-13: All Guns Blazing


Lian Beng (NOT RATED, fair value: S$0.85) 

  • Lian Beng is one of Singapore’s leading construction groups and through successful forays into the complementary property development and property investment segments, has gained substantial scale and scope.
  • The newly replenished construction order book of c.S$836m – after securing c.S$300m worth of contracts over the last three months - provides strong earnings visibility, while upcoming sales launches in 2018 are set to drive the group’s profitability in the medium term. Supported by an investment portfolio valued at over S$1bn, Lian Beng’s recurring income pool is set to remain on a steady growth path following recent acquisitions, providing the group with a steady earnings base.
  • Steering a path of stability and growth, we see the company as a steady proxy to a recovery in the property market. After imputing a 50% discount to RNAV of S$1.37 per share and valuing its construction arm at peers’ average of 8x FY18F PE, we arrive at an SOTP-based fair value of S$0.85. 
  • Further, the proposed spin-off of its property development business could help unlock value for shareholders, while its attractive exposure to Gaobeidian could provide further upside.
  • Report: Lian Beng Group - DBS Research 2017-12-05: Steering A Path Of Stability And Growth


Hock Lian Seng (NOT RATED, fair value: S$0.58) 

  • Given its track record and extensive experience in civil engineering projects of different scales and complexities, Hock Lian Seng is a beneficiary of the Singapore government’s plans to push out a strong pipeline of large- scale infrastructure projects over the next few years.
  • Meanwhile, its substantial construction order book of c.S$830m (as at end-2Q17) offers visibility. We predict that earnings could nearly double from S$13.8m in FY17F to S$27m in FY18F, with possible upside from Shine @ Tuas South.
  • The company is also cash-rich, sitting on c.22.6 Scts per share and despite strong business fundamentals (reflected in its superior margins), trades at a discount to peers’ average of 11x FY18F PE (and under 5x on an ex-cash basis). We see fair value for Hock Lian Seng at S$0.58 per share (based on 11x FY18F PE), with a prospective 5.5% yield.
  • Report: Hock Lian Seng Holdings - DBS Research 2017-12-05: Cash Rich With An Option On Shine


Hong Fok (NOT RATED, fair value: S$1.31) 

  • Hong Fok is an integrated property developer and investor, with a quality portfolio of commercial assets in downtown Singapore. EBITDA is set to double post the opening of YOTEL Singapore Orchard in October 2017 and as development sales for its Concourse Skyline and Jewel of Balmoral projects are poised to improve on the back of the robust residential backdrop.
  • Record bids at the Beach Road commercial site also imply significant upside to capital values for The Concourse, while prime freehold properties International Building and YOTEL could attract strong demand from international investors.
  • After imputing a 40% discount to RNAV (based on the valuation of existing investment and development properties), we arrive at a fair value of S$1.31 per share for Hong Fok.
  • Report: Hong Fok Corp - DBS Research 2017-12-01: Prime Assets Going For A Song


Keong Hong (NOT RATED, fair value: S$0.75) 

  • Keong Hong is a construction cum property development and investment player poised to ride on the potential upturn in the Singapore property market. To expand its portfolio and to grow a sustainable source of cash flows and recurring income, Keong Hong has also ventured into hospitality and commercial segments.
  • Keong Hong is currently trading at an exceptionally low PE of only 4.3x FY18F earnings despite a healthy order book ahead. We have a fair value of S$0.75 per share, based on 5.5x FY18F PE, a steep 50% discount to peers.
  • Report: Keong Hong Holdings Limited - DBS Research 2017-12-05: Too Cheap To Ignorer


Tiong Seng (NOT RATED, fair value: S$0.45) 

  • We see Tiong Seng as a beneficiary of renewed activity in the residential sector. One of the largest providers of prefab solutions in Singapore, Tiong Seng has a track record of constructing public and private residential buildings. 
  • With the government’s drive to improve productivity in the construction sector through prefab technology, Tiong Seng will be one of the potential beneficiaries if construction activity in the residential space picks up from 2018. We think the stock's fair value is S$0.45, pegged to an average of 6.6x FY18F PE and 0.6x book value.
  • Report: Tiong Seng Holdings - DBS Research 2017-12-05: Beneficiary Of Residential Projects


Pan-United (FULLY VALUED, TP: S$0.51).

  • We see downside to Pan-United due to the following:
    1. Demand for Ready-Mixed Concrete (RMC) is likely to remain subdued as off-site construction processes such as prefabrication are expected to increase, leading to a moderation of on-site building construction processes,
    2. Interim dividend cut for FY17 potentially signals risks of future DPS reduction and lower dividend yield, and
    3. Following a 1-for-4 rights issue in July, its share base has now increased to 700m shares with 25% dilution and no significant increase in earnings projection.
  • The full impact of EPS dilution will be felt from FY18F. PanUnited’s capital will be reduced by S$139m (amounting to S$0.20 per share) if the listing of its port on the Hong Kong Stock Exchange is successful. We see the stock price drifting into negative territory.
  • Report: Pan-United Corporation (PAN SP) - DBS Research 2017-11-13: RMC Business Still Muted






Lee Keng LING DBS Vickers | Carmen TAY DBS Vickers | Alfie YEO DBS Vickers | http://www.dbsvickers.com/ 2017-12-05
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.120 Same 1.120
NOT RATED Maintain NOT RATED 0.850 Same 0.850
NOT RATED Maintain NOT RATED 0.450 Same 0.450
NOT RATED Maintain NOT RATED 1.310 Same 1.310
BUY Maintain BUY 1.180 Same 1.180
NOT RATED Maintain NOT RATED 0.750 Same 0.750
NOT RATED Maintain NOT RATED 0.450 Same 0.450
FULLY VALUED Maintain FULLY VALUED 0.510 Same 0.510



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