Singapore Alpha Picks & Strategy - CIMB Research 2018-02-07: Prepare With A Shopping List

Singapore Strategy - CIMB Research 2018-02-07: Prepare With A Shopping List Singapore Stocks Alpha Picks KEPPEL CORPORATION LIMITED BN4.SI VENTURE CORPORATION LIMITED V03.SI SINGAPORE TECH ENGINEERING LTD S63.SI GENTING SINGAPORE PLC G13.SI AEM HOLDINGS LTD AWX.SI

Singapore Strategy - Prepare With A Shopping List




Sighs of relief on correction

  • Fears of US Fed Fund rate hikes and inflations, coupled with the Dow's plunge, snowballed into a falling FSSTI. Sectors that have fallen the most in the past two days are capital goods, gaming (-4.5%) and tech/manufacturing (-4.9%) vs. FSSTI’s -3.5%.
  • Our bottom-up FSSTI target of 3,600 remains unchanged for now, with expectations 8% EPS growth for 2018F. Our technical chartist indicate that the near-term support for FSSTI may hover in the range of 3,370 and 3,470.
  • We expect to see more earnings upgrades ahead in the non-REIT earnings season, potentially led by banks (on the back of lower credit costs, stronger loan growth and more aggressive NIM expansion), tech/manufacturing (steady volume increase), capital goods (higher order wins) and consumer/gaming (stronger topline growth).


Shopping list in preparation for a bounce back

  • No one knows how long the correction will last but we see the opportunity to prepare a shopping list of ‘must-own’ stocks backed by fundamentals. 
  • Our top-five picks are:

Keppel Corp – buy at S$7.95. 

  • S$7.95 would imply valuation of:
    1. S$3.82 for Keppel Corp's property arm, at c.35% discount of RNAV, in line with current Singapore developer’s valuations; and
    2. S$1.02 for its O&M arm, at 1.2x FY18F P/BV, close to -1.5 s.d of its 10-year average. 
  • We see Keppel Corp backed by multiple catalysts e.g.
    1. sale of deferred rigs to unlock cash,
    2. O&M orders,
    3. restarting the stopped-work semi-subsible for Petrobras,
    4. redevelopment plans for Singapore, and
    5. land sale by Tianjin Eco City.

Venture Corp – buy at S$21.77 

  • ... or 15.2x CY19F P/E (10-year average P/E). 
  • 2H is seasonally stronger for the company and we believe its business momentum is still strong with no disruption seen across its end-customers. Its well-diversified customer base and product portfolio makes it resilient. 
  • Catalysts could come from stronger-than expected revenue and margins.

AEM – buy at S$4.70 

  • ... or c.8x CY19F P/E. Our target price of S$6.62 is based on 10x CY19F P/E (18% discount to sector average of 12x). We believe AEM is on course to deliver 35% y-o-y earnings in FY18F, riding the firm sales forecasts from its major customer. 
  • Catalysts could come from stronger-than-expected earnings.

Genting Singapore – buy at S$1.20 

  • ... or c.9x CY19F EV/EBITDA, close to -1 s.d. of its 6-year average. 
  • We believe the careful credit loosening in its VIP business could help to lift overall gross gaming revenue (GGR).

ST Engineering – buy at S$3.15 

  • ... or 16x CY19F P/E, below its 5-year average of 20x. 
  • Assuming its peer SIA Engineering’s recent earnings beat is an indication of returning engine MRO trend, we see ST Engineering benefiting due to its exposure to the CFM engines for narrow body aircraft. ST Engineering is relatively cheaper vs. SIA Engineering (> 20x CY19F P/E). 
  • Catalyst could come from stronger-than-expected earnings from aerospace and marine.







LIM Siew Khee CIMB Research | CIMB Research Team CIMB Research | http://research.itradecimb.com/ 2018-02-07
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 10.000 Same 10.000
ADD Maintain ADD 24.740 Same 24.740
ADD Maintain ADD 3.850 Same 3.850
ADD Maintain ADD 1.450 Same 1.450
ADD Maintain ADD 6.620 Same 6.620



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