SMC Monthly - DBS Research 2016-03-08: Sifting out M&A plays

SMC Monthly - DBS Research 2016-03-08: Sifting out M&A plays EZION HOLDINGS LIMITED 5ME.SI  INNOVALUES LIMITED 591.SI 

DBS SMC Monthly - Sifting out M&A plays 

  • With the STI rebounding by 9.5% since our last issue, our top 5 picks saw an average increase of 14.5%, led by mm2 Asia and OSIM Int’l 
  • We maintain three of our picks for March, but replace mm2 Asia and OSIM with Ezion and Innovalues 
  • OSIM’s recent privatisation offer could lead to a new wave of situational interest in SMCs 

Seeking more beta. 

  • We continue to favour companies that are projected to report firm earnings growth (or recovery), and these include Japfa (BUY, TP S$0.90), Riverstone Holdings (BUY, TP S$1.30), and China Merchants Pacific (BUY, TP S$1.25)
  • We have removed OSIM Int’l and mm2 Asia, which have re-rated substantially to near our TP of $1.28 and $0.52,respectively. 
  • For March, we have added Ezion Holdings (BUY, TP S$0.85), our preferred proxy for a recovery in oil prices and Innovalues Ltd (BUY, TP S$1.01), which is likely to benefit from rising awareness and stricter regulatory standards towards safety and eco-efficiency in automotives. 

Potential privatisation or takeover targets. 

  • Given the recent wave of privatisation offers in Singapore recently, we highlight several potential names in this regard. 
  • For bombed-out names, these include PACC Offshore, Pacific Radiance, Pan-United, Tat Hong and Banyan Tree. 
  • There could also be rotational interest into names that are in sectors that have already seen such activity, including Innovalues and Super Group. 

SMC Radar: The Stratech Group. 

  • While the deployment of FOD Detection Systems have yet to be mandated across airports globally, we believe that the high penalties resulting from lapses in existing FOD detection procedures and greater emphasis on aviation safety should bode well for incumbents such as Stratech Group.

Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-03-08
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.01 Same 1.01
BUY Mainyain BUY 0.85 Same 0.85