Singapore Strategy - DBS Research 2016-06-14: Theme 3 of 4 ~ Sustainable yields

Singapore Strategy - DBS Research 2016-06-14: Theme 3 of 4 ~ Sustainable yields M1 LIMITED B2F.SI SINGAPORE TECH ENGINEERING LTD S63.SI ARA ASSET MANAGEMENT LIMITED D1R.SI SHENG SIONG GROUP LTD OV8.SI

Strategy - Four themes to ride this cycle


Theme 3 : Sustainable yields.

  • With an average dividend payout ratio of 55% and dividend yield of 4%, Singapore remains an attractive haven for yield plays. 
  • With the reality of further interest rates pushing nearer in 2H, we would prefer yield plays with net cash and sustainable free cash flows, to REITS. Below is a list of high dividend yield stocks which we believe are sustainable, based on their earnings model, free cash flow and payout ratio. 
  • Our top dividend yield picks are M1, ARA Asset Management, ST Engineering and Sheng Siong.


M1 (BUY; TP: S$2.60)

  • M1’s share price has declined in anticipation of the entry of a fourth mobile player. It is now the cheapest in the region at 13x FY16F PE. 
  • Our TP of S$2.60 factors the impact of potential new entrant on M1. 
  • While a spectrum auction is scheduled in 3Q16, the big question is if the interested players can raise adequate funds for the network rollout before the auction. 
  • Conversely, if there is no fourth telco entry, M1 could benefit the most as reflected in our bull-case TP of S$3.30 implying potential returns of c.40%. Under our bear-case scenario of an overly aggressive new entrant, we see potential return of -5% based on our bear-case TP of S$2.15.


ST Engineering (BUY; TP: S$3.55)

  • ST Engineering remains a defensive stock with a healthy balance sheet and secure dividend payouts amid a volatile equity market. 
  • Its Aerospace segment has positioned itself well by investing in growth markets such as narrow-body aircraft Passenger-to-Freighter (PTF) conversions, the Chinese MRO market, and cabin interior solutions, to name a few. 
  • The Electronics segment should also benefit from the ‘Smart City’ trend, which could open up a US$400-500bn market by 2020.


ARA Asset Management (BUY; TP: S$1.76)

  • We see 2016 as another banner year for ARA Asset Management, supported by the widely anticipated launch of Asia Dragon Fund 3 (estimated AUM of S$1.0bn and above) and a growing AUM base as positive catalysts to share price. 
  • Our S$1.76 TP is based on sum-of-the parts valuation. 
  • Armed with S$100m in capital from its recent rights issue, ARA is well positioned to capture opportunities that may arise in 2016.


Sheng Siong Group (BUY; TP: S$1.04)

  • We like Sheng Siong Group (SSG) as the company continues to meet growth expectations. 
  • SSG is on track towards attaining its 50-store target, while long term margin is expected to track our expectations. The Group is one of the most well-run grocery retailers in ASEAN, leading regional peers in profitability, cash flow generation and working capital management. 
  • Dividend continues to be attractive at 4.2% based on FY16F DPS of 3.74 Scts. 
  • We expect margins to be sustained this year, and improve further in FY17F from more bulk purchasing and a higher mix from fresh products. These, along with government grants, should support growth.







Janice CHUA DBS Vickers | YEO Kee Yan DBS Vickers | LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-06-14
BUY Maintain BUY 2.60 Same 2.60
BUY Maintain BUY 3.55 Same 3.55
BUY Maintain BUY 1.76 Same 1.76
BUY Maintain BUY 1.04 Same 1.04


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......