SMC Monthly - DBS Research 2016-06-15: Review of May-16 Picks

SMC Monthly - DBS Research 2016-06-15: Review of May-16 Picks RIVERSTONE HOLDINGS LIMITED AP4.SI  MM2 ASIA LTD 41C .SI 

SMC Monthly - Review of May-16 Picks

Indices down c.1.9% on average since last issue (3rd May – 13h June): 

  • FTSE STI: 2811.20 to 2785.43 / -0.1% 
  • FSTS Index: 398.79 to 390.80/ -2.0%  
  • FSTM Index: 691.80 to 667.66/ - 3.5% 

Our conviction BUYs outperform, gaining 13% on average...

  • Between 3rd May and 8th June, our BUY picks (including names not reflected in table above) gained 13% on average, outperforming the STI, small-cap index (FSTS Index) and mid-cap index (FSTM Index), as the STI, FSTM Index and FSTS Index declined by 0.1%, 2.0% and 3.5%, respectively.

mm2 Asia [+22.7% m-o-m] and Japfa [+10.6% m-o-m] were among our best performing conviction picks for May 2016... 

  • Leading the outperformance, mm2 Asia’s shares saw good momentum after posting stellar FY16 results (net profit grew 75% y-o-y), which beat our expectations, and recently closed at a record of S$0.70 on 10 June 2016. 
  • Since our last issue, we have adjusted mm2 Asia’s earnings forecast up by 6-7% after factoring in higher margins from cinemas and the Group’s recent acquisitions. We have also, revised our valuation multiple from 22x (up from 20x previously), which translated to a higher TP of S$0.75. 
  • Japfa’s shares extended gains for the fourth consecutive month, which was likely due to expectations of strong growth this year (1Q16 results were ahead of our expectations), and higher DOC ASP. 

...while UMS Holdings [-3.2% m-o-m], which went ex- dividend on 5 May, fell on weaker-than-expected 1Q16 results. 

  • The Group performed poorly in 1Q16, as earnings declined 55% y-o-y on forex losses and weak demand. As the current industry down-cycle is likely to weigh on 2Q16 earnings, and given the relatively mixed outlook for 2H16, we have revised our forecasts downward, which led to the reduction of our DCF-based TP to S$0.61 from S$0.73 previously. We have thus downgraded our recommendation to a HOLD. 

Nam Cheong, our top SELL idea for May 2016, also down 5.5% 

  • Our sell idea on Nam Cheong worked out as the counter fell 5.5% in the last month, from S$0.091 to S$0.086, against the broader market’s decline of < 2%. We currently have a FULLY VALUED call on Nam Cheong, with a TP of S$0.07.

Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-06-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.10 Same 1.10
BUY Maintain BUY 0.75 Same 0.75
HOLD Maintain HOLD 0.61 Same 0.61
FULLY VALUED Maintain FULLY VALUED 0.07 Same 0.07