UOB Kay Hian Conviction Picks
STRATEGY – SINGAPORE - Alpha Picks
- We highlight our analysts’ high conviction calls for September.
- Key picks with share price catalysts include Bumitama, CAO, FLT and SOG. We have a SELL on Starhub.
WHAT’S NEW
Introducing UOBKH’s latest alpha picks.
- Commencing from September, we will highlight our analysts’ alpha picks at the beginning of the month. These picks will have a shorter investment horizon of 1-3 months and near-term share price catalysts.
ACTION
Inaugural list include 4 BUYs and 1 SELL.
- We commence our analysts’ alpha pick list with five stocks, including 4 BUYs and 1 SELL from various sectors. These picks are highlighted below.
Bumitama
- BUY (Leow Huey Chuen) - Plantation - UOB Kay Hian 2016-08-19: 2Q16 Results Review ~ Tight FFB Supply Supports CPO Prices
- Earnings growth is underpinned by: a) production recovery, ie expect at least 58-60% of 2016 production to come in 2H16, b) higher CPO ASP (expected to be 5-8% higher yoy), and c) lower cost of production as bulk of manuring cost was spent in 1H16.
- 2017 should see stronger earnings growth on the back of strong production recovery from its young age profile and new mature areas.
- TP of S$1.25 is based on 15x 2017F PE (5-year mean).
Share Price Catalyst
- Stronger earnings growth in 2H16 and 2017 would be the key catalyst to its share price.
- Rising CPO prices to lift sentiment on plantation sector.
China Aviation
- BUY (Edison Chen) - China Aviation Oil Singapore Corp - UOB Kay Hian 2016-08-29: BUY On A Stellar 3Q16 And Beyond
- As APAC’s largest physical jet fuel trader, CAO holds a monopoly in supplying imported jet fuel to the whole of China, making it a proxy to China’s global aviation boom.
- Together with its stake in the exclusive refueller for SPIA, CAO has two solid growing sources of recurring income.
- Management also has a five-year plan to double profits to US$120m through organic and M&A growth.
- TP of S$1.90 is based 14.4x 2017F PE, pegged at a 20% discount to peers’ average PE of 18x.
Share Price Catalyst
- A steeper jet fuel future contango market will likely enhance trading profits.
- Any M&A announcements on earnings-accretive fuel assets will also likely result in share price reviews.
Frasers Logistics & Industrial Trust
- BUY (Vikrant Pandey/Derek Chang) - Frasers Logistics & Industrial Trust - UOB Kay Hian 2016-08-02: Taking Shelter Down Under
- FLT provides the best growth prospects (10% 3-year CAGR) among REITs within our coverage on top of a high 6.5% yield.
- It is also a potential play on the strengthening Australian dollar.
Share Price Catalyst
- Potential depreciation of the Singapore dollar against the Australian dollar after the next MAS policy announcement in October.
- Inorganic growth from acquisitions fuelled by healthy debt headroom (A$319m assuming comfortable gearing level of 40%).
Singapore O&G
- BUY (Thai Wei Ying/Andrew Chow)
- Attractive healthcare stock with an attractive combination of growth in dividend yield and a 3-year EPS CAGR of 39%.
- High dividend payout policy of up to 90% with dividend yield of 3-4%
- We see scalability in Joyce Lim's business and potential for valuation to expand should there be accretive acquisitions or expansion into new specialisation.
- TP of S$1.38 is based on a PE peer comparison of 26x.
Share Price Catalyst
- More accretive overseas M&As, including potential collaborations with foreign partners.
- Higher-than-expected contribution from Joyce Lim's business
- Higher-than-expected growth from cancer segment
StarHub
- SELL (Jonathan Koh) - Telecommunications Singapore - UOB Kay Hian 2016-09-02: The Nightmare Has Just Begun
- With three companies, namely MyRepublic, airYotta and TPG Telecom, having submitted their expression of interest to IDA, the entry of a fourth mobile operator is literally assured.
- This would disrupt the status quo of the existing cozy oligopoly. StarHub would be negatively affected by increased competition. We estimate that DPS could drop from 20 cents in 2016 to 16 cents in 2019, reducing StarHub's dividend yield from 5.8% to 4.6%.
- TP of S$2.62 is based on DCF (discount rate: 7.5%, terminal growth: 1.5%) and it assumes that the fourth mobile operator garners a market share of 9.1% two years after commercial launch.
Share Price Catalyst
- Results of the pre-qualification process would be released by IDA in late-September, paving the way for the New Entrant Spectrum Auction to be conducted in early October.
- Confirmation of the list of pre-qualified bidders would provide further negative catalyst for the stock.
Singapore Research
UOB Kay Hian
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http://research.uobkayhian.com/
2016-09-05
UOB Kay Hian
SGX Stock
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