Alpha Picks - UOB Kay Hian 2017-05-03: Removing SMM Short And Buying CCT

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Singapore Stock Picks 2017 Alpha Picks CAPITALAND COMMERCIAL TRUST C61U.SI CITIC ENVIROTECH LTD. CEE.SI CHINA AVIATION OIL(S) CORP LTD G92.SI FOOD EMPIRE HOLDINGS LIMITED F03.SI SATS LTD. S58.SI

Alpha Picks - Removing SMM Short And Buying CCT

• We lock in profits from our short position in SMM after its solid returns of 19% since inception. Otherwise, we stick with our April picks and add CCT as a new alpha pick.

WHAT’S NEW

SMM and China Aviation Oil stand out. 

• Our key picks that stood out in April were SMM and China Aviation Oil. 
• SMM declined 15% in April for a total return of 19% since we included it into Alpha Picks as a short candidate in March. On this basis, we lock in our gains as a lot of negative news, particularly its weak 1Q17 results, appear to have been priced in. 
• As for China Aviation Oil (CAO, BUY, TP: S$2.26), the stock rose 6% in April and has returned 17% since its inclusion into our Alpha Picks.

Sticking with Citic Envirotech and Food Empire. 

• Despite the share price weakness of these two stocks, we remain positive as we see potential contract wins by Citic to be price catalysts. 
• In addition, we believe Food Empire’s recent share price pull-back as a buying opportunity as prospects look intact.

ACTION 

• Adding in CapitaLand Commercial Trust (CCT) and removing Sembcorp Marine SMM. 
• We make adjustments to our large-cap picks by locking in profit on our SMM short and introducing CCT into our Alpha Picks Buy list, with a target price of S$1.75.

CapitaLand Commercial Trust CCT - BUY (Vikrant Pandey/Derek Chang) 

• Pressure on rental reversions mitigated by Capitagreen and spread-out lease expiries, Golden Shoe carpark redevelopment to drive value in the medium term.
• While management expects negative rental reversions to continue, underscored by supply-side rental pressure, they nevertheless expect DPU to remain stable, bolstered by the recent acquisition of the remaining 60% stake in CapitaGreen, Nascent signs of Grade-A office rental stabilisation as peak of supply is behind us.
• Grade-A rental decline could fast be approaching a bottom, especially since qoq declines have been slowing.
• Share Price Catalyst Event: Datapoints on the leasing activity for the upcoming office supply in the next 6 months (especially Marina One), signalling the turnaround.
• Timeline: Adhoc release of datapoints by property consultants.

Citic Envirotech – BUY (Edison Chen/Nicholas Leow) 

• We have street-high DCF-based target price of S$1.10, implying a 43% upside.
• Citic Envirotech (CEL) is the best in class with superior technology know-how protected by a suite of intellectual property rights.
• Riding on favourable industry dynamics and the entrance of a new strategic shareholder, investors can look forward to new areas of growth in river rehabilitation, sludge treatment and the circular economy.
• Share Price Catalyst Event: Potential contract wins that could underpin FY17-18 earnings.
• Timeline: 3-6 months as clean water is a high priority for the Chinese government. This would benefit CEL, which has the track record and technology.

SATS – HOLD (K Ajith/Sophie Leong) 

• SATS has done well and is currently at a significant premium to our DDM-based target price of S$4.60. SATS is at multi-year high and trading at +2SD above mean PE.
• Changi Airport’s Jan-Mar 17’s flight movements rose only 2% yoy, substantially lower than 2QFY17 and 3QFY17's growth. SATS' gateway services revenue is more levered to aircraft movements, as flights handled typically have greater value-add vs pax or cargo handled.
• We suggest investors to take profit.
• Share Price Catalyst Event: 4QFY17 earnings may disappoint.
• Timeline: Reporting of 4QFY17 results on 19 May.

China Aviation - BUY (Edison Chen) 

• China Aviation Oil (CAO) is Asia Pacific’s largest physical jet fuel trader, and holds a monopoly in supplying imported jet fuel to 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.
• Share Price Catalyst Event: A steeper jet fuel futures contango market will likely enhance trading profits. Any M&A announcements on earnings-accretive fuel assets will also likely result in share price reviews.
• Timeline: 2QFY17 results.

Food Empire - BUY (Nicholas Leow/Edison Chen) 

• Food Empire is the dominant coffee mix market leader in Eastern Europe with a market share of more than 50% in Russia and more than 40% in Ukraine.
• With a stable Russian ruble, we expect a sustainable rebound in net profit in FY17.
• Food Empire enjoys scarcity premium after the privatisation of Super Group and postponement of Viz Branz’s IPO.
• Share Price Catalyst Event: Sustained earnings growth momentum in FY17 and further share purchases by its CEO.
• Timeline: 1QFY17 results that could surprise on the upside and continued share purchases by its CEO.

*Alpha Picks - Denotes a timeframe of 1-3 months and not UOBKH’s usual 12-month investment horizon for stock recommendation.

Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-03

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.750 Same 1.750

BUY Maintain BUY 1.100 Same 1.100

BUY Maintain BUY 2.260 Same 2.260

BUY Maintain BUY 0.780 Same 0.780

HOLD Maintain HOLD 4.600 Same 4.600