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Singapore Stock Alpha Picks (March 2018) - UOB Kay Hian 2018-03-02: A Challenging February But Look Ahead

Singapore Stock Alpha Picks - UOB Kay Hian 2018-03-02: A Challenging February But Look Ahead Singapore Stock Picks March 2018 CITIC ENVIROTECH LTD. CEE.SI DBS GROUP HOLDINGS LTD D05.SI KEPPEL CORPORATION LIMITED BN4.SI CITY DEVELOPMENTS LIMITED C09.SI CDL HOSPITALITY TRUSTS J85.SI OVERSEA-CHINESE BANKING CORP O39.SI SINGTEL Z74.SI WING TAI HLDGS LTD W05.SI

Singapore Stock Alpha Picks - A Challenging February But Look Ahead

  • Reflation and cyclical recovery take a hit but staying the course. 
  • We selectively tweak our portfolio, but maintain exposure to large caps with a bent into asset inflation and reasonable dividend yield.



WHAT’S NEW


A challenging February. 

  • Except for DBS, most of our alpha picks suffered absolute declines of 2-9% in February. Among the worst hit were Wing Tai (-9.1%) and CD REIT (-8.8%, unadjusted for a final DPU of 5.12 S cents/share that went ex on 1 February) on profit taking and interest rate fears, stoked by uncertainties over inflation. 
  • However, we are sticking with these recovery plays and reflation picks, with a macro overlay of a synchronised global growth as and rising inflation, which would benefit property prices.


ACTION


Adding in OCBC; locking in profit on SIA and cutting loss on GL. 

  • We add OCBC to position ahead for the upcoming IPO or trade sale of its 30% stake in Great Eastern Life Malaysia (GELM) in 2H18. 
  • SIA has been removed to lock-in a 3% gain since its introduction in Jan 18 and the impact from a potential rise in passenger service charge (PSC) by Changi Airport. 
  • Lastly, we cut losses on GL given the lack of any near-term catalyst, despite its deep discount to the SOTP valuation of S$1.185.



OCBC – BUY (Jonathan Koh)

  • Significant improvement in CET-1 CAR in 4Q17. OCBC is well capitalised with a fully loaded CET-1 CAR improving 1.1ppt q-o-q to 13.1% in 4Q17 due to the implementation of internal ratings-based approach (IRBA) for Bank of Singapore and reduced deduction in capital for Great Eastern.
  • IPO for Great Eastern Life Malaysia a key catalyst. Management will evaluate the divestment of a 30% stake in Great Eastern Life Malaysia through an IPO or trade sale.
  • Great Eastern has to submit its plan to Bank Negara by Jun 18 and execute the plan likely in 2H18. Proceeds from the divestment could be reinvested to further propel growth in its core commercial banking business.

Share Price Catalyst

  • Events: Impending IPO for Great Eastern Life Malaysia in 2H18.
  • Timeline: Six months 



DBS – BUY (Jonathan Koh)

  • Strong execution. Management continues to execute well, exceeding our 4Q17 expectations on NIM expansion and moderating credit cost.
  • Clarity from dividend policy. We estimate DBS’ dividend payout at 57% for 2018 with a concurrent improvement in ROE to 11.1% by returning surplus capital. The new dividend policy should also help ease some investors’ concern of an overly aggressive bid to acquire another regional bank.

Share Price Catalyst

  • Events: FOMC meeting on 20-21 March, leading to further rate hikes.
  • Timeline: Three months.



Keppel Corp – BUY (Foo Zhi Wei/Andrew Chow)

  • Resolution of legal uncertainties over its involvement in corrupt payments in Brazil.
  • Infrastructure and investments are expected to drive growth in the next few quarters.
  • Recurring profits will be underpinned by rising AUM at Keppel Capital.
  • Keppel is our preferred proxy to the O&M recovery, with solid financials (2018F net gearing of 55%)  

Share Price Catalyst

  • Events: Positive newsflow from contract wins and further de-leveraging from O&G assets.
  • Timeline: 6-12 months.



City Development – BUY (Vikrant Pandey/Loke Pei Hao)

  • Proxy to ride on the Singapore residential recovery (40% of GAV), with the largest residential landbank of more than 2,090 attributable units.

Share Price Catalyst

  • Events: Upward re-rating of RNAV by consensus on rising asset prices.
  • Timeline: Positive newsflow on Amber Park launch and projects within its vicinity in 2018.



CD REIT – BUY (Vikrant Pandey/Loke Pei Hao)

  • We had recently raised our target price to S$1.95 (from S$1.88) to build in a higher terminal growth rate of 2.5% after the 4Q17 results announcement.
  • CDREIT’s Singapore hotel could benefit from:
    1. a recovery in corporate travel,
    2. Chinese visitor growth,
    3. tight supply pipeline. 
  • Hotel room supply is limited beyond 2017, with only 769, 1,664 and 392 rooms coming on stream in 2018, 2019 and 2020 (compared to 2,868 new rooms in 2017).
  • Its Singapore hotels saw a 1.2% y-o-y increase in average daily rate (ADR) to S$186 in 4Q17, despite a 0.1 ppt drop in occupancy, resulting in a 1.1% increase in Singapore RevPAR.

Share Price Catalyst

  • Events: Positive data points on visitor arrivals, average length of stay, ADR, RevPAR and supply pipeline.
  • Timeline: 1H18.



Singtel – BUY (Jonathan Koh)

  • Telkomsel continues to maintain double-digit growth in subscriber base and revenue growth from voice and data. Bharti should start to recover in 2019 due to industry consolidation (Bharti merged with Tata Teleservices’ consumer mobile business).
  • The group is least affected by a fourth mobile operator in Singapore as overseas businesses account for about 70% of its bottom-line. BUY with DCF-based target price of S$4.40 (6.25% required rate of return and 1.5% terminal growth).

Share Price Catalyst

  • Events: Funds flow into laggards and defensive stocks, including Singtel which offers a good dividend yield.
  • Timeline: 3-6 months.



Wing Tai – BUY (Vikrant Pandey/Loke Pei Hao)

  • BUY with RNAV-based target price of S$2.78, pegged at a 20% discount to RNAV of S$3.48/share. Wing Tai is trading at 0.56x 2018F P/B (lowest within our coverage) and a deep 37% discount to RNAV.
  • With a net cash of S$54.9m, Wing Tai is well positioned to deploy its sizeable debt headroom of S$1.6b (assuming comfortable net gearing level of 50%). We believe Wing Tai will further deepen its footprint in Singapore, Malaysia (post privatisation completion) and Australia.

Share Price Catalyst

  • Events: Launch of the recently-acquired Serangoon North Avenue 1 site. We also see potential for Wing Tai to buy more landbank given its S$1.6b acquisition headroom.
  • Timeline: Potential 6-9 months for landbank acquisition or launch of its Serangoon North Avenue 1 site.



Citic Envirotech – BUY (Edison Chen/Nicholas Leow)

  • Slight disappointment in 4Q17 results primarily due to timing issue on recognition of its Lanzhou mega project.
  • Placement of 83.2m new shares at a 14.8% premium reaffirms our view that Citic looks undervalued.
  • Contract win of Rmb4.2b should provide investors with more assurance over its medium-term prospects and provide earnings visibility.

Share Price Catalyst

  • Events: Potentially more contract wins and share buybacks by CEL.
  • Timeline: 3-6 months, as clean water is a high priority for the Chinese government. This would benefit the company, which has an impressive track record and technology.







Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-02
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.060 Same 1.060
BUY Maintain BUY 30.400 Same 30.400
BUY Maintain BUY 9.300 Same 9.300
BUY Maintain BUY 14.030 Same 14.030
BUY Maintain BUY 1.950 Same 1.950
BUY Maintain BUY 14.900 Same 14.900
BUY Maintain BUY 4.400 Same 4.400
BUY Maintain BUY 2.780 Same 2.780

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