Singapore Strategy - CIMB Research 2018-03-05: Earnings Bubbling ~ Alpha Picks

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Singapore Stocks Picks March 2018 AEM HOLDINGS LTD AWX.SI MM2 ASIA LTD. 1B0.SI YONGNAM HOLDINGS LIMITED AXB.SI CHINA SUNSINE CHEM HLDGS LTD. CH8.SI UOL GROUP LIMITED U14.SI

Singapore Strategy - Earnings Bubbling ~ Alpha Picks

• Our bottom-up target for FSSTI now stands at 3,705, based on 14.2x 2018F P/E (+0.5 10-year mean) vs. 10% y-o-y EPS growth for 2018F.
• Our Alpha picks are SMM, VMS, UOL, GENS and STE (big caps); and AEM, China Sunsine, Yongnam and mm2 (small caps).

Alpha picks 

• Our picks are based on
  1. earnings growth,
  2. share price correction, and
  3. valuations.
• With that, our Alpha picks are SMM, VMS, UOL, GENS, STE among the big caps; and AEM, China Sunsine, Yongnam and mm2 among the small caps. 
• We removed Sunningdale (forex uncertainty and lower ASPs) and Keppel Corp (noises from various arbitrations).

Our Alpha picks (big caps) 

Sembcorp Marine (ADD, Target Price: $3.01) 

• SEMBCORP MARINE LTD (S51.SI)  Sembcorp Marine Share Price  Sembcorp Marine Target Price  Sembcorp Marine Analyst Reports  Sembcorp Marine Corporate Actions  Sembcorp Marine Announcements  Sembcorp Marine Latest News  Sembcorp Marine Blog Articles
We like Sembcorp Marine as a purer proxy for the O&G sector upswing. We recently upped our order expectations to S$3bn p.a. for FY18-19F during the 4Q17 results season as we saw improvement in its order enquiries recently. New orders would help to alleviate the pain in weak operating leverage. 
• Our Target Price of S$3.01 is based on 2.5x CY18F P/BV, or its 20-year average. Key potential re-rating catalysts include higher-than-expected order wins.

ST Engineering (ADD, Target Price: $3.80) 

• SINGAPORE TECH ENGINEERING LTD (S63.SI)  ST Engineering Share Price  ST Engineering Target Price  ST Engineering Analyst Reports  ST Engineering Corporate Actions  ST Engineering Announcements  ST Engineering Latest News  ST Engineering Blog Articles
• We like ST Engineering mainly for the tailwind of returning engine maintenance, repair and overhaul (MRO) jobs. The worst of shipbuilding could be priced in.
• We expect STE to deliver y-o-y earnings growth of 9-10% in FY18F from aerospace, electronics and land systems. Order flows will be backed by aerospace MRO, demand for smart city investment and cyber defence. STE’s valuation is undemanding at 17x CY19F P/E or -1s.d. of its 5-year average (20x).
• Re-rating catalysts could come from being awarded Terrex 2 contracts, earnings accretive M&As, and stronger-than-expected margin in engine MRO.

Genting Singapore (ADD, Target Price: $1.49) 

• GENTING SINGAPORE PLC (G13.SI)  Genting Singapore Share Price  Genting Singapore Target Price  Genting Singapore Analyst Reports  Genting Singapore Corporate Actions  Genting Singapore Announcements  Genting Singapore Latest News  Genting Singapore Blog Articles
• Whilst GENS's 4Q17 adjusted EBITDA was lower on a sequential basis (-20.2% qoq), largely due to bonus paid to employees and slightly higher commissions for the VIP business, we believe the recent selldown of its share price (c.10% from 23 Feb) is overdone. The stock is now at levels seen before the turnaround in Singapore VIP volume growth which kick-started towards 2H17. 
• We believe Singapore VIP volumes could grow; given the high correlation (~c.90%) to Macau VIP baccarat gross gaming revenue (GGR), our regional gaming analyst foresees further growth in FY18F. 
• GENS was cautious in 2017 with regards to VIP credit, hence could have missed out on market share gain (estimated CY17 VIP volume market share of 37%). But as it aims to ease credit policies, a pickup in CY18F VIP market share could occur. 
• The stock current trades at 8.8x CY19F EV/EBITDA, close to -1 s.d. to its 5-year average. We view this as unwarranted given its improved EBITDA margins. Maintain Add and Target Price of S$1.49 based on 12x CY19F EV/EBITDA (slightly above +0.5 s.d. of its 5-year mean).

Venture Corporation (ADD, Target Price: $30.81) 

• VENTURE CORPORATION LIMITED (V03.SI)  Venture Corp Share Price  Venture Corp Target Price  Venture Corp Analyst Reports  Venture Corp Corporate Actions  Venture Corp Announcements  Venture Corp Latest News  Venture Corp Blog Articles
• We like Venture Corp as the company has transformed itself from a price taking contract manufacturer to the preferred manufacturing partner of its clients. We expect Venture to continue to deliver 21% y-o-y core EPS growth in FY18F and 13% y-o-y growth in FY19F, to be driven by better margins and product launches by its customers. 
• Venture has a strong net cash balance sheet and recent capex suggests that it still sees room for growth. Our Target Price is based on 17.7x FY19 P/E vs. an average 17% core EPS growth over FY18-19F.

UOL Group (ADD, Target Price: $9.67) 

• UOL GROUP LIMITED (U14.SI)  UOL Group Share Price  UOL Group Target Price  UOL Group Analyst Reports  UOL Group Corporate Actions  UOL Group Announcements  UOL Group Latest News  UOL Group Blog Articles
• We like UOL for its strong recurring income base. Its residential and investment property portfolios are predominantly located in Singapore. It has become a major office landlord, post consolidation of UIC's earnings, with a total 5.69m sq ft of office and retail space in the country. This puts the group in a strong position to benefit from the recovery in private residential and office sectors. 
• It could re-rate when it launches its two residential projects this year. Our Target Price of S$9.67, pegged to a 20% discount to RNAV, offers 13% upside from current price.

Our Alpha picks (small caps caps) 

AEM Holdings Ltd (ADD, Target Price: $8.19) 

• AEM HOLDINGS LTD (AWX.SI)  AEM Holdings Share Price  AEM Holdings Target Price  AEM Holdings Analyst Reports  AEM Holdings Corporate Actions  AEM Holdings Announcements  AEM Holdings Latest News  AEM Holdings Blog Articles
• AEM is the sole supplier of test handlers to its key customer, which is currently in a full commercial ramp of its product offering. Recent acquisitions of Afore and Iris Solution pave the way for AEM to reduce its reliance on this key customer and develop new growth engines. 
• With its balance sheet showing net cash and strong free cash flow generation, we anticipate larger-sized acquisitions or a higher dividend payout ratio in the near future. We reckon there could be further earnings upside when the consumable parts demand kicks in.

China Sunsine Chemical Holdings (ADD, Target Price: $1.62) 

• CHINA SUNSINE CHEM HLDGS LTD. (CH8.SI)  China Sunsine Share Price  China Sunsine Target Price  China Sunsine Analyst Reports  China Sunsine Corporate Actions  China Sunsine Announcements  China Sunsine Latest News  China Sunsine Blog Articles
• China Sunsine is a prime beneficiary of the consolidation in the rubber chemicals industry amid pollution curbs in China. We expect Sunsine to deliver 10-12% y-o-y growth in CY18-19F earnings, driven by both capacity expansion and ASP increases. 20k tonnes capacity will be added to its current total annual capacity of 152k tonnes this year, underpinned by rising demand from tyre makers. 
• Sunsine is still undervalued in our view, trading at 8x CY19F P/E vs peers' average of 12x. Re-rating catalysts could come from better-than-expected margins and rapid growth in volume output.

mm2 Asia (ADD, Target Price: $0.76) 

• MM2 ASIA LTD. (1B0.SI)  MM2 Share Price  MM2 Target Price  MM2 Analyst Reports  MM2 Corporate Actions  MM2 Announcements  MM2 Latest News  MM2 Blog Articles
• We like mm2 for its increasing media presence regionally and across the entire value chain. Apart from a steadily growing production business, we also expect higher contribution from subsidiary UnUsUal as it develops more concerts in North Asia and adds a new product line, "Disney on Ice". 
• Potential near-term catalyst for the stock is a possible corporate action for its post-production subsidiary. mm2 currently trades at c.15x FY3/19F P/E 35% y-o-y EPS growth.

Yongnam Holdings (ADD, Target Price: $0.57) 

• MM2 ASIA LTD. (1B0.SI)  MM2 Share Price  MM2 Target Price  MM2 Analyst Reports  MM2 Corporate Actions  MM2 Announcements  MM2 Latest News  MM2 Blog Articles
• We like Yongnam due to tailwinds from stronger public construction demand in 2018F. We see Yongnam as the likeliest candidate to take on the bulk of strut works that would largely come from the upcoming North-South Corridor project in Singapore. We expect Yongnam to return to full-year profitability and grow its order book to a six-year high of S$500m in CY18F. 
• Yongnam's valuation is undemanding at 0.51x CY18F P/BV or -1s.d. of its 8-year average (0.92x). Upside catalysts include major order wins domestically or from overseas.

LIM Siew Khee CIMB Research | CIMB Research Team CIMB Research | http://research.itradecimb.com/ 2018-03-05

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 8.190 Same 8.190

ADD Maintain ADD 0.760 Same 0.760

ADD Maintain ADD 0.570 Same 0.570

ADD Maintain ADD 1.620 Same 1.620

ADD Maintain ADD 9.670 Same 9.670

BUY Maintain BUY 31.880 Same 31.880