Singapore Stock Alpha Picks (July 2018) - UOB Kay Hian 2018-07-04: Weathering A Difficult Period

SGinvestors.io

Singapore Stock Alpha Picks Stocks To Watch in 2018 CSE GLOBAL LTD SGX:544 SUNNINGDALE TECH LTD SGX:BHQ DBS GROUP HOLDINGS LTD SGX:D05 OVERSEA-CHINESE BANKING CORP SGX:O39 SINGTEL SGX:Z74 CDL HOSPITALITY TRUSTS SGX:J85 CITY DEVELOPMENTS LIMITED SGX:C09 WING TAI HLDGS LTD SGX:W05

Singapore Stock Alpha Picks (July 2018) - Weathering A Difficult Period

• Our picks had to endure a tough June, with the FSSTI falling 4.7% m-o-m. However, we largely stick with our picks, with a tilt towards large caps or stocks with reasonable dividend yield.

WHAT’S NEW

Grappling with external challenges.

• June continued to be weak, following on from a pull-back in May, with the FSSTI declining 4.7% m-o-m in June 2018. As a result, our alpha picks endured declines of 2.0-9.2% m-o-m as external concerns such as a faster-than-expected rate hike in the US and the US/China trade war remain an overhang on global equity markets.
• Within our portfolio, CityDev and Wing Tai were the most resilient, declining by 2.0-2.5% m-o-m compared to the higher decline in broader markets.

ACTION

Staying the course; sticking with the fundamentals.

• Our recent addition Sunningdale, declined 9.2% m-o-m but it looks oversold. In view of this, a firm US dollar and expected recovery in 2Q18, we reiterate our BUY call on Sunningdale.
• CSE saw profit-taking in June (-6.5% m-o-m) but is still offering positive returns of 4.9% since being added to our alpha picks. CSE remains our preferred proxy to the firm oil prices as we remove Keppel Corp due to the lack of near-term catalysts for the latter.
• As for the large caps such as the banks, we are cognisant that the higher rates and the uncertain external noise may dampen the growth outlook and we have reflected this in our target prices for DBS and OCBC. Despite the moderation in target prices, upside for DBS and OCBC remains compelling.

OCBC – BUY (Jonathan Koh)

• OVERSEA-CHINESE BANKING CORP (O39.SI)  OCBC Bank Share Price  OCBC Bank Target Price  OCBC Bank Analyst Reports  OCBC Bank Corporate Actions  OCBC Bank Announcements  OCBC Bank Latest News  OCBC Bank Blog Articles
• We estimate that implementation of internal ratings-based approach (IRBA to compute risk-weighted assets for OCBC Wing Hang in 2019 would improve CET-1 CAR by 0.6ppt. The group may also evaluate reinstating scrip dividend scheme as a tool for capital management to support a higher dividend payout ratio.

Share Price Catalyst

• Event: Rising interest rates could help underpin NIMs.
• Impending IPO/stake sales in Great Eastern Life Malaysia.
• Timeline: 6-9 months.

DBS – BUY (Jonathan Koh)

• DBS GROUP HOLDINGS LTD (D05.SI)  DBS Share Price  DBS Target Price  DBS Analyst Reports  DBS Corporate Actions  DBS Announcements  DBS Latest News  DBS Blog Articles
• Management confident of achieving ROE of 12.5% for 2018. Singapore dollar CASA ratio was stable at 90.2% while Hong Kong dollar CASA ratio improved 6.2ppt y-o-y to 58.4% in 1Q18.
• Solid outlook. Management guided for loans growth of 8% in 2018. Together with its generous dividends (dividend yield of over 3%), DBS remains a core holding as a growth proxy. Nevertheless, we had recently worked in a more conservative growth outlook to factor in the external concerns over global growth.

Share Price Catalyst

• Event: Further rate hikes leading to higher NIMs.
• Timeline: 3-6 months.

City Development – BUY (Andrew Chow/Loke Pei Hao)

• CITY DEVELOPMENTS LIMITED (C09.SI)  City Developments Share Price  City Developments Target Price  City Developments Analyst Reports  City Developments Corporate Actions  City Developments Announcements  City Developments Latest News  City Developments Blog Articles
• Proxy to ride on the Singapore residential recovery (33% of GAV), with the largest residential landbank of more than 3,100 attributable units.

Share Price Catalyst

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

CD REIT – BUY (Andrew Chow/Loke Pei Hao)

• CDL HOSPITALITY TRUSTS (J85.SI)  CDL Hospitality Trust Share Price  CDL Hospitality Trust Target Price  CDL Hospitality Trust Analyst Reports  CDL Hospitality Trust Corporate Actions  CDL Hospitality Trust Announcements  CDL Hospitality TrustLatest News  CDL Hospitality Trust Blog Articles
• We have a target price of S$1.95 (no change), which assumes a terminal growth rate of 2.5%.
• CDREIT’s Singapore hotel segment could benefit from:
  1. a recovery in corporate travel,
  2. Chinese visitor growth, and
  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).
• Even with the new land for hotels included under the 2H18 Government Land Sales (GLS), new supply (potentially 930 rooms) will only come on stream after 2020, which suggests tight near-term supply.

Share Price Catalyst

• Event: Positive data points on visitor arrivals, average length of stay (ALOS), average daily room rate (ADR), RevPAR and supply pipeline.
• Timeline: 3-6 months.

Singtel – BUY (Jonathan Koh)

• SINGTEL (Z74.SI)  SingTel Share Price  SingTel Target Price  SingTel Analyst Reports  SingTel Corporate Actions  SingTel Announcements  SingTel Latest News  SingTel Blog Articles
• Upside in Australia as three nationwide outages by Telstra in May could see Optus gain market share and drive its growth momentum.
• 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 a target price of S$4.22.

Share Price Catalyst

• Event: Funds flow into laggards and defensive stocks, including Singtel which offers a good dividend yield (DPS commitment of 17.5 S cents/share for 2 years).
• Timeline: 3-6 months.

Wing Tai – BUY (Andrew Chow/Loke Pei Hao)

• WING TAI HLDGS LTD (W05.SI)  Wing Tai Share Price  Wing Tai Target Price  Wing Tai Analyst Reports  Wing Tai Corporate Actions  Wing Tai Announcements  Wing Tai Latest News  Wing Tai Blog Articles
• 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 0.52x 2018F P/B (lowest within our coverage) and a deep 41% 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

• Event: Potential for Wing Tai to buy more landbank given its S$1.6b acquisition headroom. A pick-up in sales for the Garden Residences (JV with Keppel Land).
• Timeline: 6-9 months.

Sunningdale – BUY (Yeo Hai Wei)

• SUNNINGDALE TECH LTD (SGX:BHQ)  Sunningdale Tech (SGX:BHQ) Share Price  Sunningdale Tech (SGX:BHQ) Target Price  Sunningdale Tech (SGX:BHQ) Analyst Reports  Sunningdale Tech (SGX:BHQ) Corporate Actions  Sunningdale Tech (SGX:BHQ) Announcements  Sunningdale Tech (SGX:BHQ) Latest News  Sunningdale Tech (SGX:BHQ) Blog Articles
• Oversold. The stock has retraced 33% from its recent high and is currently trading at 0.7x P/B and at 7.7x 2018F PE, which is significantly cheaper than its peers, including Memtech.
• Hoping for a better 2Q18 to provide relief. Investors have been shaken by a weak 1Q18, exacerbated by forex losses. We expect a seasonally better 2Q18 and the potential for a forex gain in 2Q18 as the US dollar has gained 1.9% vs the Singapore dollar.
• Price currently below major shareholder’s last purchase. After the price retracement, Sunningdale is trading at an 18% discount to the last acquisition price of S$1.71(13m shares) by its chairman Koh Boon Hwee.

Share Price Catalyst

• Event: Recovery in 2QFY18 earnings and gains from disposal of its non-core asset.
• Timeline: 3-6 months

CSE Global – BUY (Yeo Hai Wei)

• CSE GLOBAL LTD (SGX:544)  CSE Global (SGX:544) Share Price  CSE Global (SGX:544) Target Price  CSE Global (SGX:544) Analyst Reports  CSE Global (SGX:544) Corporate Actions  CSE Global (SGX:544) Announcements  CSE Global (SGX:544) Latest News  CSE Global (SGX:544) Blog Articles
• Solid proxy on recovering oil prices. CSE is a good proxy on recovering oil prices as two-thirds of its existing orderbook of S$175m comes from the O&G sector. In addition, the stock offers sustainable dividend yield of more than 6%.
• High entry barriers. The group has a 32-year track record in a business with high entry barriers. CSE is one of the few qualified system integrators in the region for O&G and communication infrastructure industries.
• Potential synergies from new shareholder. Serba Dinamik, a Malaysian-listed company, recently bought a 25% stake in CSE at S$0.45/share. We see potential synergies as it could open up new markets for CSE such as Malaysia and Middle East.

Share Price Catalyst

• Event: New contract wins and continued recovery in earnings.

Singapore Research UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-04

SGX Stock Analyst Report BUY Maintain BUY 0.610 Same 0.610

BUY Maintain BUY 2.000 Same 2.000

BUY Maintain BUY 30.150 Same 30.150

BUY Maintain BUY 14.280 Same 14.280

BUY Maintain BUY 4.220 Same 4.220

SGX Stock Analyst Report BUY Maintain BUY 1.950 Same 1.950

BUY Maintain BUY 14.030 Same 14.030

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.