Analysts' Recommendations
CSE GLOBAL LTD
SGX:544
OVERSEA-CHINESE BANKING CORP
SGX:O39
VALUETRONICS HOLDINGS LIMITED
SGX:BN2
WHEELOCK PROPERTIES (S) LTD
SGX:M35
SINGTEL
SGX:Z74
Singapore Stock Alpha Picks (September 2018) - Bracing For Higher Volatility Ahead
- Our picks did reasonably well in August and we took the opportunity to take profit on Wilmar and Sunningdale, and remove DBS after our downgrade.
- We add Wheelock Properties for an attractive risk-reward trade, and Valuetronics for yield.
WHAT’S NEW
Majority of picks outperformed in August.
- Our alpha picks of August 2018 did reasonably well, with most of our picks (except DBS and CDLHT) outperforming the FSSTI’s 3.2% m-o-m decline in Aug 2018.
- The notable outperformers include Wilmar and Sunningdale, with the former rising 3.4% m-o-m after posting stellar 2Q18 results in its strongest quarter since 2011. The better-than-expected results were due to strong margins in the tropical oils and oilseeds & grains division.
ACTION
Chopping and changing.
- Wilmar has been removed after returning 3.4%, respectable since it was only included last month. The decent return was due to its strong 2Q18 results.
- We downgraded DBS on heightened US-China trade tensions and limited upside after we trimmed our target price to S$28.20 following its 2Q18 results. (see report: DBS Group Holdings - 2Q18 Trade Tension Affects Trade Loans & Sentiments; Downgrade To HOLD)
- We add Wheelock Properties and Valuetronics to our conviction list.
- In our view, the voluntary general offer (VGO) price of S$2.10 for Wheelock Properties appears too low and we hope for a more attractive offer at closer to S$2.45/share.
- For Valuetronics, we forecast its earnings to play catch up in the next few quarters from the smart lighting segment and robust contribution from the ICE segment.
~ SGinvestors.io ~ Where SG investors share
Wheelock Properties – BUY (Andrew Chow/Loke Pei Hao)
WHEELOCK PROPERTIES (S) LTD (SGX:M35) Wheelock Properties (SGX:M35) Share Price Wheelock Properties (SGX:M35) Target Price Wheelock Properties (SGX:M35) Analyst Reports Wheelock Properties (SGX:M35) Corporate Actions Wheelock Properties (SGX:M35) Announcements Wheelock Properties (SGX:M35) Latest News Wheelock Properties (SGX:M35) Blog Articles
- Risk-reward adjusted trade. We see Wheelock Properties as an attractive risk-reward adjusted trade. The downside to this trade is S$2.10 as the VGO from its parent company is unconditional and the potential upside is estimated at S$2.45.
- Analysing previous general offers. Our study of previous successful general offers of property-related companies indicate an average valuation of 0.94x P/B. This would suggest a target of S$2.45 per Wheelock share as a fairer exit price for minority shareholders. In addition, we also see hidden value from its China property projects.
Share Price Catalyst
- Event: Potential upward revision to VGO price of S$2.10.
- Timeline: Within a month.
Valuetronics – BUY (John Cheong/Yeo Hai Wei)
VALUETRONICS HOLDINGS LIMITED (SGX:BN2) Valuetronics (SGX:BN2) Share Price Valuetronics (SGX:BN2) Target Price Valuetronics (SGX:BN2) Analyst Reports Valuetronics (SGX:BN2) Corporate Actions Valuetronics (SGX:BN2) Announcements Valuetronics (SGX:BN2) Latest News Valuetronics (SGX:BN2) Blog Articles
- Expect earnings to play catch up in the upcoming quarters. Given that the recovery in the smart lighting segment is progressing smoothly and with continued robust growth from the ICE segment, we expect earnings to be better in the upcoming quarter.
- Demand for smart lighting is recovering. Customers of smart lighting indicated they expect better sales in 2H18. In addition, Valuetronics has been enjoying better demand in the recent months. Oher consumer lifestyle products in the consumer electronics division are expected to continue seeing stable growth, thanks to more product innovation.
- Healthy demand is expected to continue for the industrial and commercial electronics (ICE) segment as it continues enjoy better demand for connectivity modules used in the automotive industry.
Share Price Catalyst
- Event: Higher-than-expected dividends or M&As, backed by net cash of S$132m or around 40% of Valuetronics’ market cap. More customers in the automobile or internet of things segments.
- Timeline: 3-6 months
OCBC – BUY (Jonathan Koh)
OVERSEA-CHINESE BANKING CORP (SGX:O39) OCBC Bank (SGX:O39) Share Price OCBC Bank (SGX:O39) Target Price OCBC Bank (SGX:O39) Analyst Reports OCBC Bank (SGX:O39) Corporate Actions OCBC Bank (SGX:O39) Announcements OCBC Bank (SGX:O39) Latest News OCBC Bank (SGX:O39) Blog Articles
- Higher NIMs from re-pricing of mortgages. Management expects a significant portion of its mortgages to be re-priced in 3Q18, especially those pegged to long-term deposit rates and prime rates. It ensures that upward movements in SIBOR and SOR are sustainable before it adjusts the interest rates for mortgages. Mortgages accounted for 26.1% of OCBC's total loans.
- Room to raise dividends. We see room for OCBC to gradually raise dividends. The group’s dividend payout ratios are 40-50%.
Share Price Catalyst
- Event: Rising interest rates could help underpin NIMs.
- The divestment of a 33.3% stake in Hong Kong Life Insurance for HK$2,366.7m (S$425.9m) is waiting for regulatory clearance and should be completed by end-18.
- Timeline: 6-9 months.
CDREIT – BUY (Andrew Chow/Loke Pei Hao)
CDL HOSPITALITY TRUSTS (SGX:J85) CDL Hospitality Trust (SGX:J85) Share Price CDL Hospitality Trust (SGX:J85) Target Price CDL Hospitality Trust (SGX:J85) Analyst Reports CDL Hospitality Trust (SGX:J85) Corporate Actions CDL Hospitality Trust (SGX:J85) Announcements CDL Hospitality Trust (SGX:J85)Latest News CDL Hospitality Trust (SGX:J85) Blog Articles
- We have a target price of S$1.86, which assumes a terminal growth rate of 2.5% and risk-free rate of 2.75%.
- CDREIT’s Singapore hotel segment could benefit from:
- a recovery in corporate travel,
- Chinese visitor growth, and
- tight supply pipeline.
- Hotel room supply is limited beyond 2017, with only 769, 1,664 and 392 rooms coming on stream in 2018-20 respectively (2017: 2,868 new rooms).
- 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, average daily room rate, RevPAR and supply pipeline. Positive results from new operator and repositioning of its Maldives Hotel.
- Timeline: 6-12 months.
SingTel – BUY (Jonathan Koh)
SINGTEL (SGX:Z74) SingTel (SGX:Z74) Share Price SingTel (SGX:Z74) Target Price SingTel (SGX:Z74) Analyst Reports SingTel (SGX:Z74) Corporate Actions SingTel (SGX:Z74) Announcements SingTel (SGX:Z74) Latest News SingTel (SGX:Z74) Blog Articles
- The merger between TPG Telecom and Vodafone Hutchinson Australia is positive as it will consolidate the market in Australia from four to three players, which could lead to pricing stability. As at 1QFY19, Optus accounted for 21% of SingTel’s pre-tax profit.
- 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$3.98.
Share Price Catalyst
- Event: Fund flow into laggards and defensive stocks, including SingTel which offers a good dividend yield (DPS commitment of 17.5 S cents/share for two years).
- Timeline: 3-6 months.
CSE Global – BUY (John Cheong/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 to recovering oil prices. CSE is a good proxy to recovering oil prices as two-thirds of its existing orderbook of S$175m come from the O&G sector. In addition, the stock offers a 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 the Middle East.
Share Price Catalyst
- Event: New contract wins and continued recovery in earnings. Newsflow of positive new shareholder Serba Dinamik.
Singapore Research
UOB Kay Hian Research
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https://research.uobkayhian.com/
2018-09-03
SGX Stock
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