Singapore Stock Alpha Picks (November 2018) - UOB Kay Hian 2018-11-02: An October To Forget

CSE GLOBAL LTD (SGX:544) | SGinvestors.io Singapore Stocks Recommendations CSE GLOBAL LTD (SGX:544) OVERSEA-CHINESE BANKING CORP (SGX:O39) SINGTEL (SGX:Z74) SINGAPORE TECH ENGINEERING LTD (SGX:S63) VALUETRONICS HOLDINGS LIMITED (SGX:BN2)

Singapore Stock Alpha Picks (November 2018) - An October To Forget




WHAT’S NEW


An October to forget.

  • October turned out to be very challenging as our alpha picks retreated by 0.3-11.3% m-o-m. Our portfolio declined 6.6% m-o-m vs the FSSTI’s Oct 2018 decline of 7.3% m-o-m.
  • Within our portfolio, the worst hits were mid-cap stocks such as CSE Global and Valuetronics which fell 10.0% m-o-m and 11.3% m-o-m respectively.
  • We remain buyers as their fundamentals remain intact with attractive dividends of over 6% each. Dividend-yield seekers likely to revisit these two names.


ACTION


Cut CDREIT and add DBS for beta.

  • While we think prospects for CDL Hospitality Trusts (CDREIT, SGX:J85) should improve from 1Q19, we remove the stock from our picks given the lack of near-term catalysts. In its place, we add DBS Group (SGX:D05) after its share price pulled back as well as hopes that improving NIMs and continued earnings recovery should drive share price up as market sentiment recovers.




DBS – BUY (Jonathan Koh)


DBS GROUP HOLDINGS LTD (SGX:D05)  DBS (SGX:D05) Share Price  DBS (SGX:D05) Target Price  DBS (SGX:D05) Analyst Reports  DBS (SGX:D05) Corporate Actions  DBS (SGX:D05) Announcements  DBS (SGX:D05) Latest News  DBS (SGX:D05) Blog Articles

  • DBS is a prime beneficiary of rising interest rates in Singapore and Hong Kong. Its CASA ratio for Singapore dollar is stable at 92%. It has also strengthened deposit franchise in Hong Kong with CASA ratio for Hong Kong dollar improving 13.9ppt to 56.2% over the past three years.
  • We expect DBS to reward shareholders with DPS of S$1.20 for 2018. The stock offers attractive dividend yield of 5.0%.

Share Price Catalyst

  • Event: NIM expansion along with rate hikes.
  • Timeline: 3-6 months.


ST Engineering – BUY (K Ajith)


SINGAPORE TECH ENGINEERING LTD (SGX:S63)  ST Engineering (SGX:S63) Share Price  ST Engineering (SGX:S63) Target Price  ST Engineering (SGX:S63) Analyst Reports  ST Engineering (SGX:S63) Corporate Actions  ST Engineering (SGX:S63) Announcements  ST Engineering (SGX:S63) Latest News  ST Engineering (SGX:S63) Blog Articles

  • Moving up the value chain with the acquisition of nacelle manufacturer MRAS. ST Engineering's (STE) S$606m planned acquisition of MRAS will be the company's biggest thus far and is expected to be immediately accretive, with EPS rising 1.2 S cents in 2019 and another 1.72 cents in 2020. By moving up the production value chain, the aerospace division will be moving up to an arena with less competition, unlike the maintenance business. Earnings will also be less orderbook dependent, given that Airbus's orderbook backlog for the Airbus A320 Neo is estimated at 9-10 years.
  • Dividend payout will not be impacted. We expect STE's internal operating cash flow will be sufficient to fund dividend payout of 17 S cents in 2019, based on a payout of 85%. This implies an attractive yield of 4.8% at S$3.50.

Share Price Catalyst

  • Event: Guidance on MRAS revenue structure.
  • Timeline: 3-6 months.


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 coming quarters. Given continued robust growth from the industrial and commercial electronics (ICE) segment, we expect earnings to be better in 3Q18.
  • Limited impact from US trade tariff. Management estimates that less than 10% of its revenue will be impacted by the new round of tariffs by the US. Longer term, the group is looking to expand into Asean to reduce the impact from the US trade tariff.
  • Healthy demand is expected to continue for the ICE segment as it continues to 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. OCBC 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. 3Q18 has already seen a decent 5bp uptick in NIMs to 1.72%.
  • 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.


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. In 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 bout 70% of its bottom line. BUY with a target price of S$3.94.

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).
  • Continued improvement in Telkomsel’s performance.
  • 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 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 synergy with new shareholder Serba Dinamik.
  • Accretive M&A given the group’s strong financial position.










Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-11-02
SGX Stock Analyst Report BUY MAINTAIN BUY 0.590 SAME 0.590
BUY MAINTAIN BUY 14.050 SAME 14.050
BUY MAINTAIN BUY 3.940 SAME 3.940
BUY MAINTAIN BUY 4.060 SAME 4.060
BUY MAINTAIN BUY 0.960 SAME 0.960


* 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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