Singapore Strategy 2019 ~ Technology Sector - RHB Invest 2018-12-14: Trade War Uncertainty An Overhang On Tech Stocks

Singapore Strategy 2019 ~ Technology Sector - RHB Research | SGinvestors.io FU YU CORPORATION LTD (SGX:F13) VENTURE CORPORATION LIMITED (SGX:V03)

Singapore Strategy 2019 ~ Technology Sector - Trade War Uncertainty An Overhang On Tech Stocks

  • Tech stocks have been hammered badly in 2018, due to an ongoing trade war issues between the US and China. Higher tariffs on a wider range of goods have sparked increased trade tensions globally, worsening sentiment. Despite the recently-agreed 90 day truce, we remain cautious on the sector’s outlook, wary that the trade war could potentially worsen in 2019.
  • We prefer to focus on a bottom-up approach for stock selection. Our Top Picks are Venture Corp (SGX:V03), which has less exposure to the trade war, and Fuyu Corp (SGX:F13), for its sound balance sheet and attractive dividend yield.
  • Maintain NEUTRAL.



Worsening trade war impacting market sentiment.

  • Since US President Donald Trump initiated the possibility of a trade war against China and its other key deficit trading partners in Mar 2018, Singapore stocks, especially those in the manufacturing sector, have taken a significant hit.
  • With the trade issue yet to be resolved and potentially further worsen or drag on, it will likely be a drag on the market, hurting sentiment. Slower business sentiment will also likely impact global business activities, resulting in a potential slowdown or a decline, as we have already witnessed.
  • Despite the 90 day truce, we remain cautious as to the sector’s outlook, wary that the trade war could potentially worsen in 2019. As a result, we remain NEUTRAL on the sector and focus on a bottom-up approach for our Top Picks.



Venture Corp: The least exposure to tariffs; V-shaped recovery.


  • We remain confident that a V-shaped earnings recovery for Venture Corp is highly possible in subsequent quarters, especially if the trade war issues between US and China are resolved. In addition, we expect Venture to pay out a total of SGD0.70/share this year, slightly higher than last year, representing an attractive FY18F dividend yield of 4.8%.
  • We think that the short-term selling pressure is mainly due to its negative 3Q18 results, and likely represents a buying opportunity for investors. Lastly, Venture has also little exposure to the ongoing trade war between China and the US. As of 3Q18, less than 2% of its revenue, which could be further mitigated, is exposed.
  • With the management bullish on a V-shaped earnings recovery in 4Q and ahead, we expect Venture to enjoy operating leverage and likely enjoy higher net margins going forward. As such, we maintain BUY with SGD19.00 Target Price, pegged to 14x FY19F P/E. 
  • See report: Venture Corporation - Top Pick For Tech Sector.


Fuyu Corp: Sound balance sheet and attractive +8.3% yield.

  • With the ramp-up in its automotive projects to continue in subsequent quarters, coupled with new projects on the medical and consumer fronts, we expect Fuyu Corp's positive growth momentum to continue. In addition, a strengthening USD would also be beneficial for it (as over 80% of its revenue is USD-denominated).
  • Management is still actively seeking ways to further optimise the cost structure of its operations in the region, especially in China, such as rightsizing exercises and the sale or lease of unutilised factory space. If suitable opportunities arise, these should further improve margins.
  • Supported by an attractive yield of +8.3%, we maintain BUY with a DCF-backed Target Price of SGD0.23. 
  • See report: Fu Yu Corp - Top Pick For Small-Mid Cap Manufacturing
  • Fuyu Corp remains our Top Pick in the small-mid cap manufacturing space.


Switching back to a bottom-up approach for stock selection.

  • Our Top Picks are Venture Corp, which has less exposure to the trade war, and Fuyu Corp, for its sound balance sheet and attractive dividend yield.
  • Maintain NEUTRAL.





Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-12-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.230 SAME 0.230
BUY MAINTAIN BUY 19.000 SAME 19.000





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