Singapore Stock Alpha Picks - UOB Kay Hian 2019-01-04: Kicking Off 2019

Singapore Stock Alpha Picks - UOB Kay Hian Research | SGinvestors.io NETLINK NBN TRUST (SGX:CJLU) SATS LTD. (SGX:S58) FU YU CORPORATION LTD (SGX:F13) OVERSEA-CHINESE BANKING CORP (SGX:O39) CSE GLOBAL LTD (SGX:544) SINGTEL (SGX:Z74) VALUETRONICS HOLDINGS LIMITED (SGX:BN2)

Singapore Stock Alpha Picks - Kicking Off 2019

  • Overall, our alpha picks outperformed the broader market in 2018. As for Dec 18, our picks endured a tough month with the FSSTI declining 1.6% m-o-m.
  • We made changes to our alpha picks portfolio as we added NetLink Trust and tactically removed DBS in preference for OCBC.



WHAT’S NEW


Alpha picks outperformed FSSTI in 2018.

  • On a portfolio basis, our alpha picks declined 4.2% (market-cap weighted) and 4.4% (equal-weighted basis) in 2018, outperforming the FSSTI which recorded a higher retreat of 9.8%.
  • Based on quarterly performance, the worst decline was in the second quarter (market-cap weighted: 5.4%; equal weighted: 4.9%) which dampened the overall performance of our alpha picks in 2018.

A challenging December.



ACTION


Add NetLink and remove DBS.

  • NETLINK NBN TRUST (SGX:CJLU) is the latest addition to our alpha picks as it reported solid growth from the residential and non-residential segments in 2QFY19 and we like its defensive characteristic. We are removing DBS GROUP HOLDINGS LTD (SGX:D05) as we focus on OCBC for which we see ample room for a gradual rise in dividends.


NETLINK NBN TRUST (SGX:CJLU)  NetLink Trust (SGX:CJLU) Share Price  NetLink Trust (SGX:CJLU) Target Price  NetLink Trust (SGX:CJLU) Analyst Reports  NetLink Trust (SGX:CJLU) Corporate Actions  NetLink Trust (SGX:CJLU) Announcements  NetLink Trust (SGX:CJLU) Latest News  NetLink Trust (SGX:CJLU) Blog Articles

  • NetLink has dominant market share of 90% for residential and 35% for non-residential fibre connections, where growth is projected at a three-year CAGR of 6.2% and 8.5% respectively in FY18-21.
  • TPG is a customer and relies on NetLink’s non-building address point (NBAP) connections for backhaul transmission. TPG is expected to require NBAP connections for 3,000 base stations over the next three years.

Share Price Catalysts

  • Event: Continued growth in residential and non-residential fibre connections.
  • Growth in demand for NBAP connections, should the government accelerate the roll-out of Smart Nation initiatives.
  • Timeline: 3-12 months.


SATS LTD. (SGX:S58)  SATS (SGX:S58) Share Price  SATS (SGX:S58) Target Price  SATS (SGX:S58) Analyst Reports  SATS (SGX:S58) Corporate Actions  SATS (SGX:S58) Announcements  SATS (SGX:S58) Latest News  SATS (SGX:S58) Blog Articles

  • We continue to favour SATS for its regional exposure to Asia’s passenger traffic growth and cargo volume growth. As at 1HFY19, revenue at operating regions grew 8.1%. While, cargo growth is likely to be lower, we believe that this has been factored in by the street.
  • Similarly, we expect SATS’ operating profit growth to be lower at 9.6% for 2HFY19 vs 14.2% in 1HFY19. Key revenue and earnings drivers are improving cruise revenue/profits, higher profits from TFK and food solutions from China.
  • SATS has also indicated that it will pay out excess cash and thus we expect final dividend to rise by 1 S cent to 13 S cents (total 19 S cents). Thus, at S$4.59, SATS will be offering a dividend yield of 4.1% on an ex-cash ROE of 18% for FY19.

Share Price Catalyst

  • Upcoming earnings results.
  • Timeline: 1-3 months


FU YU CORPORATION LTD (SGX:F13)  Fu Yu (SGX:F13) Share Price  Fu Yu (SGX:F13) Target Price  Fu Yu (SGX:F13) Analyst Reports  Fu Yu (SGX:F13) Corporate Actions  Fu Yu (SGX:F13) Announcements  Fu Yu (SGX:F13) Latest News  Fu Yu (SGX:F13) Blog Articles

  • High and sustainable dividend yield. FUYU offers a high and sustainable dividend yield of 8.5% for FY18 and we expect it to increase to 9.0% in FY19 on the back of improving net profit, free cash flow, and strong net cash position of S$75m/S$0.10 per share which is equivalent to 53% of market cap as of 3Q18.
  • Diversifying to a more stable business model. In the past decade, FUYU relied heavily on customers in traditional industries such as printing and communications. However, it has reduced its revenue concentration on the printing segment from 50% in FY11 to 31% in FY17 and we expect this to continue as it wins more new customers.
  • Optimising and turning around loss-making operations. FUYU has taken four key steps to optimise its business:
    1. completed the privatisation of its 71%-owned Malaysia-listed subsidiary,
    2. terminating a JV which was losing S$0.7m a year,
    3. turning around two out of five loss-making plants in China, and
    4. amalgamating two subsidiaries.

Share Price Catalyst

  • Events:
    1. Higher-than-expected dividends,
    2. potential takeover, and
    3. more new customers in the consumer, medical and automotive segments.
  • Timeline: 3-6 months.


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 robust growth from key ICE segment. Given the continued robust growth in the industrial and commercial electronics (ICE) segment from better automobile and printer business, we expect earnings to be better in the upcoming quarter.
  • Limited impact from US trade tariff. Management estimates that around 20% of its revenue will be impacted by the trade tariffs by the US. In the 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 automobile industry.

Share Price Catalysts

  • Event: Higher-than-expected dividends or M&As, backed by net cash of S$152.7m or around 50% of Valuetronics’ market cap. More customers in the automobile or Internet of Things (IoT) segments. Potential trade deal between the US and China.
  • Timeline: 3-6 months.


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

  • Compelling dividend yield. OCBC aims to provide steady and sustainable dividends. Management plans to maintain dividend payout ratio at 40-50% of core earnings (2017: 37.7%), which can support growth of 6-7% for RWA and 10-12% for total assets. Given that CET-1 CAR at 13.7% is above the target range of 12.5-13.5%, we expect OCBC to improve dividend payout ratio towards mid-40%, bringing DPS to 48 S cents and dividend yield to 4.3% for 2019.
  • Implementing IRBA for OCBC Wing Hang. OCBC plans to implement an internal ratings-based approach (IRBA) to compute risk-weighted assets (RWA) for OCBC Wing Hang. OCBC Wing Hang’s RWA intensity was higher at 64% for 2017 vs 50.7% for OCBC on a group-wide basis. We estimate OCBC would be able to reduce its RWA by 4% if OCBC Wing Hang lowers its RWA intensity to 50% under IRBA, and this would further improve OCBC’s CET-1 CAR by another 0.6ppt. The exercise could bring OCBC’s CET-1 CAR above 14%, further enhancing its capacity to pay more dividends.

Share Price Catalysts

  • Event: We estimate that the implementation of the IRBA at OCBC Wing Hang would improve OCBC’s CET-1 CAR by 0.6ppt. The exercise is scheduled to be completed in 2019/20.
  • Non-interest income from wealth management, fund management and life insurance will expand in tandem with growing affluence in Asia.
  • Timeline: 3-12 months.


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

  • Singtel provides a defensive shelter due to its geographical diversification. The mobile business in Singapore accounts for only 7% of group revenue if we include its proportionate share of its associates’ revenue.
  • Churn rate in Indonesia has normalised now that SIM card registration has been completed. 35%-owned Telkomsel benefits as pricing has recovered since Jul 18 after the Lebaran holidays.

Share Price Catalyst

  • Event: Continued improvement in Telkomsel’s performance.
  • Timeline: 3-12 months.


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 comes 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 very few qualified system integrators in the region for O&G and communication infrastructure industries.
  • Potential synergies from new shareholder. Serba Dinamik, a Malaysia-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 Catalysts

  • 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.
  • Timeline: 3-6 months.





Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-01-04
SGX Stock Analyst Report BUY MAINTAIN BUY 0.990 SAME 0.990
BUY MAINTAIN BUY 5.600 SAME 5.600
BUY MAINTAIN BUY 0.270 SAME 0.270
BUY MAINTAIN BUY 14.050 SAME 14.050
BUY MAINTAIN BUY 0.590 SAME 0.590
BUY MAINTAIN BUY 3.580 SAME 3.580
BUY MAINTAIN BUY 0.870 SAME 0.870


* 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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