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 (February 2019) - Positive Start To The Year
- Most of our alpha picks recorded gains in January. We see further upside to the target prices for our stocks.
WHAT’S NEW
A good month.
- Most of our picks notched up gains in January, except OCBC. Our portfolio gained 5.7% m-o-m, vs the FSSTI’s +4.0% for the month (see Performance of Straits Times Index Constituents in January 2019).
- The most notable outperformer within our picks was CSE Global which gained 13.2% m-o-m as it secured infrastructure projects worth S$84.8m in 4Q18, bumping up its full-year order wins to S$150.5m (+43.6% y-o-y).
- Small-cap manufacturing companies in our portfolio also delivered strong gains (Fu Yu: +7.9%, Valuetronics: +6.8%).
ACTION
Sticking to our picks.
- February alpha picks are NETLINK NBN TRUST (SGX:CJLU), SATS LTD. (SGX:S58), FU YU CORPORATION LTD (SGX:F13), VALUETRONICS HOLDINGS LIMITED (SGX:BN2), OVERSEA-CHINESE BANKING CORP (SGX:O39), SINGTEL (SGX:Z74) and CSE GLOBAL LTD (SGX:544). Fundamentals remain intact and we see further upside to the target prices for our stocks.
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 – BUY (Jonathan Koh)
- NetLink Trust has a 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 Trust’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 – BUY (K Ajith)
- We continue to favour SATS for its regional exposure to Asia’s passenger traffic growth and cargo volume growth. In 1HFY19, revenue at operating regions grew 8.1% y-o-y. While cargo growth is likely to weaken in 1H19, we believe this has been factored in by the street.
- Similarly, we expect SATS’ operating profit growth to be lower at 9.6% y-o-y for 2HFY19 vs 14.2% y-o-y in 1HFY19. Key revenue and earnings drivers are improving cruise revenue / profits and higher profits from TFK and food solutions from China.
- SATS indicated it will pay out excess cash and thus, we expect final dividend to rise by 1 S cent to 13 S cents (FY19F: 19 S cents). Thus, at S$4.61, SATS will be offering a dividend yield of 4.1% on an ex-cash ROE of 18% for FY19.
- SATS will be announcing 3QFY19 results on 13 February.
Share Price Catalyst
- Upcoming 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 – BUY (John Cheong)
High and sustainable dividend yield.
- Fu Yu offers a high and sustainable dividend yield of 7.8% for FY18 and we expect this to increase to 8.3% in FY19 on the back of improving net profit, free cash flow and strong net cash of S$75m (S$0.10/share), equivalent to 49% of market cap as of 3Q18.
Diversifying to a more stable business model.
- In the past decade, Fu Yu relied heavily on customers in traditional industries such as printing and communications. However, it has reduced revenue from the printing segment from 50% of total revenue in FY11 to 31% in FY17, and we expect this trend to continue as it wins more new customers.
Optimising and turning around loss-making operations.
- Fu Yu has taken four key steps to optimise its business:
- completed the privatisation of 71%-owned Malaysia-listed subsidiary,
- terminating a JV which was losing S$0.7m a year,
- turning around two out of five loss-making plants in China, and
- amalgamating two subsidiaries.
Share Price Catalyst
- Events:
- Higher-than-expected dividends,
- potential takeover, and
- 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 – BUY (John Cheong/Yeo Hai Wei)
Expect robust growth from key ICE segment.
- Given continued robust growth in the industrial and commercial electronics (ICE) segment from better automobile and printer businesses, we expect earnings to be stronger in the upcoming quarters.
Limited impact from US trade tariff.
- Management estimates 20% of its revenue will be impacted by the trade tariffs by the US. In the longer term, Valuetronics 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 enjoys 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 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 – BUY (Jonathan Koh)
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 risk weighted assets (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 dvidend yield to 4.2% for 2019.
Implementing IRBA for OCBC Wing Hang.
- OCBC plans to implement an internal ratings-based approach (IRBA) to compute 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 to above 14%, further enhancing its capacity to pay more dividends.
Share Price Catalysts
- Event: The implementation of the IRBA at OCBC Wing Hang could improve OCBC’s CET- 1 CAR by 0.6ppt. The exercise is scheduled to be completed in 2019-20.
- 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 – BUY (Jonathan Koh)
- 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 as the SIM card registration has 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 – BUY (John Cheong/Yeo Hai Wei)
Solid proxy to recovering oil prices.
- CSE Global 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 Global 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 Global at S$0.45/share. We see potential synergies as it could open up new markets for CSE Global, such as Malaysia and the Middle East.
- CSE Global will be announcing FY18 results on 20 February.
Share Price Catalysts
- Event: New contract wins and continued recovery in earnings; newsflow of positive synergy with Serba Dinamik.
- Accretive M&A, given the group’s strong financial position.
- Timeline: 3-6 months.
Singapore Research
UOB Kay Hian Research
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https://research.uobkayhian.com/
2019-02-08
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