Singapore Strategy - CGS-CIMB Research 2019-03-04: Alpha Picks March 2019

Singapore Top Stock Picks 2019 - CGS-CIMB Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) KEPPEL CORPORATION LIMITED (SGX:BN4) CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) GENTING SINGAPORE LIMITED (SGX:G13) CDL HOSPITALITY TRUSTS (SGX:J85) COMFORTDELGRO CORPORATION LTD (SGX:C52) SINGAPORE TECH ENGINEERING LTD (SGX:S63) CSE GLOBAL LTD (SGX:544) HRNETGROUP LIMITED (SGX:CHZ) SILVERLAKE AXIS LTD (SGX:5CP)

Singapore Strategy - Alpha Picks March 2019




2019 ALPHA PICKS (LARGE-CAP)


CAPITALAND LIMITED (SGX:C31) (Rating: ADD, Target Price: $3.56)

  • CapitaLand locked in ROE of 9.3% for FY18. Strong capital deployment with S$4.1bn of divestments and S$6.11bn of new investments in 2018 to drive forward ROE expansion.
  • China residential contributions expected to remain steady in FY19, Singapore residential to pick up with the planned launch of 2 projects totaling 1500 units.
  • Moving into a new phase of growth with the proposed acquisition of Ascendas-Singbridge for S$6.04bn of equity value. Post transaction, AUM to expand to S$116.5bn and fee income could rise c.40%. Transaction expected to be earnings-and ROE-accretive. We expect further upside to our RNAV from this exercise, scheduled to complete by 3Q19.

CDL HOSPITALITY TRUSTS (SGX:J85) (Rating: ADD, Target Price: $1.80)

  • Earnings growth in FY19 will be driven by
    1. the completion of refurbishment of Orchard Hotel in 1Q2019,
    2. the opening of the rebranded Maldives Resort in 1Q2019, and
    3. a full year’s contribution from the acquisition of Hotel Cerretani Florence in Italy in end-Nov 2018.
  • Singapore RevPAR should improve in tandem with the lower supply of hotels in 2019.
  • We see CDL Hospitality Trusts as the proxy to the recovering hospitality sector in Singapore. At a Target Price of S$1.80, CDL Hospitality Trusts will be trading at 5.4% DPU yield, which is higher than the bellwether stocks for retail and office of ~5%.

CITY DEVELOPMENTS LIMITED (SGX:C09) (Rating: ADD, Target Price: $10.66)

  • Locked in pre-sales of S$2.2bn for FY18, +14% y-o-y, to be recognised over the next 2-3 years. Plans to roll out 2,434 new units in 2019.
  • Strategic plans to grow, enhance and transform its asset portfolio and business operations, en route to reaching a recurrent income target of S$900m by 2028. In 4Q19, it secured a mandate to jointly manage a A$300m office asset in Sydney and acquired the remaining 60% stake in Central Mall office tower with plans to explore redevelopment potential.
  • City Developments' total assets increased to S$20.9bn at end-FY18. Healthy net debt to equity ratio of 0.31x at end FY18, provides deep capacity for new investments.

COMFORTDELGRO CORPORATION LTD (SGX:C52) (Rating: ADD, Target Price: $2.74)

  • At 16x 12M forward P/E, ComfortDelGro trades below its 7-year historical average at 16.7x, offering a 4.5% dividend yield.
  • Robust balance sheet with net cash position (S$16m) as at end-Dec 18; ComfortDelGro could gear up to 30% net gearing position while pursuing further earnings-accretive acquisitions, potentially in developed cities.
  • Affirmed expansion of its taxi fleet in the coming months is a potential re-rating catalyst.

DBS GROUP HOLDINGS LTD (SGX:D05) (Rating: ADD, Target Price: $29.00)

  • DBS trades at 1.36x CY19F P/BV (ROE: 12.3%). Strong capital ratio of 13.9% provides visibility for sustained dividends in FY19.
  • Continued NIM upside is likely to come from a catch-up of mortgage board rates towards SIBOR-pegged loans. The bank’s 59% CASA deposit base underlines its low funding costs.
  • We see an improvement in market-related fee income if positive market sentiments are sustained into FY19. Catalysts include a reversion of HIBOR back onto an upward-trend and stronger-than-expected loan growth from the resolution of US- China trade tensions.

GENTING SINGAPORE LIMITED (SGX:G13) (Rating: ADD, Target Price: $1.28)

  • At 7.4x forward EV/EBITDA, Genting Singapore has retraced below its 5- year average of 10x and closer to trough valuations seen at end-FY15-16 when adjusted EBITDA was below S$900m (vs. S$1.2bn in FY19F), and trade receivable impairments were above S$230m-260m p.a. The stock is attractive given that such factors are now on relatively firmer footing, in our view.
  • VIP market rose to 48.1% (from 37% in FY17) in FY18; mass held at 39%.
  • Sustained EBITDA are near-term catalysts.
  • RWS redevelopment and a successful bid for a Japan casino licence in 2H19F are mid-to-long term catalysts.

KEPPEL CORPORATION LIMITED (SGX:BN4) (Rating: ADD, Target Price: $8.41)

  • Keppel Corp has underperformed the FSSTI over the past 12 months, mainly affected by property cooling measures in Singapore and China. We think current valuations at -1 s.d. of its long-term mean at 0.9x P/BV more than price-in the negatives.
  • The current price implies a 35% discount of its property RNAV, 1.5x CY19F P/BV of O&M and the rest of the stubs are free.
  • Catalysts could come from stronger order wins and settlement of Sete Brasil rigs, as well as an enlargement of its infrastructure portfolio.

ST ENGINEERING LTD (SGX:S63) (Rating: ADD, Target Price: $4.08)

  • Completion of MRAS acquisition is key as this will contribute to our projection of 13-26% y-o-y net profit growth for the aerospace division in FY19-20F.
  • We think investors have also underestimated the potential recovery of the marine sector, backed by its 2018 order win, better cost control in shipbuilding and firm ship repair margins.
  • ST Engineering is a proxy for heightened investments in physical, cyber defense and smart nations in the region and Singapore.


2019 ALPHA PICKS (SMALL-CAP)


CSE GLOBAL LTD (SGX:544) (Rating: ADD, Target Price: $0.60)

  • Currently trading at 11.8x CY18F P/E vs. our target of 13.5x (based on historical 5-year mean). CSE Global's end-4Q18 net cash position rose to S$37.9m (vs. S$15.5m at end-4Q17) will support M&A opportunities and yearly DPS of 2.75Scts p.a.
  • In FY18, gross margin (GPM) surged to 27.9% on a spike in 4Q18 GPMs to 30.2% on better product mix. (vs. FY17 GPM of 26.2%), a signal that underlying projects margins could be recovering.
  • Order intake of S$384.1 was comparable to FY17’s S$381.9m and took end-Dec 18 order backlog to S$181m (vs. S$175.0m at end-Dec 17). Forward order book to be buoyed by “flow contracts”. In the longer term, the collaboration with Serba Dinamik could lead to downstream O&G, power and utilities contracts from the Middle East and Malaysia.

HRNETGROUP LIMITED (SGX:CHZ) (Rating: ADD, Target Price: $1.03)

  • HRnetGroup is the only SGX-listed proxy for the labour markets in China and Singapore. We also like its asset-light and scalable business model, with the twin earnings growth engines of professional recruitment and flexible staffing.
  • Excess cash of S$120m (at end 4Q18) is available to fund overseas expansion, with potential 15-18% earnings upside from M&As not factored in.
  • It currently trades at 13.7x CY20F P/E (7.7x ex-cash), at a 20- 50% discount to peers. The stock also offers a c.3.5% dividend yield based on a 50% payout.

SILVERLAKE AXIS LTD (SGX:5CP) (Rating: ADD, Target Price: $0.62)

  • Silverlake Axis emerged from its FY18 earnings trough with its 6MFY6/19 core net profit up 77% y-o-y on the back of higher project-related revenue and enhancements. Upbeat on bank capex cycle remaining on an uptrend amid the digitalisation drive in ASEAN.
  • Optimistic on further core banking contract wins in CY19 that could potentially come from banks in Indonesia or Thailand.
  • Trades at 17.7x CY20F P/E, below its 7-year historical average (21x) and 12-15% discount to peers with a c.4.5% dividend yield.





LIM Siew Khee CGS-CIMB Research | Singapore Research Team CGS-CIMB Research | https://research.itradecimb.com/ 2019-03-04
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