Stock Strategy Singapore - UOB Kay Hian 2019-06-12: Assessing Scope For Valuation Expansion Among Non-REIT Stocks

Singapore Stock Strategy - UOB Kay Hian Research | SGinvestors.io COMFORTDELGRO CORPORATION LTD (SGX:C52) NETLINK NBN TRUST (SGX:CJLU)

Stock Strategy Singapore - Assessing Scope For Valuation Expansion Among Non-REIT Stocks

  • High-yield stocks under our coverage offer dividend yields of 3.8-6.2 %. While some of these stocks appear attractive relative to 10-year SGS, we believe only COMFORTDELGRO (SGX:C52) and NETLINK NBN TRUST (SGX:CJLU) offer scope for appreciation beyond our respective target prices due to higher dividend yields. We have BUY ratings on both stocks.


Stress testing target price sensitivity on expectations of a Fed rate cut and a decline in 10-year SGS.

  • Global government bond rates have declined on expectations of a slower economic growth. While this is cause for concern, it nevertheless makes yield stocks attractive.
  • We thus provide a sensitivity to target prices on some of the high-yield, non-REIT stocks in our coverage, based on our lower risk-free rate assumptions, on DDM & DCF based valuation. Subsequently, we assessed the stocks based on their earnings potential and scope for yield compression.


Company Current Target Price (S$) (RFR: 2.75%) Indicative Target Price (S$) (RFR: 2.5%) % chg Indicative Target Price (S$) (RFR: 2.25%) % chg 2019-20F Target Price Yield (%) 5-year Average Yield (%)
COMFORTDELGRO (SGX:C52) 2.77 2.95 6.5 3.16 14.0 4.1 3.9
NETLINK NBN TRUST (SGX:CJLU) 0.92 0.97 5.4 1.02 10.9 5.4 n.a.
SINGAPORE PRESS HOLDINGS (SGX:T39) 2.86 3.06 7.0 3.29 14.9 3.8 3.8
SATS (SGX:S58) 5.05 5.40 6.9 5.75 13.9 3.8 3.6
SIA ENGINEERING (SGX:S59) 2.55 2.65 3.9 2.75 7.8 4.3 4.1
SINGAPORE POST (SGX:S08) 1.06 1.14 7.1 1.22 15.3 3.8 3.4
SINGTEL (SGX:Z74) 3.58 3.76 5.0 3.95 10.3 4.9 4.8
ST ENGINEERING (SGX:S63) 4.60 4.80 4.3 5.00 8.7 3.5 3.4
STARHUB (SGX:CC3) 1.45 1.48 2.1 1.52 4.8 6.2 6.6


Aviation: Limited scope for multiple expansion and yield compression.

  • Overall, we do not expect aviation support services companies to re-rate further. For example, SATS (SGX:S58) faces earnings risk from slowing passenger traffic in Indonesia, China and India while cargo traffic volumes are also expected to deteriorate further.
  • ST ENGINEERING (SGX:S63)’s earnings should be more resilient but it will still be susceptible to a macro slowdown. At our fair value, the stock offers a dividend yield of 3.5%, which would be at the low end of a historical 7-year band.
  • The same applies to SIA ENGINEERING (SGX:S59) where any upward re-rating has to be driven by improved earnings but we expect core net profit to decline 8% y-o-y in FY20 on slower pax and aircraft movement coupled with higher opex.

ComfortDelgro: Scope for multiple expansion and yield compression.

  • COMFORTDELGRO (SGX:C52)’s near-term earnings can be expected to improve on the back of its recent acquisition of an Australian bus transportation business. ComfortDelGro’s earnings resilience stems from a healthy public transport services with bus contract packages being awarded in recent years.
  • Long-term prospects remain intact with the launch of the LTA Masterplan 2040, laying the groundwork for an extended rail network. Key risks include continued competition in the taxi space from private hires. Even so, dividend yield of 4.1% at target price is slightly above its 5-year mean yield of 3.9%. This suggests scope for valuation expansion and yield compression, given that payout ratio is at 75%.

NetLink NBN Trust: Resilient, transparent and regulated cash flow is key attraction.

  • NETLINK NBN TRUST (SGX:CJLU)'s earnings drivers in FY20-21 include an 8% and 5% y-o-y growth in residential and non-residential connections respectively. We estimate FY20 DPU to rise to 5 cents. FY19 DPU was 4.88 S cents, 5% higher than the projected DPU.
  • At our target price of $0.92, NetLink Trust offers dividend yield 5.4%.

Other stocks do not offer the same earnings expansion and scope for yield compression.

  • We noted that other stocks do not offer the same prospect of earnings growth and scope for yield compression. SINGAPORE POST (SGX:S08), for example, faces earnings risk from service enhancement initiatives, whereas SINGAPORE PRESS HOLDINGS (SGX:T39)’s yield at our target price is similar to its five-year average.

Lucas Teng UOB Kay Hian Research | Chong Lee Len UOB Kay Hian | K Ajith UOB Kay Hian | https://research.uobkayhian.com/ 2019-06-12
SGX Stock Analyst Report BUY MAINTAIN BUY 2.770 SAME 2.770