Top Picks In 1H20 - UOB Kay Hian 2020-01-02: Taking A Defensive Stance

Singapore Strategy - UOB Kay Hian  | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) DBS GROUP HOLDINGS LTD (SGX:D05) FRASERS CENTREPOINT TRUST (SGX:J69U) KEPPEL CORPORATION LIMITED (SGX:BN4) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) NETLINK NBN TRUST (SGX:CJLU) SATS LTD. (SGX:S58) SINGAPORE TECH ENGINEERING LTD (SGX:S63) WILMAR INTERNATIONAL LIMITED (SGX:F34)

Top Picks In 1H20 - Taking A Defensive Stance


UOB Kay Hian's Top Picks For 1H20


Stock Rating Target Price
ASCOTT RESIDENCE TRUST (SGX:HMN) BUY S$1.66
DBS GROUP HOLDINGS (SGX:D05) BUY S$30.00
FRASERS CENTREPOINT TRUST (SGX:J69U) BUY S$3.05
KEPPEL CORPORATION (SGX:BN4) BUY S$7.61
MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) BUY S$2.90
NETLINK NBN TRUST (SGX:CJLU) BUY S$1.01
SATS (SGX:S58) BUY S$5.30
ST ENGINEERING (SGX:S63) BUY S$4.32
WILMAR INTERNATIONAL (SGX:F34) BUY S$4.75
Small/ Mid-Cap
CSE GLOBAL (SGX:544) BUY S$0.70
KOUFU GROUP (SGX:VL6) BUY S$0.95
PENGUIN INTERNATIONAL (SGX:BTM) BUY S$0.85
PROPNEX (SGX:OYY) BUY S$0.62




ASCOTT RESIDENCE TRUST (SGX:HMN) – BUY (Jonathan Koh)



DBS GROUP HOLDINGS (SGX:D05) – BUY (Jonathan Koh)

  • Earnings growth to pick up. We expect earnings growth for DBS in 2020 and forecast 7.3% y-o-y improvement, driven by stronger loan growth of 5.5%, stable NIM, continued high-single-digit growth in fees as well as a slight moderation in credit costs.
  • In addition, DBS is a beneficiary of the phase 1 trade deal between the US and China as Greater China accounted for 27.4% of total income in 9M19.
  • Manageable impact from digital-only banks. DBS was recognised as the world’s best digital bank by Euromoney Awards for Excellence in 2016 and 2018. In addition, MAS will not allow digital banks to engage in value-destructive competition to gain market share.
  • We maintain our BUY rating on DBS with a target price of S$30.00 based on P/B using the Gordon Growth Model. Our base case and best case DPU for 2020F is S$1.20 and S$1.32 respectively. We would accumulate the stock at S$21.80 to S$24.00, which provides an attractive dividend yield of about 5.0-5.5%.
  • See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.


FRASERS CENTREPOINT TRUST (SGX:J69U) – BUY (Jonathan Koh)



KEPPEL CORPORATION (SGX:BN4) – BUY (Adrian Loh)

  • A floor price. Temasek’s partial offer to acquire an additional 31% of Keppel Corp shares appears to have put a “floor price” on the company of around $6.80/share or so. However we still believe there is room for further upside as the company has been executing well on its plans.
  • Unlike Sembcorp Marine, Keppel Corp has been able to garner orders in 2019 and as a result it should continue to show profit growth in its offshore & marine segment in 2020.
  • Settlement in Brazil. In early-Oct 19, Keppel Corp announced that it had reached a settlement agreement with Sete Brasil for the EPC contracts for its six semi-submersible rigs. With this overhang on the stock removed, we believe that Keppel Corp deserves a re-rating
  • Maintain BUY recommendation. Our target price of S$7.61 is based on our SOTP-valuation. Keppel Corp’s current one-year forward PE is in-line with its 5-year average of 14.5x while its 1-year forward P/B multiple of 1.0x is more than 1SD below its 10-year historical average of 1.5x.
  • See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.


MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) – BUY (Jonathan Koh)



NETLINK NBN TRUST (SGX:CJLU) – BUY (Chong Lee Len)

  • Strong earnings visibility. 80% of group revenue is regulated under the Regulated Asset Base (RAB) model – with a fixed return of 7% over FY18-22. This paves the way for sustainable and attractive dividend yield of 5.4% over FY21-22.
  • A key beneficiary of 5G roll-out. NetLink Trust is a clear beneficiary as Singapore rolls out 5G in the next 24 months. We prefer NetLink over telcos as the onus of 5G capex lies on the telcos/spectrum holder.
  • Decent organic residential growth of 5% y-o-y. The company has 1.41m residential connections (with a dominant 90% market share) as of Sep 19. Key driver for NetLink Trust connections include:
    1. an estimated 100,000 households not yet fiberised; and
    2. 25,000 addition of homes, HDB and private condominiums annually in Singapore.
  • Recent 2QFY20 results were strong with net profit +24% y-o-y on the back of robust residential connections and good cost discipline.
  • Maintain BUY with a DCF-based target price of S$1.01 or 17x EV/EBITDA. At our target price, the stock will trade higher than its 3-year mean EV/EBITDA of 15.5x. We expect share price to outperform the broader market as investors seek shelter in high dividend yielding stocks amid trade war tensions and a weak economy.
  • See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.


SATS (SGX:S58) – BUY (K Ajith)

  • SATS’ long-term strategy is intact. We continue to favour SATS for its strong balance sheet, strong cash generation, planned M&A and ability to maintain its dividend payout
  • Weak air cargo traffic has been mostly factored in by the street. Air cargo traffic has been declining since 4Q18 and we estimate that the pace of decline will narrow in 4Q19. If SATS manages to lower the pace of increase in labour costs in the coming quarters, we believe that margins will stabilise or even improve
  • Opportune time for M&As in a defensive sector. SATS has outlined plans to acquire brownfield food factories in China, to complement its central kitchen businesses, which supplies food to fast casual restaurants. SATS has targeted S$1b in investments in China and India over the next three years with plans to build a central kitchen and acquire food factories
  • Sufficient debt headroom. As at FY19, SATS’ debt amounted to just 5% of total capital and SATS has outlined plans for this to rise to 30% of total capital over a 3-year period
  • Maintain BUY recommendation with a target price of S$5.30. We value SATS on EV/Invested Capital Basis with estimated ROIC of 14.8%, WACC of 6.2% and long-term growth rate of 2.5%.
  • See SATS Share Price; SATS Target Price; SATS Analyst Reports; SATS Dividend History; SATS Announcements; SATS Latest News.


ST ENGINEERING (SGX:S63) – BUY (K Ajith)

  • S$1.3b in M&As in the aerospace and electronics division is expected to be earnings accretive and will enable ST Engineering to move up the value chain. The acquisition of nacelle manufacturer MRAS will provide a steady pipeline of OEM aerospace works for the next 10 years. Meanwhile, the acquisitions of Satcom firms Newtec and Glowtec will enhance ST Engineering’s Satcom capabilities for applications in the aerospace, defense and maritime segments, in our view.
  • S$6.5b in order wins over the course of 1Q-3Q19. This represents a 50% increase in orders from year-end 2018 and holds scope for strong top-line growth over the next two years. Near-term earnings are likely to be robust, as orderbook recognition for 2H19 was guided to rise by 41% y-o-y. Orderbook revenue typically accounts for 60% of revenue.
  • Maintain BUY with a target price of S$4.34. We have valued ST Engineering on an EV/Invested Capital basis with ROIC at 15.1%, WACC at 6.2% and long-term growth rate of 2.5%. At our fair value of S$4.34, ST Engineering trades at 20.7x PE, in line with the 5-year average mean PE of 20.6x.
  • See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.


WILMAR INTERNATIONAL (SGX:F34) – BUY (Leow Huey Chuen)

  • Best performing year since 2009 with share price up about 35.7%. This is driven by the newsflow on the listing of Wilmar's China operations (Yihai Kerry Arawana - YKA) and good earnings performance for 9M19 which led to earnings upgrades
  • 2020 performance to be driven by oilseeds & grains. We forecast 12% y-o-y net profit growth for 2020, mainly from oilseeds & grains which will be the company’s main earnings contributor (43% of the company’s PBT in 2020F vs 34% in 2019F). This earnings growth will be driven by:
    1. better margins; and
    2. higher sales volumes from the recovery of soymeal demand and growth from rice & flour.
  • Beneficiary of Indonesia’s B30 policy. 2020 PBT contribution from tropical oil is expected to be lower than 2019F’s, but Wilmar has seen a 40% increase in allocation volumes as it is Indonesia’s largest biodiesel producer
  • YKA IPO on track for 1Q20. This is slightly later than our earlier expectation of early- Dec 19, but not a concern in our view. Robust investor interest in the IPO due to its strong brand name (“金龙鱼”).
  • Maintain BUY with a target price of S$4.75. Valuation reflects a blended 23x 2020F PE for China operations and blended 11x PE for non-China operations.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.

Read also






Adrian LOH UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2020-01-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.66 SAME 1.66
BUY MAINTAIN BUY 30 SAME 30
BUY MAINTAIN BUY 3.050 SAME 3.050
BUY MAINTAIN BUY 7.610 SAME 7.610
BUY MAINTAIN BUY 2.900 SAME 2.900
BUY MAINTAIN BUY 1.010 SAME 1.010
BUY MAINTAIN BUY 5.300 SAME 5.300
BUY MAINTAIN BUY 4.340 SAME 4.340
BUY MAINTAIN BUY 4.750 SAME 4.750



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