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Singapore Stock Alpha Picks - UOB Kay Hian 2020-06-05: Outperformance Led By Small/Mid Caps

Singapore Stock Alpha Picks - UOB Kay Hian | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) KEPPEL CORPORATION LIMITED (SGX:BN4) JAPFA LTD. (SGX:UD2) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) SINGTEL (SGX:Z74) FAR EAST HOSPITALITY TRUST (SGX:Q5T) CSE GLOBAL LTD (SGX:544) RIVERSTONE HOLDINGS LIMITED (SGX:AP4) COMFORTDELGRO CORPORATION LTD (SGX:C52) CAPITALAND MALL TRUST (SGX:C38U)

Singapore Stock Alpha Picks - Outperformance Led By Small/Mid Caps




Reviewing our picks in May.



For large caps, we remove Yangzijiang and add CapitaMall Trust and ComfortDelGro as post-COVID-19 recovery plays.

  • Our removal of Yangzijiang Shipbuilding is predicated on our view that it lacks catalysts in the near term and thus we favour CapitaLand Mall Trust’s better earnings visibility from the phased re-opening of the Singapore economy post the “circuit-breaker” measures. In addition, we recently upgraded the stock to a BUY and we view CapitaLand Mall Trust’s 2021 distribution yield of 5.8% as attractive given its size and scale. See recent sector report: Singapore Retail REITs - UOB Kay Hian 2020-05-27: Fortitude Budget Provides Backstop.
  • For ComfortDelGro, its share price appears to have largely priced in the weakness in transportation services due to stay-home measures and the worst may be over for ridership as land transport activities are likely to recover through the gradual return of workplaces.


For mid-caps, we switch out Koufu and Propnex for CSE Global and newly-initiated Riverstone.

  • We highlight that CSE Global (SGX:544) is in a stronger place now than it was in past crises, given its stronger orderbook, increasingly diversified business and larger portion of flow-business revenue. Additionally, the stock offers a generous dividend yield of 5.8% and its share price should mirror the potential oil price recovery in our view.
  • We also add in newly-initiated Riverstone (SGX:AP4) given the robust demand for healthcare gloves and also ample room for ASP hikes in the coming quarters. Similarly, cleanroom gloves are enjoying healthy demand, with a surprise ASP hike in Jun 20. As such, we estimate net profit growth of 92% y-o-y for 2020F which should continue to support share price performance, in our view.


CapitaLand Mall Trust (SGX:C38U) – BUY (Jonathan Koh & Peihao Loke)


CapitaLand Mall Trust Share Price Catalysts



ComfortDelGro (SGX:C52) – BUY (Lucas Teng)


Ridership recovery in play.

  • The circuit breaker was lifted on 2 June, with Phase 1 of re-opening taking place. Through the gradual return to workplace activities, land transport activities are likely to recover and the worst may be over in terms of ridership.
  • Potential updates to the rail financing model by authorities, to accommodate lower riderships in the near term, would be a positive for the loss-making Downtown Line (DTL).

Watching bus tenders.

  • On the local front, bus contracts for Sembawang and Bulim had been put up for tender. In Australia, regional bus contracts were recently opened for tender by Transport for New South Wales.

Taxi rebates in June, though relief appears to be scaled back with continued delivery of jobs support.


ComfortDelGro Share Price Catalyst



Riverstone (SGX:AP4) – BUY (Llelleythan Tan/John Cheong)


Favourable tailwinds for the healthcare (HC) and clean room (CR) gloves.

  • Due to the substantial demand on the back of the COVID-19 outbreak, global demand has outpaced supply. Riverstone’s lead time for HC gloves has increased from 3-4 months to 6 months, implying new orders will only arrive at the start of 2021. Despite that, Riverstone has attracted new customers in 1Q20, supported by excess overseas demand from hospitals and distributors battling the COVID-19 outbreak.
  • Furthermore, demand for its CR gloves has also increased substantially as most glove makers have diverted resources towards manufacturing healthcare gloves. Management has also stated that there has been no drop in demand for CR gloves during the COVID-19 pandemic. This is significant as CR gloves, that for HC gloves, contribute roughly 30% of Riverstone’s total revenue and 50-55% of total gross profit.

ASPs for HC gloves set to rise from 2Q20 onwards.


Riverstone Share Price Catalyst



CSE Global (SGX:544) – BUY (Joohijit Kaur/ John Cheong)


Stronger orderbook backed by flow orders; increasingly diversified business gives the group a stronger footing than it did in previous crises.

  • More than 90% of CSE Global’s revenue comes from the flow business (brownfield or small green field projects) which are recurring in nature. Although the group has exposure to O&G (formed 65% of 2019 earnings), we do not expect a severe impact from the slump in oil prices given that the majority of revenue is recurring in nature, relying more on its customer’s opex rather than capex budget.
  • Additionally, following the O&G crisis in 2015-16, the group built up a radio communications business in Australia through a series of acquisitions as part of its business diversification plan and also pursued market share in the onshore O&G segment.
  • We also highlight that CSE Global ended 2019 with a backlog of S$307.3m, 60% higher compared to S$192.7m in 2015, putting the group in a better position.

Attractive dividend yield at 5.7%, backed by strong cash flow and balance sheet.


CSE Global Share Price Catalyst



Far East Hospitality Trust (SGX:Q5T) – BUY (Jonathan Koh & Peihao Loke)


1Q20 business update in line with expectations.

  • The 1Q20 business update on 4 May 20 demonstrates Far East Hospitality Trust’s resiliency with its hotel portfolio providing fixed rents and downside protection. Its serviced-residences portfolio outperformed with occupancy improving 3.4ppt y-o-y to 83.6%, driven by higher corporate demand.

Downside protection from master-lease agreement.

  • The negative impact from the outbreak of COVID-19 is mitigated by its master-lease structure, under which fixed rents accounted for 72% of Far East Hospitality Trust's 2019 gross revenue. Sponsor Far East Organisation (FEO) owns 61% of Far East Hospitality Trust.
  • Review of management fee structure. With effect from 1 Jan 20, base fee was reduced from 0.30% to 0.28% of deposited properties. The performance fee was 4% of NPI, but has now been reduced to: 4% of NPI, or 4% of annual distributable amount, whichever is lower. The change in fee structure for base fee and performance fee reduces total management fees by S$1.74m or 14.2% if these changes were applied retrospectively in 2019.
  • Far East Hospitality Trust does not have any term loans due for refinancing in 2020.

Anticipate recovery in 4Q20.


Far East Hospitality Trust Share Price Catalyst



SingTel (SGX:Z74) – BUY (Lee Len Chong/Chloe Tan Jie Ying)


Earnings recovery in 2HFY21.

  • We expect the full negative impact of COVID-19 to hit SingTel in 1QFY21. Singtel withdrew its FY21 guidance in view of the COVID-19-induced uncertainties. We expect consumer weakness to be reflected in 1QFY21 alongside pockets of cutbacks in enterprise business revenue. Thereafter, the opening of economies in the ASEAN region will provide for the gradual recovery in roaming revenue and sentiment.

Dividends.

  • Management will focus on preserving cash amid global uncertainties and will prepare to invest in 5G from FY22 onwards. As a result, we have cut our FY21-22 net DPS to 12.25 S cents and 13.95 S cents respectively (~80% payout). This translates to a net dividend yield of 4.7%.

Tower sales.


SingTel Share Price Catalyst



Mapletree Industrial Trust (SGX:ME8U) – BUY (Jonathan Koh & Peihao Loke)


Accelerated expansion into hi-tech buildings and data centres.

  • Post completion of the 50% stake acquisition in 13 data centres in North America in Dec 19, Mapletree Industrial Trust's exposure to hi-tech buildings has further expanded from 43.3% to 52.9% of AUM. Its exposure to data centres has also expanded from 17.7% to 31.5% of AUM (Singapore: 7.2%, US & Canada: 24.3%).

Data centres are beneficiaries of COVID-19 pandemic.


Mapletree Industrial Trust Share Price Catalyst



Japfa (SGX:UD2) – BUY (John Cheong & Joohijit Kaur)


Vietnam’s swine prices have exceeded 5-year high due to ASF.

  • We believe the development of the African swine fever (ASF) in Vietnam is somewhat similar to that in China, where the number of affected cases will peak in the first six months and then start to fall. This is in line with Japfa (SGX:UD2)’s base-case scenario. Also, we understand that the affected swine count is within Japfa’s expectation of < 25% of its total swine population.
  • We estimate that on a net basis, the profitability of Japfa’s Vietnam swine segment should benefit as the spike in swine ASP should more than offset the volume decline.

China’s raw milk prices have exceeded 5-year high due to undersupply.


Japfa Share Price Catalyst



Keppel Corp (SGX:BN4) – BUY (Adrian Loh)


Temasek’s partial offer to acquire an additional 31% of Keppel shares at S$7.35 each

  • Temasek's partial offer is still in the process of receiving global regulatory approvals. Keppel Corp is currently trading at 19% below the offer level which we view as an excessive discount. As a result, we believe there is room for further upside as the company has been executing its strategic plans well prior to Temasek’s partial offer, investing heavily into new areas (telecommunications and asset management) while its offshore & marine unit has made good headway in targeting new clients in the offshore renewable space.
  • On 4 May 20, Keppel Corp appointed an independent financial advisor in relation to the partial offer from Temasek.

Positive outlook for the property segment

  • In 1Q20, Keppel Corp's property sales rose 15% y-o-y to 450 units (of which 73% were generated in China) with total sales of about S$320m; it has a remaining landbank of about 45,000 units. Going forward, we believe the property segment may be able to buttress the company's earnings in a difficult year, given that China has started to relax its COVID-19 lockdown rules and thus spelling the resumption of property transactions.
  • In Apr 20, Keppel Corp launched a residential development in Wuxi which saw a 65% sell-through in its opening weekend, while its Tianjin Eco City sold a residential plot for Rmb1.17b at a land price that was comparable to a similar plot sold in 2019. The latter will enable Keppel Corp to recognise a S$30m gain for 2Q20. Keppel Corp has a number of projects that are launch-ready in China, so it will be able to take advantage of the revival post COVID-19.

Our target price of S$7.15 is based on a SOTP-valuation.


Keppel Corp Share Price Catalyst



DBS (SGX:D05) – BUY (Jonathan Koh)


Wealth management continued to outperform in 1Q20.

  • Fees grew 14% y-o-y, driven by wealth management (+14% y-o-y) and loan-related fees (+17% y-o-y). Other non-interest income grew by a hefty 39% y-o-y. Net trading income was robust due to increased customer flows from hedging of interest rates and forex risks as a result of heightened uncertainties. DBS also recognised gains from investment securities.

BUY on sustainable yield.

  • DBS aims to provide sustainable dividends that rise progressively. For 2019, the board recommended a final dividend of 33 S cents (unchanged) which was paid in late-May 20.

DBS' guidance for 2020.


DBS Share Price Catalysts






Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-06-05
SGX Stock Analyst Report BUY MAINTAIN BUY 22.300 SAME 22.300
BUY MAINTAIN BUY 7.150 SAME 7.150
BUY MAINTAIN BUY 0.960 SAME 0.960
BUY MAINTAIN BUY 2.850 SAME 2.850
BUY MAINTAIN BUY 2.800 SAME 2.800
BUY MAINTAIN BUY 0.620 SAME 0.620
BUY MAINTAIN BUY 0.650 SAME 0.650
BUY MAINTAIN BUY 2.530 SAME 2.530
BUY MAINTAIN BUY 1.820 SAME 1.820
BUY MAINTAIN BUY 2.600 SAME 2.600


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