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Singapore Stock Alpha Picks - UOB Kay Hian 2020-07-09: Sticking To Our Guns

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

Singapore Stock Alpha Picks - Sticking To Our Guns

  • Our portfolio rose 2.0% m-o-m in Jun 20, slightly lower than the FSSTI’s gain of 3.2% m-o-m, mainly due to CSE Global's share price weakness (-9.1% m-o-m). However, the recent emergence of Heliconia as its largest shareholder should put CSE Global in a stronger position to expand its business.
  • For Jul 20, we stick to our picks as we expect further share price upside to our portfolio.



Outperformed in 2Q20.

  • On an equal weighted basis, our portfolio’s +8.1% return in 2Q20 handily beat the FSSTI’s gain of 4.4% over the quarter.




Reviewing our picks in June.

  • Our portfolio gained 2.0% m-o-m in Jun 20, narrowly underperforming the FSSTI which rose 3.2% m-o-m following the retracement in May 20.
  • Although our portfolio had strong outperformers in Jun 20 via Riverstone (SGX:AP4) (+17.0% m-o-m), DBS (SGX:D05) (+6.8% m-o-m) and Mapletree Industrial Trust (SGX:MR8U) (+5.0% m-o-m), overall portfolio performance was affected by CSE Global (SGX:544) which declined 9.1% m-o-m, partly due to the ex-dividend adjustment. However, we believe the recent emergence of Heliconia as its largest shareholder after acquiring a 25% stake from Serba Dinamik puts CSE Global in a stronger position to expand its business, especially for smart-city projects in Singapore, and also to access cheaper financing options.


Staying the course, fundamentals remain intact.

  • Following the reshuffling of our picks in Jun 20, we make no changes to our portfolio for Jul 20. In our view, fundamentals remain intact for our portfolio, and we expect further upside to the target prices of these stocks.


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


CapitaLand Mall Trust Share Price Catalyst

  • Events:
    • Transition into Phase 2 of re-opening with more retail shops resuming operations;
    • recovery in consumer spending as the Singapore economy recovers from the COVID-19 pandemic; and
    • impending merger of CapitaLand Mall Trust and CapitaLand Commercial Trust.
  • Timeline: 6-12 months.


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 have 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 although relief appears to be easing with continued delivery of jobs support.


ComfortDelGro Share Price Catalyst

  • Events: Faster-than-expected recovery in ridership from the easing of stay-home measures, and bus tender contract wins
  • Timeline: 3-6 months.


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


Demand for healthcare gloves remains strong as second wave of infections hit various countries.

  • For 2Q20, Riverstone (SGX:AP4)’s management highlighted that ASPs for healthcare gloves have risen as global demand continues to outpace supply. As more countries start to experience second wave of Covid-19 infections, demand for healthcare gloves continues to increase and customers have offered to pay higher prices to secure inventories.
  • Healthcare glove ASP is expected to increase by around 10% every month up to Aug 20. ASP has not been fixed for Sep 20 but management expects ASP to be at least the same as in Aug 20. Also, the favourable ASP environment is expected to continue up to 1H21, based on customers’ strong indicative demand.

Positive surprise for ASP from new tier pricing.


Riverstone Share Price Catalyst



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


Emergence of Heliconia as largest shareholder.

  • CSE Global (SGX:544) announced on 7 Jul 20 that Heliconia, a wholly owned subsidiary of Temasek, has emerged as its largest shareholder after acquiring a 25% stake from Serba Dinamik. See CSE Global Announcements. Apart from the strong institutional investor brand, we believe this puts CSE Global in a stronger position to expand its business, especially in smart city projects in Singapore, and access to cheaper financing options.
  • 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 the group’s revenue comes from the flow business (brownfield or small greenfield projects) which are recurring in nature. Although the group has exposure to oil & gas (O&G) at 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 the group ended 2019 with an order backlog of S$307.3m, 60% higher than the S$192.7m in 2015, putting the group in a better position.

Attractive 2020F dividend yield of 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 previous performance fee of 4% of NPI was reduced to 4% of NPI or 4% of annual distributable amount, whichever is lower. The above two changes reduce total management fees by S$1.74m or 14.2% if these changes were applied retrospectively in 2019.

No refinancing risks.


Anticipate recovery in 4Q20.

  • Inbound travel will be impacted over the next few months. Visitor arrivals, whether corporate or leisure, can only recover after travel restrictions are lifted. Management expects a partial recovery in 4Q20 and normalcy to return at end-20.

Maintain BUY.


Far East Hospitality Trust Share Price Catalyst

  • Event: Inbound travel starting to recover in 4Q20.
  • Timeline: 6-12 months.


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


Earnings recovery in 2HFY21.

  • Expect full impact of COVID-19 by 1QFY21. SingTel (SGX:Z74) 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. As a result, we have cut our FY21-22 net DPS forecasts to 12.25 S cents and 13.95 S cents respectively (~80% payout). This translates into a net dividend yield of 4.9% for 2020E. See SingTel Dividend History.

Tower sales.


SingTel Share Price Catalyst

  • Events:
    • Opening of economies allow for recovery of roaming revenue lost in 1H20,
    • market repair in Singapore;
    • faster-than-expected recovery in Optus consumer and enterprise businesses;
    • better-than-expected regional earnings; and
    • dividend visibility by Aug 20.
  • Timeline: 6-12 months.


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

  • Events: Resiliency from exposure to data centres.
  • Timeline: 3-12 months.


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

  • Event: Better-than-expected prices for Indonesia poultry, China dairy and Vietnam swine products.
  • Timeline: 3-6 months.


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


Returns targets.

  • In its Vision 2030, Keppel Corp is targeting a long-term ROE of 15% which it believes is achievable without the benefit of future capital raisings. It is also looking to achieve a “high-single-digit” ROIC, and also to generate a greater percentage of its earnings from recurring revenues.

Temasek offer still intact in our view.

  • In our view, unless there is a large variance to the Material Adverse Conditions clause of the partial offer, Temasek will go ahead with it, given that:
    • it is a sovereign wealth fund and has a long-term view on its investments; and
    • it needs to gain control of Keppel Corp to push through a restructuring of the Singapore shipyard industry.

Risks ahead.

  • We currently estimate a 40% dividend payout ratio for 2020 but there is downside risk to 1H20 dividend due to the COVID-19 pandemic;
  • Keppel Corp’s 50%- owned Floatel is currently conducting an independent review of its impairment assessment after its competitor took a US$810m impairment hit in 1Q20.

Maintain BUY


Keppel Corp Share Price Catalyst

  • Event: Continued recovery in new order flow in 2020.
  • Timeline: 3-6 months.


DBS – 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 has recommended a final dividend of 33 S cents (unchanged) that was paid on 26 May 20.

Guidance for 2020.


DBS Share Price Catalyst

  • Event: Recovery in economic activities after COVID-19 outbreak subsides.
  • Timeline: 3-6 months.





Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-07-09
SGX Stock Analyst Report BUY MAINTAIN BUY 2.600 SAME 2.600
BUY MAINTAIN BUY 1.820 SAME 1.820
BUY MAINTAIN BUY 0.650 SAME 0.650
BUY MAINTAIN BUY 26.220 SAME 26.220
BUY MAINTAIN BUY 0.620 SAME 0.620
BUY MAINTAIN BUY 0.960 SAME 0.960
BUY MAINTAIN BUY 7.150 SAME 7.150
BUY MAINTAIN BUY 3.080 SAME 3.080
BUY MAINTAIN BUY 3.600 SAME 3.600
BUY MAINTAIN BUY 2.800 SAME 2.800


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