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Singapore Small-Mid Cap Stock Strategy - UOB Kay Hian 2020-12-15: Position For Recovery Plays Backed By Deep Value

Singapore Small-Mid Cap Stock Strategy - UOB Kay Hian Research | SGinvestors.io FOOD EMPIRE HOLDINGS LIMITED (SGX:F03) FRENCKEN GROUP LIMITED (SGX:E28) BRC ASIA LIMITED (SGX:BEC) INNOTEK LIMITED (SGX:M14) JIUTIAN CHEMICAL GROUP LIMITED (SGX:C8R) CHINA SUNSINE CHEM HLDGS LTD (SGX:QES) SUNPOWER GROUP LTD. (SGX:5GD) KIMLY LIMITED (SGX:1D0) KOUFU GROUP LIMITED (SGX:VL6)

Singapore Small-Mid Cap Stock Strategy - Position For Recovery Plays Backed By Deep Value




Laggard quality small-mid cap backed by solid earnings – Food Empire, Frencken and InnoTek.

  • We highlight small-mid cap stocks that have resilient earnings despite being impacted by COVID-19 and are trading at inexpensive valuations. Furthermore, these names are backed by strong balance sheets – net cash position and low net gearing.

Food Empire (SGX:F03)

  • Food Empire (SGX:F03) trades at an undemanding valuation of 8.5 2021F PE, a significant discount to peers’ average of approximately 20x 2021F PE despite its growing presence in the Vietnam market and leading position in its core markets in Eastern Europe.
  • In spite of the challenges in 2020 including the Ruble depreciation and the lockdown in key markets in 2Q20, Food Empire has reported decent 9M20 core net profit (excluding forex losses) of S$23m. This represents an 11.2% y-o-y growth on the back of better cost control and higher ASPs which mitigated the decline in revenue (-5.6% y-o-y). We believe the set of results is a testament of its brand strength and consumer staple nature of its products. We also highlight that the Russian Ruble has strengthened against the US dollar in the past month, gaining 8.5% since 1 Nov 20.
  • See Food Empire Share Price; Food Empire Target Price; Food Empire Analyst Reports; Food Empire Dividend History; Food Empire Announcements; Food Empire Latest News.

Frencken Group (SGX:E28)


InnoTek (SGX:M14)



Leveraging off China’s recovery – Jiutian Chemical, China Sunsine and Sunpower.

  • Recent key domestic macro data from China reaffirms the countries’ recovery trajectory from COVID-19, with industrial production already recouping losses since returning to growth territory in Apr 20, bringing 10M20 gains of 1.8% y-o-y. The country’s Purchasing Managers’ Index was expansionary for both the manufacturing and non-manufacturing sectors in Nov 20, affirming the sustained recovery in 4Q20.
  • UOB Global Economics & Markets Research expects China’s 4Q20 GDP growth to come in at 6.2% y-o-y, compared with 4.9% y-o-y in 3Q20. With that, we highlight stocks with high revenue exposure to China, back by strong sets of results and undemanding valuations.

Jiutian Chemical (SGX:C8R)


China Sunsine (SGX:QES)


Sunpower Group (SGX:5GD)

  • As China’s economy recovers, Sunpower Group (SGX:5GD)’s plants have resumed full work with utilisation above pre- COVID-19 levels. This was apparent in the robust set of results in 3Q20. The green investment (GI) segment is on track to post a double-digit y-o-y growth for 2020 while the manufacturing and services (M&S) orderbook maintained its record-high orderbook of Rmb2.8b as of end-3Q20.
  • Management has earmarked the GI segment as the key driver for Sunpower Group. We expect:
    1. full-year contributions from newly-acquired GI plants;
    2. anticipated additional contributions from Phase 2 of the Shantou Project and the new Xintai Zhengda plant;
    3. continuous acquisition of new customers following mandatory closures of “small dirty boilers” and/or mandatory relocations into industrial parks;
    4. organic growth from existing customers and industrial parks served by the group’s GI plants; and
    5. record-high M&S orderbook of Rmb2.8b to help drive earnings for the rest of 2020 and beyond.
  • See Sunpower Group Share Price; Sunpower Group Target Price; Sunpower Group Analyst Reports; Sunpower Group Dividend History; Sunpower Group Announcements; Sunpower Group Latest News.


Cyclical recovery – BRC Asia, Kimly and Koufu.

  • We highlight Singapore listed small mid cap stocks that are beneficiaries of a normalised environment post-COVID-19 and have the ability to recover quickly. These include names in the construction and F&B services sectors.

BRC Asia (SGX:BEC)

  • Build-to-Order (BTO) projects continue to be favourable for BRC Asia (SGX:BEC), with recent new Housing Development Board (HDB) project launches in Tengah, Bishan and Toa Payoh being oversubscribed. The number of BTO flats launched in 2020 is slightly higher than in 2019.
  • We opine that the construction industry is still a laggard and new construction contracts awarded will likely recover off the low seen in Aug 20, with Sep 20 contracts awarded amounting to S$840m (+102% m-o-m). Furthermore, gross margins have improved since BRC Asia’s acquisition of Lee Metal in 2017.
  • With the gradual normalisation of construction activities and sustained margins, we are optimistic of BRC Asia’s recovery and expect earnings to rebound strongly in FY21 at 88% y-o-y. BRC Asia currently trades at 8.8x FY21F earnings, below its long-term average (excluding outliers).
  • See BRC Asia Share Price; BRC Asia Target Price; BRC Asia Analyst Reports; BRC Asia Dividend History; BRC Asia Announcements; BRC Asia Latest News.

Kimly (SGX:1D0)

  • Kimly (SGX:1D0) is the largest coffee shop operator in Singapore with outlets across the heartlands, in close proximity to much of the population. We expect Kimly to benefit from COVID-19, with consumers becoming increasingly price sensitive.
  • Kimly has:
    1. a high net cash balance of S$43.9m;
    2. a higher dividend yield vs peers; and
    3. strong future earnings growth from newly-acquired/refurbished coffee shops.
  • We expect a strong net profit CAGR of 9.3% for Kimly in FY21-23. At current valuations, Kimly is trading at 12.5x FY21F PE, well below its average 3-year mean PE of 15.0x, and Singapore peers’ 2021F PE of 22.5x.
  • See Kimly Share Price; Kimly Target Price; Kimly Analyst Reports; Kimly Dividend History; Kimly Announcements; Kimly Latest News.

Koufu (SGX:VL6)

  • Koufu (SGX:VL6)'s same-store sales declined by 20% y-o-y in Jul-Oct 20, an improvement from 2Q20’s 40% y-o-y decline. Sales at outlets in the heartlands and full-service restaurants have improved significantly.
  • We expect a gradual recovery for Koufu's outlets located at tertiary education and downtown area (where sales has been hampered by work-from-home measures) in 2021 as COVID-19 cases come under control in Singapore. As for outlets located at tourist spots, we are more positive in the outlook for the outlets located in Macau compared with Marina Bay Sands, Singapore as travel restrictions in Macau, particularly with China (contributed to 71% of tourist arrivals in 2019) have eased since Jul 20.
  • Apart from gradual resumption of activities, future growth drivers are contributions from Deli Asia (which has resilient earnings), new outlets, and its new Integrated Facility. Key share price catalyst for Koufu is the opening of Singapore and Macau borders.
  • See Koufu Share Price; Koufu Target Price; Koufu Analyst Reports; Koufu Dividend History; Koufu Announcements; Koufu Latest News.





John Cheong UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2020-12-15
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