UOB Kay Hian adds Sea Limited, CDG to its alpha picks portfolio; removes Singtel

UOB Kay Hian has added NYSE-listed Sea Limited and transport operator ComfortDelGro (CDG) to its Alpha Picks for the month of June after its portfolio beat the benchmark Straits Times Index (STI) in May with a 1.5% month-on-month (m-o-m) decline compared to the latter’s 1.7% m-o-m decline.

“Following the lead of global and regional markets, the STI dipped in mid-May to trough at 3,032 on May 14 only to recover in the last week as MSCI Singapore Index revisions led to increased fund inflows,” writes UOB Kay Hian’s Singapore research team in a June 4 report.

“With the Singapore government potentially relaxing Phase 2 (Heightened Alert) restrictions in mid-June there appears to be upside to some re-opening plays,” it adds.

Only three companies in its portfolio – Yangzijiang Shipbuilding, OCBC Bank and Innotek showed positive returns in May at +4.9% m-o-m, +1,3% m-o-m and +0.5% m-o-m respectively, while Far East Hospitality Trust (FEHT) and Ascendas REIT (A-REIT) were the portfolio’s key drags at -7.1% m-o-m and -5.8% m-o-m respectively.

Sector-wise, banks and industrials outperformed, with industrial and hospitality trusts registering declines in the brokerage’s May portfolio.

On its new additions, the team says it likes “the Tencent-backed company’s position as it is one of Southeast Asia’s largest internet companies, and is making inroads into Latin America.”

“Its strong position in the digital entertainment market could be augmented by digital banking growth opportunities in the near to medium term,” it writes.

The team also likes CDG as it expects a “recovery in land transport ridership as Singapore appears to be on track to relax Covid-19 stay-home restrictions”.

On the other hand, the team has removed Singapore Telecommunications (Singtel) from its Alpha Picks portfolio as it does not see “meaningful upside” from the group following its “disappointing” FY2021 results.

Furthermore, Singtel has guided for a dividend payout ratio of 60% to 80% in the FY2022 compared to expectations of a 100% payout ratio, adds the UOB Kay Hian team.

Previously, UOB Kay Hian analyst Clement Ho initiated “buy” on Sea with a valuation of US$314.48 ($416.34) per share, which implies 93 times FY2021 adjusted operating earnings.

“The high multiple is in line with the price-to-earnings growth (PEG) multiples of comparable industry peers, supported by Sea’s 5-year adjusted operating profit compound annual growth rate (CAGR) of 50.9% over 2020-2025,” writes Ho.

See: UOB Kay Hian initiates Sea Limited at 'buy' with TP of US$314.48

Fellow analyst Lucas Teng has also rated CDG at “buy” in anticipation of a recovery in land transport activities.

“A recovery in 2HFY2021 could mitigate a possible short-term impact for CDG in 2QFY2021,” says Teng.

CDG is also looking to explore various options to unlock value of its assets in Australia, where it is one of the largest privately-owned bus operators.

The group’s total investment in Australia is $1.17 billion to date.

In its portfolio, the team has kept “buy” on all its counters, A-REIT, CDG, FEHT, Food Empire, GHY Culture, Hong Leong Asia, Innotek, OCBC, Sea Limited, SGX and Yangzijiang, with target prices of $3.82, $1.95, 71 cents, $1.30, $1.18, $1.38, $1.20, $15.50, US$314.48 and $1.76 respectively.

Singapore Airlines (SIA) remains the team’s only “sell” call with a target price of $4.15.

Cover photo: Bloomberg