The Singapore research team at UOB Kay Hian has added AEM, Keppel Corporation (Keppel Corp) and Singapore Post (SingPost) to its alpha picks portfolio for the month of May.
“We add AEM due to it being a beneficiary of Intel’s aggressive capex plans while Keppel’s inclusion stems from the large value accretion that we believe will materialise in the stock over the next six to nine months post its recent merger and divestment announcement,” writes the team in its May 4 report.
AEM’s management also expects engagements with 10 of the top 20 global semiconductor companies to result in meaningful revenue contributions in 2HFY2022 and beyond.
The analysts further estimate AEM to generate meaningful cost savings at the gross level of $5.6 million to $9 million a year, by in-sourcing some of its production activities to CEI Limited (CEI).
At the entity level, CEI is expected to also contribute S$4 million a year of incremental net profit to the overall group.
“We believe our estimates are conservative as we have not factored in further upside from capacity expansion in CEI’s box-build business,” writes the team.
The merger between Keppel Corp and Sembcorp Marine (SembMarine) will benefit both parties in the short- and long-term, says the team.
For Keppel’s shareholders, the merger is accretive to the counter’s value. Over time, Keppel’s shareholders will realise some $9.4 billion which consists of $4.1 billion as consideration.
“Given the relatively more complex nature of the transaction, it may take time for the value of the merger to be realised. However, we believe that KEP’s share price will react positively heading into the completion date in 4Q22.
For Singapore Post (SingPost), the team like it as a Covid-19 recovery play as well as it potentially benefitting from lower operating costs as a result of increased air freight capacity.
In the month of April, UOB Kay Hian’s Alpha Picks portfolio outperformed in April, rising by 1.9% m-o-m as compared to the Straits Times Index’s (STI’s) 1.5% decline.
Key stocks that outperformed were Sembcorp Marine at 11% up m-o-m, CapitaLand Investment at 6% up and SIA Engineering Company (SIAEC) at 5% up, while ThaiBev fell 4.2% m-o-m and Venture underperformed.
For the month of May, the team UOB Kay Hian has also removed stocks such as Aztech, Civmec and Frasers Logistics & Commercial Trust (FLCT) which lack share-price catalysts in the next few months.
The analysts also took out Bumitama Agri Limited (BAL) as they believe that its near-term share price movement will remain hostage to the vagaries of palm oil export policies in Indonesia.
SembMarine was removed as well.
“While we continue to like Sembcorp Marine, seeing a growth of 31% since inclusion into our portfolio, we believe that the risk-reward favours Keppel in the next six to nine months,” the team explains.
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The analysts have given “buy” calls on Keppel Corporation, SingPost and AEM with target prices of $10.11 for Keppel and $5.60 for AEM.
As at 2.55pm, shares in Keppel Corp, SingPost and AEM are trading at $6.49, 70 cents and $4.55 respectively.