UOB Kay Hian Research analysts have added Singapore Telecommunications (Singtel), First Resources and Keppel Corporation to their Alpha Picks, while switching out Nanofilm Technologies for the larger-cap Venture Corporation.
According to UOBKH analysts, the Alpha Picks outperformed the Straits Times Index (STI) in October, declining 1% against the STI’s 1.2% fall.
On an absolute return basis, Yangzijiang Shipbuilding (up 16.5% m-o-m), Genting Singapore (up 2.5% m-o-m) and DBS Group Holdings (up 2.4% m-o-m) outperformed while Nanofilm (down 17.1% m-o-m) and CapitaLand Investment (CLI) (down 13.3% m-o-m) were the main underperformers.
“For November, we believe that Singtel and First Resources could both benefit from their latest financial results; the former should continue to profit from regional economic reopening and recovery, thus underpinning earnings growth for 1HFY2023 ended September, while the latter is expected to see stronger downstream performance and higher sales volumes,” write UOB analysts in a Nov 3 note.
UOB analysts have target prices of $2.90 and $1.70 for Singtel and First Resources respectively.
Replacing Nanofilm on the Alpha Picks is Venture, with a target price of $19.32 at 16x FY2023 earnings. “At the current price, Venture offers an attractive dividend yield of around 5%,” writes analyst John Cheong.
“Venture should be able to deliver relatively resilient performance given its highly diversified customer base across seven technology domains,” Cheong adds. “Most of Venture’s customers are in industrial segments such as life science, medical and testing, which are less sensitive to consumer sentiment.”
Keppel and Sembcorp
UOBKH analysts like Keppel for its pending transition into becoming more asset-light with the completion of its offshore and marine (KOM) divestment in January next year.
“While the consideration for KOM has been lowered, Keppel shareholders will receive a larger amount of shares worth $2.33 compared to $2.26 previously. Importantly, Keppel has managed to positively modify the terms of the Vendor Notes that will be issued by the Asset Co,” writes analyst Adrian Loh.
To recap, as part of the merger with Sembcorp Marine, Keppel had linked the sale of legacy oil rigs and associated receivables into a separate entity called Asset Co to be owned by a third-party investor comprising of Baluran Limited (74.9%), Temasek’s wholly-owned Kyanite (15.1%) and Keppel (10%).
Part of the Asset Co consideration was via 10-year fixed-rate notes with a 2% p.a. coupon, which have now been re-negotiated up to a 4% p.a. coupon instead. Additionally, the sale of KOM has been de-linked to the divestment of Asset Co, which at least ensures the success of the latter.
Loh sees a target price of $10.11 for Keppel.
Meanwhile, Loh has a target price of $4.10 on Sembcorp. “We recently hosted a call between Sembcorp and Asian investors with one of the major talking points being the recent sale of coal-fired power plants within Sembcorp Energy India Limited (SEIL). The key takeaway for us was that the pricing of these assets at slightly over 1.0x P/B was a premium to comparable transactions at 0.2x-0.6x P/B.”
Should SEIL have been sold at these levels, Sembcorp would have had to impair its book by more than $800 million, writes Loh. “The external environment has not been conducive to coal in the past few years, so the fact that Sembcorp was able to get this deal done was positive in our view.”
REITs and real estate
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Among REITs and real estate names, UOBKH analysts hold in their Alpha Picks CapitaLand Ascott Trust (CLAS), CLI and Lendlease Global Commercial REIT (LREIT).
CLAS’s portfolio revenue per available room (RevPAU) recovered 88% y-o-y and 6% q-o-q to $132 in 3QFY2022 ended September, which is 87% of pre-pandemic levels on a pro forma basis.
CLAS’s unit price grew 6.5% since its addition to the list and analyst Jonathan Koh sees a target price of $1.27.
Meanwhile, CLI reported 1HFY2022 ended June revenue in line with estimates, but its PATMI of $433 million (down 38% y-o-y) was weaker than expected as it formed only 41% of Loh’s full-year estimates.
Last week, CLI reported operational resilience across all three of its growth drivers: fund management, lodging management and capital management, in its 3QFY2022 ended September business update.
CLI’s share price has fallen 16.6% since inclusion, and Loh sees a target price of $4.28.
Finally, LREIT is riding on the return of international travel, with shopper traffic at [email protected] mall back at pre-pandemic levels.
Despite its unit price falling 12.6% since inclusion, Koh sees a target price of 91 cents.
Among the transport names, analyst Llelleythan Tan sees a recovery in rail ridership benefitting ComfortDelGro, which holds a 75% stake in SBS Transit.
“With elevated taxi and ride-hailing surge pricing, we also expect more commuters to shift to trains. We maintain our view that rail ridership will return to near pre-pandemic levels in 1Q2023,” writes Tan.
“Although the current 15% discount on taxi rentals has been extended till the end of 2022, we reckon that the rebates would be totally removed by 2023, improving segmental margins. ComfortDelGro has also increased its online taxi booking commission from 4% to 5%, capturing a larger slice of growing taxi demand,” says Tan.
With its share price growing 2.3% since joining the Alpha Picks, Tan sees a target price of $1.63 for ComfortDelGro.
Meanwhile, Singapore Airlines’ capacity reactivation plan offers good visibility for SIA Engineering’s recovery, notes analyst Roy Chen. “National carrier Singapore Airlines (SIA Engineering’s parent company) is SIA Engineering’s anchor customer, accounting for about 70% of SIA Engineering’s revenue in FY2022 ended March. Singapore Airlines has guided a plan to restore its pax capacity from 67.6% in 2QFY2023, to 76% in 3QFY2023 and to 81% in December. This offers good visibility for SIA Engineering’s revenue recovery.”
SIA Engineering may have fallen 15.2% since inclusion but Chen forecasts a target price of $2.60.
DBS is benefitting from higher interest rates, notes Koh. “DBS is most sensitive to higher interest rates due to its high current account savings account CASA ratio of 72%, which is the highest among the three Singapore banks.”
Koh has a target price of $45.75 on DBS.
Meanwhile, Genting Singapore’s recovery strength will accelerate in 2HFY2022 ended December. “We expect Genting Singapore’s dividend yield to normalise to 4.9% in FY2023, assuming revenue and cash flows recover back to pre-pandemic levels, and that it restores its FY2019 dividend payout level of 4.0 cents,” write analysts Vincent Khoo and Jack Goh.
Khoo and Goh have a target price of $1.08 on Genting Singapore.
In late-October, Yangzijiang (YZJ) announced its first ever LNG carrier order for two 175,000 cubic metre (cbm) vessels from an unnamed European customer. While the price was not disclosed, Loh notes that a similar order given earlier this year to a Chinese state-owned shipyard was worth US$380 million ($532.24 million) for two vessels, and thus YZJ’s order should be similar in value.
Prior to this order, YZJ’s orderbook stood at US$10.3 billion, and assuming US$380 million for its latest order win would result in a historical high orderbook of US$10.7 billion, adds Loh.
Loh holds a target price of $1.44 on YZJ.
Finally, Thai Beverage (ThaiBev) is the lowest-cap pick among UOB’s list, with a target price of 87 cents.
“ThaiBev’s beer businesses are gaining market share in both Thailand and Vietnam, driven by increased advertising and promotional activities. In Thailand, ThaiBev has the second largest market share at around 40%, closing in on the number one spot. The market share gap has been closing and is at the narrowest in 13 years. As Vietnam’s economic activities continue to recover, management expects second-placed Sabeco to outperform moving into 4QFY2022 and beyond, catching up to its closest competitor,” notes Tan.