SINGAPORE (June 11): CGS-CIMB Securities is reiterating a number of its top stock picks across various sectors following its recent marketing trip to Tokyo and Hong Kong.

There, the research house found that investors in indexed funds were generally “overweight” on Singapore banks and technology, mainly Venture Corp. The tech manufacturer is rated “add” by CGS-CIMB with a target price of $25.64, and valued at 15.4 times the 11-year average P/E.

In a report last Friday, analyst Lim Siew Khee underscores the widely-held Venture Corp as the worst performer of 2Q18, although she still sees room for profit-taking going forward. According to her, re-rating catalysts include stronger-than-expected business momentum, while the downside risk is a pullback in orders by customers.

“We highlighted that to beat consensus earnings expectations of +15% y-o-y in FY18F, Venture Corp needs to consistently achieve +20% y-o-y in 2Q-4Q18F profits, which could be a tall order in 4Q18F as 4Q17 net profit was $143 million. Interest in the remaining tech space was mixed. Some were curious if AEM Holdings has room for earnings growth while some would play the tech space via US markets,” notes Lim.  

In the banking sector, CGS-CIMB’s top pick is DBS Group, which it rates “add” with a $34 target price and values at 1.5 times CY18F book. Lim recalls how some of the most common investor concerns raised during the marketing trip include alternative banking stocks given DBS’s relatively higher valuations, and whether the bank’s digitisation efforts are paying off.

Based on her observations, investors were not prepared to completely switch out of DBS given the relatively stronger ROE and its leading market share in the local property mortgage market. There were also some investors who hedged the risk of DBS by owning a second laggard such as UOB or OCBC, she adds.

“Those with stock-picking mandates lamented the lack of high-conviction stocks with more than 30% returns that are reasonably priced. There were concerns over the banking space getting too crowded and risk of global fund flow exiting emerging Asean markets which could also have a negative spillover to Singapore,” says Lim.

Thai Beverage (Thaibev) was among the research house’s top three picks of turnaround stories, and rated “add” with a target price of 98 cents while trading at 16 times CY19F P/E, closed to one standard deviation below its five-year average mean.

In CGS-CIMB’s view, Thaibev’s downside risks have been relatively priced in post its share price dip by 14% YTD. Despite some pushback on the stock on its ability to turn around Sabeco, Lim believes the counter enjoys potential catalysts such a spike in domestic alcohol volumes over 3Q during the World Cup celebrations as well as in FY19F after the coronation of the new Thai king.

However, Lim notes that investors were keener on Singapore Press Holdings (SPH) as a turnaround story compared to Thaibev and Singapore Post (SingPost) for its potential transformation given the group’s growing involvement in property asset management.

SingPost is nonetheless rated “add” and remains among CGS-CIMB’s list of top large-cap alpha picks with a target price of $1.59, while it is trading at 1.74 times CY18F book. Lim, however, remains cognisant of some investor doubts of the group’s ability to turn around its e-commerce segment.

In all, CGS-CIMB is “overweight” on the capital goods, consumer/gaming, financials and property sectors, while remaining neutral on commodities, manufacturing, REITs and transport. The research house is “underweight” on the healthcare and telco industries.

As at 11:53am, shares in Venture Corp, DBS, Thaibev and SingPost are trading at $20.75, $28.65, 79 cents and $1.34, respectively.