CFA Society Singapore
SINGAPORE (Jan 8): Maybank Kim Eng remains “neutral” on Singapore’s technology sector while lowering its target prices across the relevant stocks under its coverage.
This comes after the research house cut its earnings forecasts to factor in heightened macro uncertainties, as well as higher cost of equity due to increased volatility within the sector.
In a Monday report, Maybank analyst Lai Gene Lih highlights Hi-P International as the most vulnerable to the US-China trade war and macro uncertainties, due to pricing pressures and exposure to highly cyclical end-markets.
As such, the research house has downgraded its call on the stock to “sell” from “hold”, with a lower target price of 68 cents compared to 84 cents previously.
Venture Corp remains its top “buy” pick despite a lower price target of $17.48 compared to $22.23 previously, as the research house continues to believe a number of factors could cushion the effects of the US-China trade war or a potential downturn in US capex spending.
Lai says fundamentals remain intact for Venture, with the company being a potential beneficiary of the US-China trade war, considering its sizeable production out of Singapore and Malaysia.
The group’s exponential rise in R&D in recent years is expected to underpin future revenue growth, while its customer and end-market diversity could also cushion the effects of macroeconomic factors, he adds.
“Our target price is now based on 2 times FY19E P/BV, from 2.5 times previously. It implies 14.4 times FY19E P/E, just slightly below its 14-year mean of 15.3 times. Strong cash generation should continue to support dividend yields, in our view,” says Lai.
Valuetronics also remains at “buy” with a lower price target of 90 cents compared to 96 cents previously.
Despite cutting earnings estimates and increasing COE, Maybank favours the stock for its “robust prospects” at its automotive, printing and consumer lifestyle businesses, as well as attractive 6-7% dividend yield.
While Lai sees increased volatility for the stock going forward, he believes automotive, printing and consumer lifestyle still appear solid with “secular prospects” for automotive connectivity and smart lighting, in particular.
“We believe Valuetronics can maintain its decade-long double-digit ROEs through healthy pricing, cost control and disciplined capex… While Valuetronics has signalled M&A intentions in recent years, we believe it can fund any acquisition with its strong cash of HKD800 million ($138.4 million), which forms 48% of its market cap,” concludes the analyst.
As at 10.49am, shares in Hi-P International, Venture Corp and Valuetronics are trading at 96 cents, $14.24 and 70 cents, respectively.