Excerpts from UOB Kay Hian's report dated 10 Dec 2012
• A screen for yield stocks with high ROE threw up several interesting stocks.
• We focus on three stocks that offer the most attractive returns.
M1 – Expect sequential improvement in 4Q12
Last price: S$2.75
Target Price: S$3.02
M1 offers a compelling dividend yield of 5.2% in 2013 and 5.6% in 2014, with a potential for special dividends. Its ROE is at 44.6%.
We expect sequential improvement in 4Q12 revenue and earnings after handset subsidies affected profitability in 3Q12.
Growth momentum in its mobile business remains healthy with 24,000 new subscribers added in 3Q12 and prepaid ARPU increasing by 5.1% qoq.
Furthermore, the fibre broadband business continues to grow and we expect it to gain momentum going forward. Our target price for M1 is S$3.02 based on a DCF model.
ST Engineering (STE SP, S63) – Steady growth; expect further re-rating
Last price: S$3.73
Target Price: S$3.85
We forecast dividend yields of 4.7-5.0% in 2012-14 for STE. Strong free cash flow and new initiatives could contribute to growth next year. 3Q12 results were already very encouraging but 4Q12 could be even better. We expect them to recognise S$1.5b in orders in 4Q12 compared to S$0.9b in 3Q12. Overall, STE has guided for higher revenue and profit for the full year.
We raised our target price last month to S$3.85 and increased our final dividend target to 17 S cents. Our target price is derived using a DDM model. We project a 2013F ROE of 29.9% for STE.
Yangzijiang Shipbuilding Holdings (YZJ SP, BS6) – Newbuild order cycle has bottomed out
Last price: S$0.925
Target Price: S$1.43
YZJ is our top pick among the Chinese shipyards with an undemanding 2013F PE of 6.6x and a dividend yield of 4.6%. It recently clinched its first jackup drilling rig and signed a Letter of Intent of a floating production storage and offloading (FPSO) vessel.
We believe the newbuild cycle for commercial vessels is bottoming out and we may see a pick-up in new orders by 2H13. YZJ will be the major beneficiary given its capabilities.
We project an ROE of 16.8% for 2013 and place a target price of S$1.43, which is based on its historical mean P/B less 1 SD.