Excerpts from CIMB's report on Singapore Strategy
Alpha picks for 2H17
Big-caps: CAO, First Resources, FCL, Genting Singapore, UOL and Thai Beverage (new). We remove STE (outperformance YTD). Look to buy on weakness as smart-nation and ICT spending will be medium-term drivers.
Small-caps: Boustead Projects, CSE, Valuetronics, Best World, mm2 and HMI. We add manufacturing/tech companies AEM and Memtech as valuations are attractive at c.8x CY18F P/E vs. average 3-year EPS CAGR of 54%. We remove Cityneon (capped by offer price to major shareholders).
|AEM Holdings Limited (TP S$3.39)
• AEM trades at 9x FY17F and 7.6x FY18F P/Es. Earnings growth is expected to pick up in FY17F and FY18F due to rising contribution from its key customer.
• There could be margin upside in 2H17 as AEM obtains better terms from its suppliers and begins production for its customer in lower-cost Penang.
• A short-term catalyst could come from its quarterly earnings, which management projects will show both qoq and yoy growth. Its balance sheet is in a healthy net cash position and the company has a dividend policy of not less than 25% of profit after tax.
Best World (TP S$1.52)
• The stock continues to defy gravity even after two consecutive years of >100% EPS growth. 1Q17’s net profit grew an incredible 63% yoy and this is likely to accelerate.
• FY17F is poised to be another record-year as Best World converts its distribution in China to its core direct selling model. This is set to propel the group to a new level of profitability. Further, sales growth momentum in Taiwan remains strong on the back of increased product acceptance. The stock also offers a 2% yield.
• Risks include regulatory changes or poor execution in China.
|Boustead Projects Limited (TP S$1.04)
• We like Boustead Projects for its market leadership in the niche industrial property design & build (D&B) space. The group also owns a medium-sized leasehold portfolio to counter the construction cyclicality.
• BP trades at 0.5x FY18F RNAV vs. Singapore industrial REITs’ average of 1.05x. BP had S$25m net cash (c.9% of market cap) as at end-FY17.
• Key re-rating catalysts include more D&B project wins and possible utilisation of its balance sheet for M&As to accelerate its progress towards an eventual REIT listing.
CSE Global (TP S$0.56)
• Currently trading at 10.3x CY18F P/E vs. our target of 12x (based on historical 5-year mean). It is net cash (1Q17: S$0.11/share), with a committed FY17F DPS of 2.75 Scts, implying 5.7% dividend yield.
• 1Q17 contract intake spiked to S$117.9m, driven by a large S$42m O&G contract in Mar, which trumped the order intake rate of the past eight quarters (c.S$57.7m-98.4m). Large order backlog by end-18F implies better CY18F net profit.
• Large contract wins by mid-CY17F and improvement in headline earnings in 2H17F are catalysts. 2Q17F results are guided to still be sluggish.