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)

charlescher1.16Charles Cher, CEO of AEM.
NextInsight file photo
• 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)

drsecret8.16Dr's Secret is a long-established range of skincare products of Best World. Photo: Company• 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.


Share Prices

Counter NameLastChange
AEM2.3700.010
$ Alliance Mineral0.3250.005
AusGroup^0.0490.001
Avi-Tech0.4600.010
Best World1.4600.010
China Sunsine0.785-
CWG Intl0.150-
Dutech0.4650.005
Federal Int0.415-
Food Empire0.670-
Geo Energy Res0.250-
Golden Energy0.4050.010
$ GSS Energy0.1630.001
Heeton0.475-
$ ISOTeam0.350-
KSH0.9200.010
Lian Beng0.6200.010
Nordic0.380-
Oxley0.585-
$ Rex Intl0.047-
$ Resources Prima0.026-
Riverstone1.025-
Roxy-Pacific0.5400.010
Sunningdale Tech1.8250.035
Serial System0.1810.001
Sino Grandness0.255-
Straco0.870-
Sunpower0.6800.020
Tiong Seng0.285-
$ Trendlines0.1470.001
Uni-Asia Grp1.450-
XMH0.2900.030
Yamada Green Res0.4750.020
YZJ Shipbldg SGD1.1850.010
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