SINGAPORE (March 21): UOB Kay Hian believes that the benchmark FTSE Straits Times Index (STI) looks fairly valued after rising 9.9% year-to-date to sit above the brokerage’s year-end target of 3,050.
As at 11.55am on Tuesday, the STI is at 3,161.1 points.
“At current levels, the market is trading at 15.3x 2017F PE, which is its long-term mean since 1995,” says UOB Kay Hian lead analyst Andrew Chow in a Tuesday report.
With the STI currently not cheap, Chow points to quality laggards as one of the avenues for investors to outperform the market.
Laggards within UOB’s coverage universe that Chow favours include Bumitama Agri, Raffles Medical Group, and Keppel Telecommunications & Transportation (Keppel T&T).
“Despite Bumitama’s solid fundamentals, the stock continues to trade at undemanding levels,” says Chow.
Bumitama on March 1 announced it is commencing an equity buy-back of some 10% of its issued ordinary share capital, and Chow believes the group “looks on track to deliver a 3-year earnings CAGR of 16%.”
In addition, Chow says the management’s plan to increase engagement with the investment community could raise interest in the stock among investors.
UOB has a “buy” recommendation on Bumitama Agri with a target price of $1.25.
For longer-term investors, Chow believes that Raffles Medical should be appealing, particularly when its shares trade at $1.40 or lower.
While near-term growth will be crimped by elevated costs from its expansion, the significant increase in Raffles’ capacity from its hospital expansion in Singapore and new hospital in Shanghai should provide runway for future growth,” says Chow.
UOB has a “buy” call on Raffles Medical Group with a target price of $1.66.
Meanwhile, Chow says Keppel T&T is appealing due to its exposure to the strong growth in demand for data centres.
“The stock has been a laggard due to its disappointing 4Q16 results and challenges from its logistics segment,” says Chow. “However, we remain convinced of its long-term prospects and believe that investors could consider buying.”
Chow adds that the potential disposal of Keppel T&T’s non-core assets could also provide an additional boost.
UOB has a “buy” recommendation on Keppel Telecommunications & Transportation with a target price of $2.51.
As at 12.40pm, shares of Bumitama are trading half a cent higher at 81 cents, shares of Raffles Medical are trading 1 cent lower at $1.41, and shares of Keppel T&T are trading half a cent higher at $1.76.
