SINGAPORE (Feb 7): CIMB Research is keeping its STI target of 3,600 intact for now, with expectations of 8% earnings per share (EPS) growth for 2018, along with more earnings upgrades ahead in the non-REIT earnings season.
In a Tuesday report, analyst Lim Siew Khee says CIMB’s near-term support for STI hovers between 3,370 and 3,470.
The market bounce-back will potentially be led by more aggressive NIM expansion among banks; volume increase for tech manufacturing; higher order wins in the capital goods sector; as well as stronger topline growth among the consumer/gaming industry.
As such, Lim has highlighted five “must-own stocks” based on valuations and fundamentals, for as long as the market correction continues.
Among CIMB’s shopping list is Venture Corp to “buy” at $21.77, implying a valuation of 15.2 times CY19 earnings. Lim likes the stock for its well-diversified customer base and resilient product portfolio, which she believes to give it resilience with potential upside catalysts from stronger-than-expected revenue and margins.
AEM Holdings is also recommended for a “buy” at $4.70 with a target price of $6.62 based on 10 times CY19 earnings, representing a 18% discount to the sector average of 12 times.
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“We believe AEM is on course to deliver 35% y-o-y earnings in FY18, riding the firm sales forecasts from its major customer. Catalysts could come from stronger-than-expected earnings,” says Lim.
Another pick is ST Engineering to “buy” at $3.15 or 16 times CY19 earnings – which is below its five-year average of 20 times and relatively cheaper versus its peer, SIA Engineering, whose valuations exceed 20 times CY19 earnings.
Based on the assumption that SIA Engineering’s recent earnings beat is an indication of a returning engine maintenance, repair & overhaul (MRO) trend, CIMB sees the stock benefitting due to its exposure to the CFM engines for narrow body aircraft.
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Stronger-than-expected earnings from the aerospace and marine sectors would also serve as further catalysts for ST Engineering.
Keppel Corp is recommended for a “buy” at $7.95, which would imply a valuation of $3.82 for its property arm, and $1.02 for the offshore & marine (O&M) arm.
Lim belives the stock is backed by multiple catalysts, such as the sale of deferred rigs to unlock cash as well as restarting the stopped-work semi-submersible for Petrobras.
Last but not least, Lim has picked Genting Singapore to “buy” at $1.20 or about 9 times CY19 EV/EBITDA – which is close to its –1 times standard deviation of its six-year average.
“We believe the careful credit loosening of its VIP business could help to lift overall gross gaming revenue (GGR),” says Lim of Genting Singapore.
As at 10.37am, shares in Venture, AEM, ST Engineering, Keppel and Genting are trading at $22.73, $5.53, $3.28, $8.39 and $1.28, respectively.
