After outperforming the Straits Times Index (STI) by 25% and the SGX ESG Leaders Index (SGXSULE) by 26%, CGS-CIMB Research analysts have reshuffled their environmental, social, governance (ESG) top picks to add Oversea-Chinese Banking Corporation (OCBC) O39 in their existing top performers, which include Boustead Singapore F9D , Pan-United P52 , UOL Group U14 and Yanzijiang Shipbuilding (YZJ) BS6 .
Analysts Lim Siew Khee, Lock Mun Yee and Melvin Lim say that between Sept 20, 2021 and May 4, 2023, all CGS-CIMB’s ESG portfolio picks have gained 24%, while their top ESG picks gained 32.5%, outperforming both the STI’s 7.3% and the SGXSULE’s 6.3%.
The analysts note that since June 19, 2022, all their ESG picks gained 6.5% and top ESG picks gained 9.4%, as compared to the FSSTI at 5% and SGXSULE and 3.6%.
This can be attributed to the strong price performance by Keppel Corporation BN4 , Sembcorp Industries U96 and YZJ.
“Specifically, Keppel divested its offshore and marine arm to Sembcorp Marine, transferred its legacy rigs to an asset co and focused more on infrastructure and fund management. Meanwhile, Sembcorp Industries’ successful divestment of its coal power plant in India while adding new renewable capacity investment helped its stock performance. Finally, YZJ’s maiden liquefied natural gas (LNG) carrier newbuild contract in Oct 2022 also spelled hope for more green vessels in the pipeline.” they say.
The analysts say that they advocate for companies which have specific drivers that would help them outperform the STI, while possessing decent ESG credentials and potential to benefit from improvements in their environment, social or governance factors.
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With this in mind, the analysts are removing ComfortDelGro C52 and DBS Group Holdings D05 , retaining City Development Limited (CDL) C09 , Keppel, Sembcorp and Singapore Technologies (ST Engineering) S63 , and adding OCBC to their existing picks of stocks with a potential re-rating catalyst including Boustead, Pan-United, UOL Group and YZJ.
The analysts explain that ComfortDelGro has grappled with a challenging operating environment — contending with Covid-19 and rising costs, and had its share price further affected by the share sales among index funds in September 2022.
In addition, they see DBS as having “limited scope for further earnings revisions as rate hikes pause” amid easing inflationary pressures, despite the bank benefitting from net interest margin (NIM) expansions.
Meanwhile, the analysts say OCBC ranks high on various ESG metrics as it won various awards in 2022 and recently appointed a female chairman CEO Helen Wong which could prevent board stagnation.
