In its Singapore Equity Picks report dated April 16, the team at DBS Group Research says it has turned “net seller” in the past month to capitalise on the “dividend-driven” rally in March to April and to lower its equity exposure in May, which is a seasonally weak month.
On this, it has included Dairy Farm International (-0.8%) to its picks. The team has also removed AEM (+4.8%) and trimmed Yangzijiang Shipbuilding (+46.6%) to lock in a portion of the latter’s gains.
Venture Corporation (+9.8%), Ascendas REIT (+1%) and Ascott Residence Trust (+11.8%) were also removed from the portfolio.
The team adds that its equity picks’ time-weighted rate of return (TWRR) has outperformed the benchmark Straits Times Index’s +7.95% with its own record high of +93.78%.
“The 12-month return of our equity picks is +42.04% compared to the STI’s +22.02%,” it says.
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Blue chip stocks
In the same report, the team has recommended investors accumulate Dairy Farm International, ComfortDelGro and Yangzijiang Shipbuilding should they be looking to include blue chips in their portfolio.
Blue chips, which “tend to be more stable”, with holding periods extending beyond a year, is able to “provide steady growth over a longer time period,” writes the team.
“We add [Dairy Farm International] from a tactical perspective. DFI’s final dividend of 11.5 cents will go ex-dividend (XD) on March 25.”
“We observed that historically, the stock tends to recover post XD, especially when the price trend is soft/quiet prior to XD date, which seems to be the case currently. The 11-year seasonal trend from 2010-2020 shows DFI shares touching a low on March 19 with a 6.6% recovery by May 9,” it says.
For ComfortDelGro (CDG), the re-opening of the economy, jobs support, as well as the “worst is over” mentality could provide support to share price, says the team.
The counter’s sell down on its removal from the MSCI Singapore is “an opportunity to accumulate”. The stock is currently trading at 1.2 times price-to-book (P/BV), -2 standard deviation (s.d.) below its historical average.
Though the weakening economic outlook could slow ordering momentum for Yangzijiang Shipbuilding, the team at DBS is “confident” that the group will remain ahead of peers. Yangzijiang Shipbuilding’s shipyard operations are back at full capacity since end of March, with the group’s ship deliveries back on track, both positives for the group.
Dividend stocks
Investors seeking to include dividend stocks to provide a steady source of income in their portfolios should consider Far East Hospitality Trust (FEHT), Mapletree North Asia Commercial Trust (MNACT) and Prime US REIT.
“We see the six-month price consolidation of Ascendas REIT shares and pullback as an opportunity to add [FEHT],” writes the team.
“We expect acquisitions to drive distribution per unit (DPU) growth as the REIT looks to diversify its earnings base. The redevelopment of the Science Park is an interesting prospect that has been overlooked by the market. A-REIT trades at 5.3% FY2021 yield,” it adds.
A DPU recovery for MNACT is expected to take place in 2HFY2021. The REIT’s office portfolio in China and Japan should offset the temporary income dip from Festival Walk in Hong Kong.
“We observed that the 2019/2020 social unrest in Hong Kong has diminished in recent months. The stock trades at a compelling valuation of 0.63 times P/B and forward yield of 7.85%, and it is backed by a reputable sponsor,” says the team.
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Lastly, Prime US REIT, which is seen as a beneficiary of the back-to-office recovery in the US, is the team’s preferred pick among US office REITs. It currently trades at a yield of around 8% and 0.94 times price-to-net asset value (P/NAV).
Growth stocks
For investors seeking capital growth as their primary investment goal, the team at DBS recommends China Aviation Oil (CAO) as a counter to have in their portfolio.
The group is expected to report a stronger 2HFY2020 driven by recovery in departing frequencies at Shanghai Pudong International Airport in recent months.
“Passenger throughput should recover further this year as travel conditions improve with the roll out of Covid-19 vaccines. Our current forecast is for FY2021 earnings to recover by 50% following the 46% slump in FY20F. Technical support is at $1.09,” writes the team.
The Straits Times Index (STI) closed 16.58 points higher or 0.5% up at 3,201.35 on April 16.
Shares in Dairy Farm International, ComfortDelGro and Yangzijiang closed US$4.22, $1.79 and $1.30, while units in Far East Hospitality Trust, Mapletree North Asia Commercial Trust and Prime US REIT closed 63 cents, $1.08 and 86 US cents.
Shares in China Aviation Oil closed $1.16 on April 16.
