UOB Kay Hian is adding GHY Culture and Media (GHY), as well as Innotek to its Alpha Picks portfolio, after both companies reported “strong outperformances” in Jan 2021.
In a Feb 9 note, the brokerage said the portfolio rose 5.7% m-o-m in January vs the Straits Times Index’s (STI or FSSTI) more moderate gain of 2.1% m-o-m.
“With the exception of Far East Hospitality Trust (-4.8% m-o-m), the rest of our picks performed better than the FSSTI. Notable outperformers include First Resources (+21.1% m-o-m), Thai Beverage (+12.2% m-o-m), Sunpower (+11.3% m-o-m) and Food Empire (+9.8% m-o-m).
On the addition of GHY Media and Innotek, UOB KH said this was because of its “sizeable production pipeline and attractive valuation.”
GHY trades at an FY2021 price to earnings ratio of 12.3 times, compared to peers’ 18.5 times, and only up 9.1% from its listing price of 66 cents, and this makes the company “underappreciated by the market, in our view.”
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Analysts Lucas Teng and John Cheong said GHY has up to 23 drama or film projects for production and release in the pipeline, which underpin its near-term earnings per share EPS growth. The group is led by Mr Guo Jingyu, a notable producer, director
and scriptwriter in China with more than 25 years of experience.
Furthermore, GHY has been granted the rights to undertake the production of concerts for well-known Taiwan singer-songwriter Jay Chou in Singapore, Malaysia, Australia, Thailand, Japan and China (excluding Hong Kong and Macau).
Chou is ranked first among all China singers in accumulated ticket sales for concerts in China from 2017-19. With the rollout of vaccinations, large-scale mass events are likely to see gradual resumption in 2H2021.
For InnoTek, Cheong believes the group is set to benefit from China’s recovery in auto sales which historically accounts for 30% of its annual revenue.
He elaborated that China has successfully contained the Covid-19 outbreak and eased most of its social distancing measures. This has led to a surge in passenger vehicle (PV) sales back to pre-Covid-19 levels.
Furthermore, Cheong highlighted InnoTek’s new CEO and non-independent Director Lou Yiliang implemented several restructuring initiatives to boost profitability, including an incentive scheme which rewards employees based on units produced per day and production yield. As a result, InnoTek managed to turn from a net annual loss of $16.3 million in 2015 to decade-high annual net profits of $20.2 million and $16.7 million in 2018 and 2019 respectively.
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Meanwhile, its gross margins have also increased from 6.5% in 2015 to 21.8% in 2019. As such, InnoTek has become more resilient during economic downturns due to the initiatives.
“Furthermore, the stock trades at an undemanding valuation of 7.8 times FY2021 PE (3.8 times ex cash), a laggard compared to the sector average of 13.4 times,” he said.
On the other hand, UOB KH has removed Frencken and Sunpower to lock in solid gains of 36.5% and 16.8% respectively. The brokerage has also removed Venture at this juncture given the lack of near-term catalysts.
UOB KH has put “buy” calls on GHY and Innotek, giving target prices of $1.08 and 82 cents respectively.
As at 11.52am, shares in GHY and Innotek are trading at 72 cents and 73 cents respectively.
