UOB Kay Hian has added Thai Beverage (ThaiBev) and ComfortDelGro (CDG) to its alpha picks portfolio for the month of October.
“Both are set to benefit from demand recovery from the economic reopening and removal of Covid-19 measures, and the recent share price weaknesses have made their valuation more compelling,” write the analysts at UOB Kay Hian in their Oct 4 report.
Meanwhile, the analysts have cut losses on BRC Asia as temporary stop-work orders caused by its recent workplace incidents are expected to affect its construction activities and delivery volumes. The analysts have also removed Frencken from its portfolio as they expect “weak sentiment towards tech stocks amid the rising interest environment”.
The team’s alpha picks portfolio outperformed the benchmark Straits Times Index (STI) in September. The portfolio dropped by 0.4% m-o-m on a market cap weighted basis compared to the STI’s 2.8% m-o-m decline. The outperformance during the month was mainly driven by a few large-cap names including Yangzijiang Shipbuilding, DBS Group Holdings and Genting Singapore, which grew by 6.2% m-o-m, 2.4% m-o-m and 1.3% m-o-m respectively.
The team’s tech stocks such as Frencken and Nanofilm, which fell 15.2% m-o-m and 11.4% m-o-m, were the key losers.
For the 3QFY2022, the team’s portfolio “materially outperformed” the benchmark index by 4.7 percentage points.
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“Except for the banking sector which is a clear beneficiary of higher interest rates and some event-driven stocks, the general market was weak in September,” the analysts point out. “The stubborn US inflation data (8.3% in August, higher than economists’ median forecast of 8.1%) released in the middle of the month was believed to have reinforced the US Fed’s hawkish stance to manage inflation through further rate hikes.”
As at Sept 30, the one-year US treasury yield ended at 4.05% as at Sept 30, up by 55 basis points (bps) m-o-m and yield for the one-year Singapore government treasury bills reached a decade-high level of 3.24% (+35 bps m-o-m).
These attractive short-term yields and expectations for further increases in interest rates have led to funds flowing out from the stock markets as investors hold cash or short-term deposits for potentially better stock market entry prices later, the analysts note.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
'Buy' CDG and ThaiBev
Analyst Llelleythan Tan has kept his “buy” call on CDG with a target price of $1.63.
“In our view, backed by improving fundamentals, CDG remains poised to see a gradual recovery in ridership levels in the medium term as key markets recover and international travel resumes,” he writes.
Tan has also kept “buy” on ThaiBev with a target price of 87 cents.
“We reckon ThaiBev remains attractively priced at below -1 standard deviations (s.d.) of its five-year mean PE, backed by an expected earnings recovery underpinned by favourable tailwinds,” he says.
The STI closed 21.81 points lower or 0.7% down at 3,083.19 points. Shares in CDG and ThaiBev closed at $1.26 and 56.5 cents on Oct 12.
