Finding attractive stock picks in a volatile market can be difficult as the world continues to grapple with the Covid-19 pandemic.
But for UOB Kay Hian Research (UOB KH), some of its top picks are palm oil producer First Resources, power generation company Sunpower Group and food manufacturer Food Empire Holdings.
According to the brokerage, the dry weather in 2019 and the recent high rainfall have had less of an impact on First Resources’ assets.
This is because most of the company’s estates are in the Riau region, it says.
“Hence, we expect better fresh fruit bunch (FFB) production growth for [First Resources at 6% y-o-y in 2021,” UOB KH writes in a Jan 8 note.
The brokerage notes that Sunpower is an attractive opportunity given the company’s recent announcement of the sale of its manufacturing & services business at an attractive 12 times 2019 earnings.
This is twice the five-to-seven times earnings ascribed by the street and represents 50% of its market cap, it says.
UOB KH adds that investors stand to benefit from a dividend payout arising from the divestment.
Post-sale, Sunpower intends to pay out a special dividend of 23.59 cents a share, split into two tranches, translating into an attractive dividend yield of 29%.
Meanwhile, UOB KH says Food Empire is trading at a compelling 9.8 times 2021 earnings forecast.
The brokerage points out that the company’s recent share buybacks underline the management’s confidence in its business outlook and signals potentially strong 4QFY2020 results.
UOB KH has recommended “buy” for First Resources, Sunpower and Food Empire, with target prices of $1.85, $1.10 and 88 cents, respectively.
As at 11.19 am, First Resources was down 3 cents or 1.8% at $1.66 with 1.02 million shares changed hands.
Sunpower was up 0.5 cent or 0.5% at 98 cents with 1.1 million shares traded.
Food Empire was down 1 cent or 1.3% at 74 cents with 173,900 shares changed hands.
