UOB Kay Hian (UOBKH)’s team of analysts has added Oversea-Chinese Banking Corporation (OCBC) O39 , Lendlease Global Commercial REIT (LREIT), Aztech 8AZ and Sembcorp Marine (SembMarine) to its alpha picks portfolio for the month of April as they see these counters benefitting from the favourable tailwinds in their respective industries.
The team has also taken a profit on Genting Singapore (GENS), which has risen by 40% since its inclusion.
‘Buy’ OCBC, LREIT, Aztech and SembMarine
According to analyst Jonathan Koh, OCBC is less susceptible to net interest margin (NIM) compression in the event that the US Federal Reserve (US Fed) cuts interest rates due to its lower current and savings account (CASA) ratio of 51.8%.
OCBC also provides an attractive dividend yield of 6.3% for 2024, as the management intends to maintain dividend payout ratio at 50% going forward, he says.
Koh maintains his “buy” call with a target price of $16.92.
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Koh adds that LREIT provides an attractive FY2023 distribution yield of 6.9%. The REIT’s FY ends on Dec 31.
313@Somerset, which accounts for 27% of LREIT’s portfolio valuation, will benefit from the reopening of China and the return of tourists to Orchard road, adds Loh. Suburban mall Jem, which accounts for 46% of portfolio valuation is set to benefit from the resiliency from shoppers spending on necessities.
On that note, Koh maintains his “buy” call with a target price of 87 cents.
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Analyst John Cheong expects a strong earnings growth of 43% y-o-y for Aztech, as its order book remained strong at $634 million as at Dec 31, 2022, and has since received additional orders of $85 million as at Feb 17 bringing the total to $719 million.
Cheong says that Aztech is cautiously optimistic about its 2023 business outlook, as it expects a double digit growth in its major customer’s revenue.
It will also continue to collaborate with customers on alternative components, and expand its supplier base to manage component tightness.
Aztech’s newly acquired 300,000 square foot facility in Pasir Gudang, Malaysia is expected to begin operations by the second quarter of 2023, which is just in time to meet anticipated demand growth from existing and potential new customers, says Cheong.
Based on Aztech’s long term mean P/E, Cheong maintains his “buy” call with a target price of $1.05, pegged to an unchanged 8.5 times 2023 earnings per share (EPS).
Lastly, analyst Adrian Loh believes that stocks like SembMarine should not trade less than 1.0 times P/B, but instead be between 1.2–1.5 times P/B, equating to 14.8 cents to 18.5 cents per share.
He attributes this to several factors, including the announcement of the largest ever offshore renewables contract for SembMarine.
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Together with its consortium partner GE Renewables, the deal amounts to a EUR6 billion ($8.69 billion) contract to supply the high voltage direct current (HVDC) electrical transmission systems for three large offshore wind farms in the Netherlands.
Loh says that this is a landmark order for the enlarged SembMarine entity, which is a clear vote of confidence by key industry players as the contract has been in negotiations for a year during SMM’s merger with Keppel Offshore Marine.
“With today’s order win, SembMarine's orderbook has increased by [around] 24% from $18 billion to $22.3 billion with earnings visibility out to 2031,” he says.
Loh maintains his “buy” call on SembMarine with a P/B-based target price of $0.156.
March’s portfolio outperformed STI ‘easily’
For the month of March, the team’s alpha picks portfolio rose by 7.9% m-o-m on an equal weighted basis, easily outperforming the benchmark Straits Times Index (STI) by 8.0 percentage points (ppts).
“For 1Q2023, our portfolio rose 9.1%, materially outpacing the STI’s 0.2% gain.” say the analysts in their April 4 report. They add that their portfolio has beaten the STI in 12 out of the past 13 months so far.
The portfolio’s top performers were driven by both large and small caps, citing Food Empire Holdings, Sembcorp Industries and Delfi as examples which grew by 30%, 21% and 14% m-o-m respectively.
“[The] outperformance for Food Empire and Delfi were largely due to higher dividends, share buybacks and robust earnings growth, while Sembcorp Industries has continued its environmental, social and governance (ESG)-based re-rating,” the analysts write.
At the same time, only two of the team’s picks have underperformed, with CapitaLand Ascott Trust at -1.5% m-o-m and Yangzijiang Shipbuilding at -7.0% m-o-m, with the latter suffering from poor capital management.
As at 4.57pm, the STI was trading 30.54 points higher or 0.93% up at 3,311.62 points
