SINGAPORE (Dec 5): UOB Kay Hian has called investors’ attention to five promising stocks that offer further potential upsides of more than 20% to their target prices.
These “alpha picks” are set to fire on all cylinders as they remain intact amid a slowing economy.
On the large cap front, UOB highlights CDL Hospitality Trusts (CDLHT), DBS and Yangzijiang Shipbuilding as its top picks, with upsides of 27.3%, 20.4% and 36.4% respectively.
According to lead analyst Loke Peihao, CDLHT’s Singapore portfolio, which registered a y-o-y improvement of 4.9% in RevPAR in 3Q19, is slated to continue climbing in FY20 on the back of benign supply and a tighter event calendar.
For instance, Singapore will be hosting a number of inaugural events such as the International Trademark Association’s 142nd Annual Meeting and the 103rd Lions Clubs International Convention, which will see an estimated 28,000 attendees in total.
“Exciting tourism infrastructure plans are also underway, which will help provide a favourable environment for medium-to-long-term growth,” shares Loke.
In addition, the recent Liang Court redevelopment that was announced is set to present CDLHT with $36.3 million in gains, while avoiding significant capex obligations.
See: CityDev, CapitaLand lead consortium to redevelop Liang Court site at Clarke Quay
On the acquisitions front, UOB notes that the trust has “ample debt headroom” of some $461 million, which bodes well for its future acquisitions.
Meanwhile, analyst Jonathan Koh remains bullish on DBS’ wealth management segment, which registered a 22% growth from the previous year. This had, in turn, caused the bank’s fees segment to grow 17.1%.
Although the Hong Kong protests have threatened to cause damage to the assets of DBS, Koh opines that this worry could well be unfounded.
“The small and medium enterprise (SME) book is well collateralised, mainly secured by properties with low loan-to-value (LTV) ratios,” says Koh, adding that industries affected by social unrest are likely to include retail, hospitality and tourism – depositors which have limited borrowing appetite.
Although Yangzijiang has been caught in the backlash of the company chairman Ren Yuanlin assisting investigations in China, analyst Adrian Loh believes that its share price weakness is unwarranted, given that it does not involve the company or its funds. On the flipside, the outlook appears positive for the group.
Loh notes that the management has both the expertise and experience to run the company, as CEO Ren Yuanlin, who is also the son of the chairman, has been with the company since 2006 in various roles.
“With his detailed knowledge of shipyard and shipbuilding operations, the core business will not be affected in the absence of the company’s chairman, in our view,” says Loh.
Loh estimates that the groups order wins to date stands at some US$650 million, on the back of its recent order win for six bulk carriers in November. “Notably, this new order complies with IMO 2020 fuel regulations, so perhaps this is the first trickle of orders coming in from owners that need to replace their non-compliant fleet,” he adds.
UOB is maintaining its “buy” call on CDLHT, DBS and Yangzijiang, with target prices of $2.05, $30.00 and $1.46 respectively.
As at 4.16pm, units in CDLHT are trading one cent higher, or 0.6% up, at $1.62. Shares in DBS are trading 11 cents higher, or 0.4% up, at $25.03.while shares in Yangzijiang are trading three cents higher, or 2.8% up, at $1.10.
On the small cap front, UOB has identified Fu Yu Corp and Koufu as its top picks, with upsides of 22.9% and 25.0% respectively.
Fu Yu, for one, offers a high and sustainable dividend yield 7.1% for 2019, and is expected to increase to 7.5% in 2020 on the back of improving net profit, free cash flows and strong net cash position.
“In 2018, FUYU raised its interim dividend for the first time in three years, and we expect further increases,” says analyst John Cheong.
Cheong also observes that the group has some hidden value as its conservative accounting policy has undervalued its assets by $50 million, or 33% of the group’s market capitalisation, in its 2018 annual report.
“Any disposal to unlock value could further rerate the stock, in our view. The hidden value of these properties, the company’s inexpensive valuation, diversified operations and low utilisation rate make FUYU an attractive takeover target,” adds Cheong.
On the other hand, Koufu is what UOB considers a “defensive cash cow” - one that is substantially backed by strong brands and a leading market position. Analyst Joohijit Kaur notes that the group has seen consistently high occupancy of at least 93% over the last three years.
In addition, Kaur highlights how the group poses a prime opportunity for investors, as it intends to distribute at least 50% of its profits for 2019, which is sustainable given its strong cash-flow generation. “This could translate into a potential dividend yield of 3.5% for 2019,” shares Kaur.
“We forecast double-digit net profit growth for 2019 with completed enhancement initiatives of Rasapura Masters, a pipeline of five new food courts and faster roll-out of R&B and Super Tea which are popular with the younger crowds,” says Kaur, adding that in addition to Singapore, the group’s Macau operations are contributing some 9% to its revenue.
Furthermore, Koufu’s disposal of central kitchens at 18 and 20 Woodlands Terrace could unlock some $10 million in value, with gains of up to $8 million. This, according to Kaur, would translate into higher dividends as well.
UOB is also maintaining its “buy” call on both Fu Yu and Koufu, with target prices of 29.5 cents and 95 cents respectively.
As at 4.16pm, shares in Fu Yu and Koufu are trading flat at 24 cents and 76 cents respectively.
