In our previous article, we highlighted the ‘Yay’ and ‘Nay’ sectors that investors should invest in or avoid in the Singapore market. In this article, we will look at the four alpha picks that CIMB Research recommends going into 2H17.
1. China Aviation Oil Corporation Limited
China Aviation Oil is exposed to the two largest aviation markets in the world – China and the US. These two markets have been the reason behind the growth of China Aviation Oil’s jet fuel supply and trading.
With China’s implementation of One Belt One Road, China Aviation Oil could further benefit from a closer connection between China and the rest of the world. Against the valuation of its global peers, China Aviation Oil still trades at a discount in terms of forward Price-Earnings ratio (P/E).
China Aviation Oil is trading at CY18F P/E of 10x whereas global peers are trading at ~16.4x. Using a conservative estimate of 13x CY18F P/E, CIMB Research recommends a target price of $2.28.
Moreover, China Aviation Oil is in a net cash position with $0.26 per share and has a committed dividend payout of 30 percent per annum that implies a CY18F yield of three percent.
The stock was also recently added to the MSCI Singapore Small-Cap Index, which further underlines the attractiveness of China Aviation Oil.
CIMB Research: China Aviation Oil Corporation Limited (SGX: G92) – BUY, Target Price $2.28
2. First Resources Limited
Among plantation stocks in Singapore, First Resources have a much more superior operating efficiency compared to its peers. Its fresh fruit bunches output growth prospect is also stronger than its competitors.
Furthermore, First Resources is attractively priced in contrast to its peers. First Resources, with a PE of 14x for FY17 and 11x for FY18, is trading below the regional plantation sector average of 18x for FY17. It is also trading below the stock’s historical average PE of 13x.
CIMB Research: First Resources Limited (SGX: EB5) – BUY, Target Price $2.32
3. Genting Singapore PLC
With an adjusted credit policy, Genting has positioned itself for better quarters ahead. Under the new credit policy, there will be lower forward trade receivable provisions. Genting’s forward EPS will also be relieved of $118 million post perp redemptions by 4Q17.
Genting is currently working on rebranding Resort World Sentosa (RWS) as a premier lifestyle-based integrated resort. CIMB Research views this redevelopment of RWS as a possible stabiliser for its market share.
Two of the biggest possible catalysts for Genting is the upcoming dividend payouts and Japan’s Casino Bill.
According to CIMB Research, dividend payouts in Q3 and Q4 this year could add a positive surprise for investors together with any form of positive updates on the signing of Japan’s Casino Bill.
Should the Bill be passed, Genting could be involved in the licence bidding process from mid-2018 onwards.
CIMB Research: Genting Singapore PLC (SGX: G13) – BUY, Target Price $1.24
4. Thai Beverage Public Company Limited
Despite the low alcohol consumption during King Bhumiphol’s mourning period, Thai Bev has still managed to do well in maintaining its dominant market position as the leader in spirits and beer in Thailand (1st in spirits, 2nd in beer).
CIMB Research’s forward outlook for Thaibev hinges on the company’s transformation into a regional beverage company. Thai Bev could benefit from a corporate restructuring of F&N and/or Frasers Centrepoint.
CIMB Research also foresees potential merger and acquisition (M&A) opportunities in Vietnam for Thai Bev to tap on for inorganic growth.
With an undemanding forward PE of 20x, Thai Bev’s valuation is still below its industry peers and there is still room for positive re-rating upon any corporate activity.
CIMB Research: Thai Beverage Public Company Limited (SGX: Y92) – BUY, Target Price $1.07