In DBS Research’ 2H17 market outlook, four investment themes were highlighted as the recommended investment theme by DBS Research in a previous article.
We zoom into the first three stocks that DBS Research accentuates as their preferred Alpha picks for 2H17 under the “Betting On Alpha” investment theme.
1. Dairy Farm
Cost efficiency to drive margin improvement
Dairy Farm managed to put in a stronger financial performance in 2H16 on the back of better-operating efficiencies.
Moving forward, DBS Research expects further cost efficiencies to be achieved through enhanced operational processes via distribution centres, procurement and IT systems.
Thanks to its cost efficiency, DBS Research foresees growth to be supported by further margin improvements. DBS Research believes that Dairy Farm will be able to maintain its growth traction moving forward.
Hence, DBS Research expects Dairy Farm’s dividend per share (DPS) to increase in FY17F based on ~60-65 percent payout ratio. That will lead to a slightly higher dividend yield than the current forward dividend yield of 2.9 percent.
Dairy Farm’s core business is currently valued at just 18.6x forward PE, below the regional peer average, and its 9-year historical average forward PE of 25x.
DBS Research: Dairy Farm International Holdings Limited (SGX: D01) – BUY; Target Price $9.96
2. CapitaLand Limited
2017 looks to be the year for CapitaLand
2017 looks to be a year to celebrate for CapitaLand, following a strong showing in 1Q17 despite one-off gains. There was an overall improvement across different business divisions in 1Q17.
The most noteworthy improvement was from the stable tenant sales across its portfolio. To achieve stable tenant sales, its new retail malls in China under the Raffles City project (in Shenzhen, Hangzhou and Changning) had to meet the existing tenant sales figures.
DBS Research opines that this implies that a majority of its new retail mall completions have been substantially pre-leased before completion.
Improving sentiments to drive land banking needs
For its residential property business, DBS Research notes that the sentiment among buyers has been improving in both Singapore and China. Given the increased optimism in the residential property market, CapitaLand could turn aggressive in replenishing its land bank.
The management has been on a lookout for opportunities to acquire land through joint ventures or mergers & acquisitions (M&A) to get a lower entry price on land. CapitaLand is also keen building on its recurring income base through acquisitions in the space.
DBS Research: CapitaLand Limited (SGX: C31) – BUY; Target Price $4.33
Share price took a halt following King Bhumibhol’s passing
ThaiBev’s share price was skyrocketing, until the mourning of King Bhumibhol came into effect.
Since then, its share price has been pulling back on the uncertainties surrounding slower consumption in Thailand from the mourning period. However, DBS Research is confident that these uncertainties will be temporary.
Financial Performance To Improve In 2H17
ThaiBev’s performance in 2H17 would improve and turn in a better year-on-year performance on the back of tighter cost control, while 1H17 saw earnings dip by 2.0% year-on-year.
Moreover, with the possibility of an excise tax increases, distributors and agents could rush to stock up, leading to greater sales in 4Q17F.
ThaiBev’s ongoing transformation
On a longer-term outlook, ThaiBev’s ongoing transformation into a regional beverage player will continue to drive its share price.
ThaiBev’s associate, Fraser & Neave Ltd (FNN) now owns 18.74% in Vietnam beverage producer (Vinamilk) and has stated an intention to increase its stake. That will further cement ThaiBev’s transformation into a regional beverage player.
Thus, DBS Research views the current pullback in share price as a chance to accumulate the counter. What’s more, its dividend yield of around 3.0% is a bonus for investors.
DBS Research: Thai Beverage Public Company Limited (SGX: Y92) – BUY; Target Price $1.07
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