In the previous article, we highlighted three stocks that DBS Research recommends as alpha picks for 2H17. In this article, we look at three more stocks that are poised to give investors alpha returns in 2H17.
1. Breadtalk Group Limited
In its most recent quarterly earnings, BreadTalk have shown investors that its Foodcourt business is on track for a turnaround. Moving forward, DBS Research believes that BreadTalk’s earnings will continue on its path of turnaround to deliver even higher growth.
DBS Research foresees two potential catalysts that could drive the share price of BreadTalk: (1) possible sale of AXA Tower/CHIJMES, and (2) revaluation of Beijing Tongzhou Development.
Perennial Real Estate, which owns a part of AXA Tower and CHIJMES, could look to divest one or both buildings to raise funds. They have previously monetised their assets in 111 Somerset and 112 Katong to raise funds.
BreadTalk, which has tag along rights, could make a tidy profit from its joint ownership with Perennial on AXA Tower and CHIJMES. DBS Research foresees a potential for special dividends should any real estate be sold.
DBS Research also opines that an upward revaluation of Beijing Tongzhou Development (joint venture between BreadTalk and Perennial) will also be another share price catalyst.
BreadTalk’s core business is undervalued
BreadTalk’s current valuation is a compelling one, according to DBS Research. Valuing BreadTalk based on its core business (ex-property investments), its FY17/18F PE of 16.2x is very attractive for investors.
At a FY17/18F PE of 16.2x, BreadTalk’s core business is undervalued “after stripping out the value of investment properties from the current share price”. DBS Research believes that a more reasonable valuation would be 22x FY17/18F PE.
At this valuation of 22x PE to BreadTalk’s retail business and adding back the value of its investment properties, DBS Research deems that BreadTalk is worth $1.92 per share.
DBS Research: BreadTalk Group Limited (SGX: 5DA) – BUY; Target Price $1.92
2. Genting Singapore PLC
Cost efficiency provides strong base for rebound
Despite softer VIP and mass business volume, Genting Singapore managed to grow its earnings in 1Q17.
Main contributors were “the successful execution of a string of initiatives including cost reduction and lowering of bad debts through a more selective and conservative credit policy”.
These initiatives have helped Genting Singapore to secure a structurally lower cost base, which provides a strong basis to bounce back when volumes eventually rebound on the back of the growth in tourist arrivals.
Hence, DBS Research expects the strong earnings momentum in 1Q17 to continue, heading into 2H17.
DBS Research: Genting Singapore PLC (SGX: G13) – BUY; Target Price $1.35
3. City Developments Limited
As sentiments in the residential property market improves, City Development’s existing unsold inventory puts it at a prime position to benefit from the positive sentiments.
City Development currently have 1,033 unsold units in its inventory from various launched projects. That represents ~16 percent of total available units in the market.
DBS Research notes that there has been positive sales momentum at Gramercy Park in 1Q17, which signals that City Development could ride on the positive sales momentum in its upcoming launches (124-unit New Futura at Leonie Hill Road, and 190-unit South Beach Residences) in 2H17.
City Development is also looking towards the longer term as it looks to land bank in the upcoming land sale program from the Singapore government.
DBS Research: City Development Limited (SGX: C09) – BUY; Target Price $12.63
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They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your early bird tickets. See you there!
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