Straits Times Index (STI) ended the month down 1.7%. Previously, DBS Research anticipated that July’s rally will fade off.
DBS Research had been trimming its portfolio over the past two months as a choppy 3Q and consolidation risk was forecasted.
Heading into the month of September, DBS Research recommends three stocks that investors should add to your portfolio to capitalise on the market pullback.
1. Dividend play you cannot miss out on: Manulife US REIT
With the recent market pullback, DBS Research notes that the price of Manulife US REIT has returned to levels that are attractive.
Manulife US REIT currently offers an attractive prospective yield of 7.0/7.7 percent in FY17/18.
Given the favourable demand and supply fundamentals in various US office markets where Manulife US REIT’s properties are located, DBS Research expects annual rental escalations to be in the region of 3.0%.
DBS Research: Manulife US REIT (SGX: BTOU) – BUY; Target Price $1.07
2. Monopoly, macros to drive growth: China Aviation Oil
If there are any type of business that investors love, it is businesses with monopolies – the economic moat that Warren Buffett always mentions.
China Aviation Oil is one such business that investors can’t wait to get more of. DBS Research recommends adding China Aviation Oil into the portfolio as a growth stock.
China Aviation Oil has a monopolistic position as the sole importer of bonded jet fuel into China. China Aviation Oil also has a 33% stake in the exclusive jet fuel refueller in Shanghai Pudong International Airport.
With a growing air travel demand both in China and globally, DBS Research sees China Aviation Oil as a key beneficiary.
Aside from the jet fuel business, China Aviation Oil also has a growing international jet fuel supply and trading business. DBS Research expects China Aviation Oil’s trading business to increasingly benefit from its greater scale.
In its most recent quarter, China Aviation Oil’s earnings were ahead of DBS Research’s expectations, with a 4.4% year-on-year growth as volumes grew.
China Aviation Oil was also recently included into MSCI Singapore Small Cap Index. DBS Research believes that its inclusion in MSCI Singapore Small Cap Index could raise its valuation multiple.
DBS Research: China Aviation Oil (Singapore) Corporation Limited (SGX: G92) – BUY; Target Price $2.08
3. Back to growth even as Golden Village deal falls through: mm2 Asia
Another growth stock that DBS Research recommends is mm2 Asia. Uncertainty has been arising from mm2 Asia’s bid to acquire Golden Village.
However, mm2’s bid fell through as the counterparty in the deal failed to procure fulfilment of certain conditions under the Shareholders Agreement. That being said, mm2 is still in talks to buy Golden Village’s (GV) cinema business.
DBS Research believes that the market has absorbed the uncertainties surrounding the GV deal and factored it into its share price.
Moving forward, DBS Research expects a healthy earnings per share (EPS) growth of 9.0% for FY18F and a much stronger 34% growth for FY19F.
DBS Research opines that mm2’s growth going forward will be supported by its core production business and concert production and promotion company, UnUsUal. mm2’s cinema arm will also help the group to build a recurring income base.
DBS Research: MM2 Asia Limited (SGX: 1B0) – BUY; Target Price $0.60