August wasn’t the best of months for passive investors for Singapore and Malaysia. KLCI finished the month almost flat (+0.7%) while the Straits Times Index (STI) ended the month with losses (-1.56%).
With markets expected to be soft, UOB Kay Hian Research (UOBKH) believes that investors should turn towards selective stock picks to pick winners.
Between Singapore and Malaysia, UOBKH spots five winning stocks that it recommends investors to add to their portfolio for alpha returns.
1. Cityneon Holdings
Cityneon recently acquired Jurassic Park Exhibitions, a company that holds the intellectual property rights to the Jurassic Park travel set.
UOBKH highlights that the acquisition would be Cityneon’s third intellectual property rights and would turn into a significant growth driver for Cityneon.
With Cityneon valued at 10x FY18F PE, UOBKH believes that there is still room for Cityneon’s share price to grow. UOBKH foresees a 50% upside based on its peers’ valuation of 15x PE.
UOB Kay Hian Research: Cityneon Holdings Limited (SGX: 5HJ) – BUY; Target Price $1.50
2. Wing Tai Holdings
The other SG stock that UOBKH recommends investing in is Wing Tai.
According to UOBKH, Wing Tai is a value play. Wing Tai has a low gearing of 2.4%, which is one of the lowest among the stocks that are covered by UOBKH.
The low gearing level puts it in a good position to deploy its sizeable debt headroom of $1.5 billion to expand its footprint. UOBKH forecasts that Wing Tai will further deepen its footprint in Singapore, Malaysia (post privatisation completion) and Australia.
Furthermore, Wing Tai is currently trading at a deep discount to its revalued net asset value (RNAV). Its price-to-book ratio of 0.52x is also the lowest among the stocks under UOBKH’s radar.
UOB Kay Hian Research: Wing Tai Holdings Limited (SGX: W05) – BUY; Target Price $2.61
3. Ann Joo Resources
Local steel bar prices have been surging to a multi-year high of RM2,488 per metric ton since the start of the year. On a month-on-month basis, it jumped by 14.2%.
UOBKH believes that the local steel bar prices will sustain and potentially go higher as local steel demand expands. UOBKH notes that demand for steel is likely to be driven by various mega and infrastructure projects.
As China’s steel billets continue to trade at a premium, the price gap between local steel bars and China’s steel bars will continue to widen.
UOB Kay Hian Research: Ann Joo Resources Berhad (KLSE: ANNJOO) – BUY; Target Price RM3.80
4. Globetronics Technology
Globetronics has been ramping up its production of new sensor products. It is also in the midst of planning for Phase 2 capacity expansion to meet end-clients’ demand.
UOBKH foresees significant improvement in earnings from 3Q17 onwards as its light sensors contribute to its earnings. In 2018, UOBKH estimates that net profit could grow by 93%.
Further upside can also be expected if Globetronics is able to commercialise some of its developing products (particularly 3D imaging sensors).
Stronger demand for gesture sensors (due to end-client’s bundling strategy) could also drive its net profit higher.
UOB Kay Hian Research: Globetronics Technology Berhad (KLSE: GTRONIC) – BUY; Target Price RM7.28
5. Gabungan AQRS
Gabungan’s recently appointed CEO (Datuk Azizan Jaafar) has been bringing significant changes to the organisation since the start of the year.
Gabungan AQRS has been turning around its margins in the construction division. The orderbook has also been lifted to RM1.7 billion, an all-time high construction orderbook.
Moreover, UOBKH expects orders to expand further in the near-term, driven by rail-related jobs, including LRT3 and East Coast Rail Line.
UOBKH also opines that a potential amicable settlement of the variation orders for MRT1 (worth more than RM100 million) could increase the likelihood of a bumper dividend for shareholders.
UOB Kay Hian Research: Gabungan AQRS Berhad (KLSE: GBGAQRS) – BUY; Target Price RM2.09