Investors looking for stocks to invest in should watch out for the latest developments in these three stocks that stock analysts have picked up on due to their potential for capital gains.
1. Bumitama Agri (BAL)
BAL has been highlighted as one of the stocks with growth potential that has yet to be factored in into its current market price.
At UOB Kay Hian Research (UOBKH), analysts have predicted a three-year net profit compounded annual growth rate (CAGR) of 16% for BAL between 2017 and 2019 due to the strong growth of fresh fruit bunches (FFB).
FFB production growth has always been increasing since 2009 except for 2016, due to a severe drought that occurred in 2015.
The improvement was made possible as 28% of BAL’s young oil palm trees are at the strongest production growth stage in the FFB yield cycle.
Overall, BAL’s average tree age profile was 8.7 years as of 1 Jan 17, and its young tree age profile signals strong production capabilities.
Cash flow has improved for BAL given the good production growth. Combined with the lower CAPEX required, BAL can use its extra cash flow to reduce bank borrowings, future merger and acquisition (M&A) opportunities that could drive up dividends.
Should BAL choose to reduce borrowings, the net debt to equity is expected to decline to 0.41x in 2019, according to UOBKH.
In 2016, BAL reported an oil extraction rate (OER) of 22.7% which was one of the highest in the industry. With every 0.5% increase in OER, it is expected that earnings per share will increase by 7.0% to 11%.
As such, UOBKH gave Bumitama Agri Limited (SGX: P8Z) a BUY call with a target price of $1.03, believing that it is deeply undervalued and should be accumulated by investors.
2. Raffles Medical Group (RFMD)
As the group expands, concerns with regards to expansion cost have arisen and had driven down the stock price by 22% since April 2017 where the stock was downgraded by UOBKH to a HOLD.
Currently, the short-term outlook for the group does not seem very attractive due to the start-up losses incurred by the group in China as it expands.
However, taking a long-term approach, investors should note the enhancement in the capacity of the group which will more than quadruple in the next ten years.
Hence, despite the fact that the group will incur start-up losses initially, we can expect stronger growth in the future where breakeven is achieved, and the hospital expands to its full capacity.
Focusing back home, medical tourism in Singapore continues to be lacklustre with the group having a low single-digit percentage decline in foreign patients in the second quarter of the year.
However, UOBKH expects growth in local patients due to rising affluence and an ageing population which will remain to drive profits for the group.
Overall, UOBKH upgraded Raffles Medical Group Limited (SGX: BSL) to a BUY call with a target price of $1.28, with the expectation of a long-term growth that will reward investors in time to come.
With OCBC owning 87.75% of Great Eastern Holdings (GEH), the latest development in GEH does have an impact on OCBC.
Currently, GEH is considering its options for selling its stake in its Malaysian operations for as much as US$1 billion to meet Malaysian central bank’s regulatory requirement of 70% foreign ownership cap on insurers.
It has been stated that GEH contributes about 15% to OCBC’s pre-tax group earnings, with Great Eastern Malaysia contributing about 40% to GEH’s 2016 pre-tax profits, which is about 6% of OCBC’s group pretax profit.
Considering the above figures, DBS Research opines that a 30% divestment of its Malaysian operations for GEH will have “minimal impact on OCBC”.
Currently, DBS Research has given OCBC Corporation Limited (SGX: O39) a BUY call with a target price of $12.80, stating that its insurance business helps to provide a more holistic wealth management platform.