Increased target prices are always exciting for investors looking to invest in stocks for capital gains.
More importantly, we should be looking at the reasons behind these increase in target prices set by analysts to identify if these factors are going to last in the long run or if it is only a short-term boost of performance for the company.
Below are three stocks that have recently received an adjustment upwards which investors may want to take note of.
1. Wing Tai Holdings Limited
Contributions are coming in from Le Nouvel Ardmore (condominium), Le Nouvel KLCC (condominium in Kuala Lumpur, Malaysia), and disposal gains from the Hua Hai project in Shanghai.
As such, Wing Tai was able to report a steep jump in profit after tax and minority interests from $1.1 million to $8.2 million year-on-year.
Its revenue for the first quarter of 2018 fell by 4.0% year-on-year due to lower home sales over the quarter but analysts at OCBC Research opined that their results for the first quarter were within expectations.
Wing Tai’s strong balance sheet puts it in a net cash position of over $1,011 million in cash and equivalents, signifying high liquidity and enabling them to capitalise on profitable opportunities.
This is especially so as Singapore’s home prices are expected to rise by 1.0% this year and 8.0% in 2018 following the recovery of the property market.
That puts Wing Tai in a great position to realise high profits as they ride on the recovering wave of the sector.
Despite the increase of 46% in share price over the year, analysts still expect room for further appreciation given its relatively low price to book ratio at 0.57x.
OCBC Research has maintained a Buy call on Wing Tai Holdings Limited (SGX: W05) and raised its fair value estimate from $2.37 to $2.77.
UOB seems poised for a “lift off” according to analysts at DBS Research who are banking on UOB’s performance to improve based on the property market recovery, an improvement in net interest margin, and the “end to its asset quality woes”.
UOB currently has the largest proportion of property-related loans as compared to its peers, and with the property market set to recover shortly, we are expecting to see an increase in loan growth starting in the third quarter of 2017.
Also, analysts are expecting an increase in corporate loans from property developers, which will help to push the growth rate at UOB for the third quarter of 2017.
Net interest margin levels are expected to increase with the slight increase in SIBOR/SOR (Singapore Interbank Offered Rate and Swap Offer Rate) signalling the start of repricing effect for its floating loans.
Furthermore, the number of new non-performing loans has come down for the bank which helps to improve the asset quality woes faced by UOB.
Overall, the above three factors have prompted analysts at DBS Research to upgrade United Overseas Bank Limited (SGX: U11) to a Buy with a target price of $26.90.
The semiconductor industry conditions remain bullish, and UMS’s major customer Applied Materials (AMAT) is confident of its sales outlook until 2020, which is great news for UMS.
AMAT expects its semiconductor systems revenue to grow in the first quarter of 2018 and a projected increase from USD$9.1 billion in FY17 to USD$11.6 billion FY20 (forecasted values).
By moving its precision machining operations to Penang in FY16, UMS can enjoy pioneer tax incentive, lower labour costs and electricity tariffs, which helps to drive down cost.
Previous fears that revenue will come down in the first half of 2017 due to lower demand from AMAT is now reduced given the strong semiconductor industry.
Therefore, the analysts at CIMB Research have revised their revenue growth forecast and now sets a target price of $1.13 for the UMS Holdings Limited (SGX: 558).
Investors who want to enter the industry should be cautioned of the potential peaking of the semiconductor cycle in 2017 which is the central area of concern for the company’s predicted performance.