As we approach the end of the year, the most exciting part will be receiving our year-end bonuses. Instead of shopping excessively with the extra cash, why not invest it to bring about a higher reward?
In this article, we will be covering stocks that analysts are recommending investors to add to their portfolios.
1. RE&S Holdings Limited
Phillip Securities Research (PSR) is recommending investors to subscribe to the initial public offering (IPO) of RE&S Holdings Limited, the Japanese multi-brand F&B group.
Its invitation for public offer shares and placement shares are already 37.8 times subscribed.
RE&S Holdings operates F&B outlets in Singapore and Malaysia, specializing in providing authentic Japanese cuisine. It is also a supplier of Japanese food products.
There is a total of 39 full-service restaurants and 38 quick-service restaurants, food kiosks, bakery, and food retail outlets under its management.
Some well-known Japanese restaurant outlets such as Ichiban Sushi, Kuishin Bo, and Ichiban Bento are all under RE&S Holdings.
According to analysts at PSR, the “multi-dining strategy” employed by the firm has been providing the firm with resilient income streams that are resilient to changing economic cycles.
The use of a central kitchen equipped with specialised automated technology has been beneficial for the group as it has been able to increase its productivity, decreasing operating and labour costs.
Also, it can “enhance product consistency and safety through centralized process control”, not to mention that the group can utilize its central kitchen to research on new concepts, dishes and enhance on food preparation process.
Currently only reporting a utilisation rate of 60%, analysts at PSR are expecting more room for margin gains through the central kitchen.
With so many brands under its belt, the firm can occupy a large retail area, e.g. occupying more than 18,000 sqft of retail area in Jurong Point Shopping Centre, translating into higher bargaining power for lease terms.
Overall, analysts expect that earnings will normalise in the second half of 2018.
2. Yanlord Land Group (Yanlord)
Analysts at DBS Research are recommending investors to buy Yanlord due to its attractive valuation, 5.4x of price-to-earnings ratio and 0.6x of price to book value (historical 9.3x and 1.1x respectively).
The group’s recent results for the consolidated nine months period of 2017 has been in-line with expectations, with core earnings increasing by 93% year on year due to the strong net profit margin expansion from 7% last year to 14% this year.
However, the group‘s net-debt-to-equity ratio has increased substantially from 16% in Dec 2016 to 67% in Sep 2017 due to its land premium payment for newly acquired projects.
The new projects are located at Shanghai, Wuhan, and Hangzhou with total saleable resources for the FY2018 totalling to RMB50 to 60 billion.
The net debt to total equity ratio is expected to increase further to reach management’s full-year contracted sales target of RMB25 billion but is expected to remain below 80%.
Nevertheless, the positives outweigh the negatives and DBS Research maintains its Buy call on Yanlord Land Group Limited (SGX: Z25) with a target price of $2.25.
3. Keppel DC REIT
According to the research report, “the APAC data centre market is projected to double from US$16 billion this year to US$32 billion by 2022”, which is beneficial for Singapore, the key data centre hub in this region.
With demand expected to remain high due to growth trends coming from cloud computing, e-commerce, and the need for big data, Singapore is well positioned to support and benefit from this development with our existing infrastructure and Smart Nation initiatives.
Keppel has acquired the B10 Data Centre in Dublin, Ireland for EUR66 million, increasing its assets under management(AUM) to approximately $1.7 billion, on track to meeting management’s target of $2 billion AUM by 2018.
Given Keppel’s forecasted price-to-book ratio of 1.47x for FY18, it is relatively lower than industry average which stands at about 2.4x to 5.7x for listed data centre REITs.
As such, OCBC Research made adjustments to Keppel’s estimated cost of equity, decreasing from 8.1% to 7.8%, Keppel’s fair value estimate increased to $1.50 from $1.39 while maintaining its Buy call.
4. Spackman Entertainment
RHB Research recommends buying Spackman Entertainment as the firm’s performance is expected to improve with more acquisitions of related businesses to increase its recurring income and the lift of China’s ban on Korean entertainment.
With China’s displeasure over the US Terminal High Altitude Area Defense missile defence system in South Korea, there was a ban on Hallyu (the Korean wave), which affected Korean entertainment profits.
However, the lift seems to be lifted with Korean artists starting to be featured in China’s TV shows once again. Spackman might start entering into partnerships with Chinese media companies again or become a target for mergers and acquisitions (M&A).
Given that Spackman’s share price has been on a downward trend since the start of 2017, its current share price is seen to be attractive to RHB analysts.
Analysts are also expecting more acquisition to take place to reshape the company’s business model, diversify its revenue stream, and to add on to its recurring revenue.
Coupled with the lifting of China’s ban on Hallyu, RHB Research has maintained its Buy call and has set a target price of $0.20.