Investors are reeling from the Singapore market as the STI fell by as much as ten percent in this month alone. However, according to CIMB, the recent downturn has seen some value emergence amongst SG stocks and investors can capitalise on them to make alpha returns.
Investors Takeaway: 3 SG Alpha Picks That Will Add Some Oomph To Your Portfolio Return
- DBS Group Holdings (DBS)
With its strong current account savings account (CASA) franchise, DBS is the most interest rate sensitive bank in Singapore. CIMB thinks that DBS would benefit the most from the current rising rate environment following the Fed’s latest rate hike.
In addition, DBS is also viewed as one of the most digital-savvy banks in ASEAN. Digitalisation has enabled DBS to increase its wallet share at lower marginal costs in its core markets of Singapore and Hong Kong, while also expected to scale profitably in the emerging market of Indonesia. DBS expects to reduce cost-to-income by 50 basis points per annum over the next five years to a long-term target of 40 percent. This would improve its return-on-equity to a long-term sustainable rate of 14 percent.
CIMB values DBS at $34.00, which implies 1.8 times forward-18 price-to-book value (P/B). CIMB notes that the indicative yield of 4 percent should also be supportive of its share price.
BUY, TP $34.00
- Singapore Post
With its major capex cycle over and earnings improving in both logistics and e-commerce segments, CIMB thinks that SingPost has entered into FY19 on a strong footing. Not to mention, SingPost is also now in a net cash position following its expansionary capex spending in the past few years.
Moving forward, the market can expect SingPost’s collaboration with Alibaba to underpin stronger international mail volume growth. This will mitigate margin pressure from the postal terminal due changes. CIMB also notes that the full rental contribution from SingPost Centre retail mall is another income boost that will help to sustain its share price.
Key potential re-rating catalysts for SingPost include faster-than-expected e-commerce turnaround and further strategic partnerships.
BUY, TP $1.59
- Thai Beverage (Thaibev)
Thaibev is in the midst of transforming into a truly regional beverage play post acquisition of Myanmar’s Grand Royal and 26.3 percent of Vietnam’s SABECO. According to CIMB’s analysis, these deals could provide longer-term upsides.
Having fallen from a peak of $0.94 this year, CIMB thinks that downside risks to investing in Thaibev is limited. Its current 12-month forward price-to-earnings of 16.5 times implies that it is trading at close to 1 standard deviation below its 5-year average mean. This was during the time when Thaibev only had net profits in the region of THB4.2 to THB5.9 billion per quarter. However, Thaibev has since expanded and its current quarterly net profit is THB 6.3 billion.
CIMB notes that Thaibev has a few catalysts in place to drive its share price. The World Cup celebrations in 3Q18 and the coronation of the new king in FY19F could revitalise Thaibev’s domestic alcohol sales volumes. It also has some financial ammunition from the potential corporate restructuring of F&N and Frasers Centrepoint as well as further inorganic growth in its food business.
BUY, TP $0.98