In the first two parts of this four part series, we highlighted two of four investment themes that DBS recommended for 2019 (Defensive plays with strong earnings visibility & yield plays with growth potential). With the market on the backfoot, DBS thinks that there is potential for value investors to seek value plays. In this article, we highlight another key investment theme that DBS recommends for investors in 2019: Bombed out value plays.

Investors Takeaway: 4 Bombed Out Value Buys By DBS

Genting Singapore

Despite the turnaround in profitability after the challenging period in 2015-16, the market remains sceptical over the sustainability of Genting Singapore’s (Genting) earnings recovery. However, DBS begs to differ.

According to DBS, as Genting selectively extends credit to its VIP customers, it will translate to higher year-on-year earnings growth. This will put the scepticism to rest and lead to a re-rating of Genting’s share price. So far, Genting’s VIP rolling chip only stands at US$6 billion, which pales in comparison to its peak of US$15 billion. Thus, DBS sees upside potential in the re-rating of Genting in 2019.

Based on the consensus rating of Genting, Genting’s EV/EBITDA multiple is trading below its average of 12 times. The street view is largely focused on Genting’s bad debts and falling earnings, which DBS notes are no longer present. Thus, DBS believes that Genting deserves to be trading at its average EV/EBITDA multiple, at the very least.

BUY, TP $1.55; Current share price $1.07


Starhub is one of those stocks that the market is overlooking, according to DBS. DBS notes that analysts continue to ignore the potential cost savings of Starhub’s shutdown of the co-axial cable network.

Repair and maintenance cost of its co-axial cable network and potential savings through digitisation of customer care, marketing and distribution costs will return to Starhub’s profit and loss in 2019. The street has also failed to consider the absence of amortisation cost for the 700MHz spectrum, which will further drive up Starhub’s 2019 earnings.

One of the bright stars of Starhub’s business is its enterprise business segment. Its enterprise business segment continues to be expanding by the consolidation D’Crypt and growing revenues from Starhub’s managed services portfolio. Ensign, a pure-play cybersecurity service provider, was also created through a joint venture with Temasek’s subsidiary Certis Cisco to pool cybersecurity assets together. The joint venture will pave way for StarHub to capitalise on major government cybersecurity tenders pertaining to the ongoing Smart City projects.

Starhub is trading at an attractive valuation with its enterprise value (EV) close to its -2SD historical EV/EBITDA and price-to-earnings (P/E) average. Apart from its attractive valuation, Starhub also offers a sustainable yield of at least 5.5 percent in a period where investors are flocking into yield plays.

BUY, TP $2.45; Current share price $1.77

Sembcorp Industries

Sembcorp Industries offers upside with downside protection. It offers a proxy to ride the cyclical offshore and marine upturn as the sector continues to recover with rising oil prices. At the same time, it is supported by the defensive nature of its utilities business.

According to DBS, the power market in India is recovering with narrower oversupply in the market and higher tariff. Investors can expect the industry dynamics to swing its India operation into profit in 2019. With Sembcorp Industries’ utilities arm expanding its global footprint with recent forays into key emerging markets like India, Bangladesh, Vietnam and Myanmar, its long-term growth prospects continues to stand out.

One potential catalyst for Sembcorp Industries in 2019 is the potential merger between Keppel O&M arm and Sembcorp Marine in light of keener competition in the sector. The potential spinoff of its marine arm can re-rate Sembcorp Industries’ undervalued utilities business that is overshadowed by the cyclical marine business.

BUY, TP $3.70; $2.66

Thai Beverage

Thai Beverage’s (Thaibev) share price has largely underperformed for 2018 due to the slowdown in consumption in Thailand. The market continues to be concerned about the weak beer production figures and soft demand. However, DBS thinks that investors should be looking beyond those issues as they are temporary. Furthermore, the negatives have already been priced in. The lead up towards the expected election and the new King’s coronation will drive up demand for Thaibev’s alcohol business.

With Thaibev trading at 16.7 times FY19F core earnings, it is trading at a significant discount to its 5-year historical average forward P/E of 21 times.

BUY, TP $0.94; Current share price $0.725

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