Moving forward, UOBKH believes that a shift in portfolio strategy is needed to regain its alpha. UOBKH will re-position its portfolio by removing telco picks and adding REIT and small cap gems in a bid to achieve higher alpha.

Investors Takeaway: 5 Stock Picks To Refresh Your Portfolio For Greater Alpha By UOBKH

Here are UOBKH’s top five alpha recommendation that is intended to help investors refresh your portfolio for greater alpha.

  1. Memtech International

UOBKH singled out Memtech International as a compelling buy for its strong net profit growth of 31 percent in 2019. The main growth drivers will be several new projects in the consumer electronics and medical segments. Production in 1H19 is expected to pick up significantly as several new and existing multinational customers are targeting new product launches. UOBKH also notes that Memtech has a compelling valuation of 8.9 times FY19F price-to-earnings, which puts it at a discount of 26 percent to its peers.

BUY, TP $1.33; Current share price $0.965

  1. CapitaCom Trust

CapitaLand Commercial Trust (CapitaCom Trust) is riding on a macro trend of recovering office rents. According to UOBKH, Grade A core CBD office rents have increased 14.9 percent in 2018. With limited oncoming supply of office space, the market should expect further upside for office rentals in 2019. CapitaCom Trust’s Asia Square Tower 2 and CapitaGreen will be its primary source of positive rental reversion in FY19.

CapitaCom Trust’s planned expansion into Germany through its recently acquired 38-storey grade A freehold commercial building Gallileo indicates that more acquisitions are to come. The manager has already expressed optimism that there are opportunities to expand to other gateway cities in Germany, such as Berlin, Munich, Hamburg and Dusseldorf

BUY, TP $2.16; Current share price $1.94

  1. Fu Yu

Fu Yu is one of those small cap gems that make up UOBKH’s alpha portfolio. Despite its size, Fu Yu offers a high and sustainable dividend yield of 8.3 percent in 2019. This is expected to grow to 8.8 percent in 2020 on the back of improving net profit, free cash flow and strong net cash position.

Interestingly, UOBKH also pointed out that Fu Yu could be a target for takeover given its valuation and diversification. Valued at 3.1 times FY19F EV/EBITDA, Fu Yu is priced at a discount compared to its peers.

BUY, TP $0.285; Current share price $0.205

  1. OCBC

According to UOBKH, OCBC has been playing catch up to its peers in hiking their dividend payout. UOBKH notes that OCBC’s management has signalled plans to maintain dividend payout ratio at 40-50 percent of core earnings. This will support growth of 6-7 percent for risk weighted assets and 10-12 percent for total assets. Investors can expect OCBC to improve its dividend payout ratio to mid-40 percent, bringing dividend per share to $0.50 and dividend yield to 4.5 percent in 2019.

BUY, TP $13.85; Current share price $11.07

  1. CSE Global

CSE Global has been seeing positive improvements on its gross margin, thanks to improving margin mix in the Americas region. In 4Q18, gross margin rose 5.4 percentage points year-on-year. Going forward, UOBKH expects CSE Global’s gross margin to be sustained at ~27 percent given an accommodative environment in CSE Global’s key markets such as US and Australia.

With the government’s emphasis on the smart nation initiatives and the inclusion of digital defence as part of the overall Total Defence framework, CSE Global will be a potential beneficiary of future government tenders in this space. CSE’s association as a Singapore company with a history of being part of Chartered Electronics Industries, the electronics arm of Singapore Technologies, makes it a suitable candidate for projects in this space.

BUY, TP $0.62; Current share price $0.540

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