In the first part of this two-part series, we covered four value REIT and property plays that CIMB recommends in the current investment climate. In part two of this series, we focus on four other large cap plays that are able to sustain and absorb shocks in the market.
Investors Takeaway: 4 Liquid Large Cap Plays That Are Shock Resistant
- ComfortDelGro Corporation
There was a lot of attention on ComfortDelgro Corporation’s taxi segment this quarter with consensus estimates expecting a recovery in taxi revenue. However, recovery in its taxi revenue did not pan out as expected in 1Q19. Moving forward, CIMB foresees a year-on-year decline in taxi revenue amid weakness in China and a higher fleet idle rate in Singapore.
That being said, CIMB still anticipates good growth from ComfortDelgro on the back of contributions from new acquisitions, and stronger Australia bus revenue. There are also potential catalysts that could rejuvenate ComfortDelgro’s share price such as the upcoming new regulatory framework in Singapore on ride-hailing platforms and further M&As.
CIMB notes that ComfortDelgro is currently trading at a decent valuation of 16 times forward-FY20 price-to-earnings and about four percent dividend yield.
BUY, TP $2.82; Current share price $2.80
- Keppel Corp
CIMB has singled out Keppel Corp as one of the value plays among the large caps for its undemanding valuation. Trading at just 0.9 times price-to-book value, Keppel Corp’s valuation is below -1 standard deviation of its 10-year mean.
CIMB notes that Keppel Corp has been showing good progress in improving its fundamentals. It has been winning renewable energy contracts to cushion the impact of a lacklustre rig building sector. Moving forward, there are multiple catalysts that could revitalise Keppel Corp’s share price, including:
- Redevelopment of Keppel Bay plot;
- Injection of another data centre (SG4) into Keppel DC REIT;
- Successful integration of M1; and
- Resumption of land sale at its Sino-Singapore Tianjin Eco-City
BUY, TP $8.41; Current share price $6.66
- ST Engineering
Among the STI components, CIMB likes ST Engineering as it is a quality name that has strong fundamentals to weather uncertainty. Its year-to-date $15.1 billion order book currently provides multi-year earnings visibility.
In terms of growth, CIMB notes that ST Engineering will be driven by acquisition-led growth from subsidiaries MRA Systems (MRAS) in 2019 and Newtec in 2020. The acquisitions will help ST Engineering break its lacklustre -3 percent annual growth in the past five years.
Going forward, CIMB forecasts ST Engineering to grow at 22 percent and 11 percent in FY19 and FY20 respectively. Stronger-than-expected revenue recognition in land systems as ST Engineering delivers the next-generation armoured fighting vehicle (NGAFV) to the Singapore Army in 3Q19-4Q19 could provide further growth upside.
BUY, TP $4.43; Current share price $4.29
Given that UOB is trading below its long-term mean of 1.3 times price-to-book value and 10.9 percent CY19F ROE, UOB is a relative value play within the financial sector. Thus, if you are looking to diversify your portfolio with a financial stock, UOB is CIMB’s recommended pick in the financial sector.
CIMB thinks that UOB is poised to benefit from a shift in supply chains out of Greater China into surrounding ASEAN economies in the event of further retaliatory measures between the US and China. Furthermore, market-related income also features the least for UOB (13 percent of total income in FY18), rendering it less susceptible to a prolonged period of market volatility.
BUY, TP $29.58; Current share price $26.58