Ending the first half of 2019, UOBKH’s alpha picks closed 6.8 percent in the month of June, with outperformance being led by Wilmar and CapitaCommercial Trust. That said, UOBKH notes that it is now time for meaningful changes to its portfolio. Here are four stock strategies that UOBKH made to its alpha portfolio which investors should take notice.
Investors Takeaway: 4 Stock Strategies UOBKH Made To Its Alpha Portfolio That Investors Should Take Notice
CDL Hospitality Trust
CDL Hospitality Trust is one of the latest additions into UOBKH’s alpha picks. In the near term, UOBKH likes CDL Hospitality Trust for its exposure to Singapore tourist arrivals.
As of 1Q19, CDL Hospitality Trust owns seven hotels in Singapore, which accounts for 62.5 percent of its portfolio valuation. The Trust recently completed a major facelift for all meeting facilities and the Grand Ballroom at Orchard Hotel. This puts CDL Hospitality Trust in a good position to benefit positively from tourist arrivals to Singapore.
In addition, CDL Hospitality Trust’s Japan market is also doing well. It saw stronger earnings from Japan from growing RevPAR due to regulatory crackdown on Airbnb listings. UOBKH also sees the 2019 Rugby World Cup and Tokyo 2020 Olympics as catalysts for tourist arrivals in Japan. This will translate to higher occupancy and RevPAR for CDL Hospitality Trust’s Japan market.
Wilmar recently recovered its recent low as investors grew confident of its China operations. This came on the back of Wilmar’s completion of the guidance process required by China Securities Regulatory Commission. Wilmar’s China operations reported net profit of Rmb5.3 billion and Rmb5.5 billion for 2017 and 2018 respectively. The company is the largest listed vegetable oil and food ingredient producer in terms of market capitalisation upon IPO.
Wilmar also beat market expectations with flying colours as it registered a profit in its oilseeds & grains division in 1Q19. UOBKH foresees 2Q19 results to be better quarter-on-quarter with improvement from oilseeds & grains and other key segments.
With weak air cargo traffic, UOBKH foresees SATS to see headwinds ahead and investors should avoid the counter. Furthermore, recent strikes at EVA Air could impact earnings for its 25-percent owned Evergreen Sky Catering. Thus, UOBKH recommends taking a tactical short position on SATS.
While SATS has guided that it will invest $1 billion over three years in China and India on central kitchens, SATS has yet to announce any specific acquisitions or expansion. Given that net margins for Greater China associates were just 4.1 percent in FY19, UOBKH thinks that the likelihood of planned M&A boosting SATS’ ROE is rather low.
One of the worrying signs for Venture is that its customers have been reporting slower revenue growth in 1Q19. This includes key customers like Broadcom, Thermo Fisher and Illumina. Given the uncertain macro outlook, there is also an increasing risk that new launches might be delayed. As such, UOBKH expects some near-term volatility in Venture’s stock price.
From a technical perspective, things are not as rosy for Venture either. Venture is currently trading near its long-term price-to-earnings mean, which indicates limited upside from multiple re-rating. In addition, share price has tested resistance level of $17 twice but failed to break through, indicating weak sentiments for the stock.