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Alpha Picks - UOB Kay Hian 2016-12-05: Month Of Change But No Change To Alpha Picks

Alpha Picks - UOB Kay Hian 2016-12-05: Month Of Change But No Change To Alpha Picks BUMITAMA AGRI LTD. P8Z.SI DUTY FREE INTERNATIONAL LIMITED 5SO.SI STARHUB LTD CC3.SI KEPPEL TELE & TRAN K11.SI CHINA AVIATION OIL(S) CORP LTD G92.SI

Alpha Picks - Month Of Change But No Change To Alpha Picks

  • November saw Trump’s election win but no changes to our Alpha Picks. We believe China Aviation Oil will benefit from the US$ strength while share price drop in Keppel T&T was unwarranted. 
  • Also, Duty Free International may begin to find support as oil prices (and the ringgit) stabilise.



WHAT’S NEW


Trump’s win in the US elections and the subsequent strength in US$. 

  • November saw Donald Trump winning the US presidential elections and the subsequent surge in the strength of the US$.

Alpha picks remain. 

  • Ytd, all of our alpha picks outperformed the FSSTI (except for Starhub with a SELL). However, share prices for all our picks except Bumitama fell in November. 
  • We believe Keppel T&T’s (KPTT) price drop was unwarranted while Duty Free International’s (DFI) share price may start to find some support as oil prices stabilise (and hence the ringgit).


ACTION


CAO: Beneficiary of US$ strength. 

  • Following the surge in the US$, we particularly like CAO as it generates profit in US$ and benefits from rising oil prices.

M1’s share price drop already built in for KPTT. 

  • We believe KPTT’s lacklustre stock price was largely due to a drop in M1 share price. However, this was already accounted for in our SOTP valuation where we value M1 at S$1.76/share. As such this could represent a potential bargain.

DFI price should find some support in stabilising oil prices after forex worries. 

  • We opine that DFI’s share price drop was largely due to worries about its forex risks (due to ringgit weakness). However, stabilising oil prices should provide support to the ringgit.



Bumitama - BUY (Ooi Mong Huey)

  • Earnings growth underpinned by: a) production recovery (4Q to be stronger than 3Q), b) higher CPO ASP, and c) lower production cost as bulk of manuring cost was incurred in 1H16.
  • 2017 should see stronger earnings growth on the back of strong production recovery from its young age profile and new mature areas.

Share Price Catalyst

  • Event: Stronger earnings growth in 4Q16 and 2017 would be the key catalyst.
  • Timeline: 4Q16 strong earnings on higher production and CPO sales volume as inventories are drawn down.
attachment Bumitama Agri (BAL SP) - UOB Kay Hian 2016-11-16: Anticipating A Better 4Q16 And 2017



China Aviation - BUY (Edison Chen)

  • China Aviation Oil (CAO) is Asia Pacific’s largest physical jet fuel trader, and holds a monopoly in supplying imported jet fuel to the whole of China, making it a proxy to China’s global aviation boom. 
  • Together with its stake in the exclusive refueller for SPIA, CAO has two solid growing sources of recurring income.
  • Management also has a five-year plan to double profits to US$120m through organic and M&A growth.

Share Price Catalyst

  • Event: A steeper jet fuel future contango market will likely enhance trading profits. Any M&A announcements on earnings-accretive fuel assets will also likely result in share price reviews.
  • Timeline: Better-than-expected 4Q16 results.
attachment China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2016-11-03: On Track For Record Performance Despite Macro Weakness



StahHub - SELL (Jonathan Koh)

  • 3Q16 results were below our and market expectations; underscores our cautious stance on StarHub.
  • StarHub’s dividend policy of 5 S cents per quarter and 20 S cents per year is at risk of being downgraded next year as grants from NGNBN taper off and competition intensifies with the potential entry of a fourth mobile operator.
  • Target price of S$2.40 based on DCF (COE: 7.5% and terminal growth: 1.5%).

Share Price Catalyst

  • Event: The new entrant spectrum auction could be conducted in December, at the earliest.
attachment StarHub (STH SP) - UOB Kay Hian 2016-11-03: 3Q16 Sustainability Of Dividend Policy At Risk



Duty Free International - BUY (Nicholas Leow/Andrew Chow)

  • DFI as it is a solid consumer play with an attractive dividend yield and a 3-year EPS CAGR of 15.3% for FY16-19. We believe our earnings estimates could be conservative as we have not fully built in the upside from margin expansion from its Heinemann tieup.
  • The tie-up with Heinemann Asia Pacific should result in strong gross margin expansion of 3-5ppt on the back of lower procurement cost and better inventory management leading to a shorter cash conversion cycle
  • Target price of S$0.57 based on DCF (WACC: 7.5%, terminal growth: 1%) with potential earnings surprises from FY18 as margin expansion could come in stronger than expected.

Share Price Catalyst

  • Event: Accretive overseas M&As in developing markets such as Cambodia, Myanmar and China will result in share price review; stronger-than-expected earnings growth in FY17-18.
  • Timeline: Potential M&A acquisition announcement in the next 6-12 months.
attachment Duty Free International (DFIL SP) - UOB Kay Hian 2016-10-13: 2QFY17 Results Above Consensus; Net Profit Up By 45% yoy



Keppel T&T - BUY (Edison Chen/Foo Zhi Wei)

  • Looking ahead, we note a supply shortage for cloud DCs. We believe KPTT is the answer, with it being a preferred vendor in the sector.
  • The value of KPTT’s investment arm alone makes up 70% of its market cap while its DCs are some of the best in the business, offering superior performances with ROIC in the high teens. There is huge growth potential in being a proxy to the growing digital economy and with the Alpha Fund, the rate of current DC development could double.

Share Price Catalyst

  • Event: Faster-than-expected Alpha Fund deployment could drive data centre development from one a year to more than two. The kick-start of development of new data centres either in Singapore or Europe upon the recycling of the capital of DC3.
  • Timeline: Within the next 12 months.
attachment Keppel Telecommunications & Transportation (KPTT SP) - UOB Kay Hian 2016-10-20: The Preferred Vendor For Tackling Cloud DC Shortage






Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-12-05






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