Excerpts from UOB Kay Hian report
After a mixed November, we re-position our picks by removing ST Engineering and replacing it with SATS. We also introduce FUYU as an addition to our portfolio.
• A mixed November. November turned out to be a mixed month with some outperformers and underperformers within our alpha picks. On a portfolio basis, our picks gained an average of 1.0% mom, which compares with the FSSTI’s advance of 2.5% during the month.
Within our portfolio, notable outperformers include OCBC and Valuetronics, with the latter rising 6.3% due to a rebound in sentiment due to the temporary ceasefire between the US and China.
We like OCBC as we believe there is ample room for dividend payout growth. The underperformer within our portfolio is CSE Global, which retreated 3.3% as sentiment was hit by the reversal in oil prices.
• Adjusting portfolio to reflect recent developments. We remove ST Engineering from our picks.
While we still like the company and retain our BUY rating on the stock, there is a possibility that the stock could underperform over the short haul, as the street might not have fully factored in the potential of impairment charges in 4Q18.
In its place, we add SATS as we believe it was unjustifiably sold down after a minor earnings miss for 2QFY18, which was due to the weakness in associate earnings.
We also introduce one of our mid-cap picks – FUYU - as an addition to our portfolio. We favour the stock for its sustainable dividend yield of 8.3% for FY18 and its compelling 2019F ex cash PE of 5.9x.
|CSE Global – BUY (John Cheong/Yeo Hai Wei)
• Solid proxy to recovering oil prices. CSE is a good proxy to recovering oil prices as two-thirds of its existing orderbook of S$175m come from the O&G sector. In addition, the stock offers a sustainable dividend yield of more than 6%.
• High entry barriers. The group has a 32-year track record in a business with high entry barriers. CSE is one of the few qualified system integrators in the region for O&G and communication infrastructure industries.
• Potential synergies from new shareholder. Serba Dinamik, a Malaysia-listed company, recently bought a 25% stake in CSE at S$0.45/share. We see potential synergies as it could open up new markets for CSE, such as Malaysia and the Middle East.
Share Price Catalyst
• Event: New contract wins and continued recovery in earnings. Newsflow of positive synergy with new shareholder Serba Dinamik.
• Accretive M&A given the group’s strong financial position.
Full report here.