Excerpts from UOB KH report
Alpha Picks: Reshuffling After A Strong November
|Our portfolio gained 11.4% mom in Nov 20.
For Dec 20, we add Singtel as a beneficiary of the digital banking licence, switching out DBS for OCBC, adding in SIA as a short idea and removing ComfortDelGro.
We also add Nanofilm and BRC Asia and remove Food Empire.
• Reviewing our picks in November. Our portfolio rose 11.4% mom in Nov 20 but fell short compared to the FSSTI’s gain of 15.8% mom.
Notable outperformers include Thai Beverage (+27.6% mom), DBS (+23.8% mom), ComfortDelGro (+22.2% mom) and Frencken (+19.6% mom).
On the flip side, Venture Corp (-2.2% mom) and Yangzijiang (-4.3% mom) underperformed.
• Switch out DBS for OCBC, adding Singtel. We remove DBS from our picks after the stock had a stellar month in Nov 20, rising 23.8% mom.
In its place, we add OCBC which trades at a more attractive 2021F P/B valuation of 0.9x.
The group’s exposure to moratorium loans has also reduced significantly, from 9% to 5% of group loans, after the expiry of the relief programme in Malaysia on 30 Sep 20.
Barring the MAS’ interference with banks’ dividend policies, we expect OCBC to provide a DPS of S$0.50 for 2021F and S$0.56 for 2022F, translating into an attractive dividend yields of 5.0% and 5.5% respectively.
We also add Singtel post the announcement from MAS that its JV with Grab had been granted a digital banking licence.
• Remove ComfortDelGro, add SIA as a short idea. We remove ComfortDelGro to lock in gains as its share price rose 22.2% mom in Nov 20.
SIA has been added to our Dec 20 portfolio as a short idea as we believe that the post-vaccine euphoria is unjustified and thus believe that SIA is overvalued, even after the recent pullback.
At $4.42, SIA is trading at 10.9x FY20 pre-COVID-19 EV/EBITDA, more than 2SD higher than its 5-year mean.
|• Reshuffling mid-cap picks. We remove Food Empire and add in BRC Asia as well as newly-initiated Nanofilm.
With the gradual normalisation of construction activities and sustained margins, we are optimistic of BRC Asia’s recovery and expect earnings to rebound by 88% yoy in FY21.
For Nanofilm, we believe its unique technology - which makes it the single source supplier for 90% of its top 10 customers - provides the group with a competitive edge and superior net margins compared to peers.
We forecast 3-year earnings CAGR of 38.7% for 2019-22F due to bigger wallet share from its existing customers and new applications of technology.
Full report here.