Industrials | Neutral
Broker: OCBC Investment Research, Sept 13
Among the local conglomerates in our yard space, all stocks (Keppel Corp, Sembcorp Industries, Sembcorp Marine, Yangzijiang Shipbuilding (YZJ) are down year to date, with more volatility seen for YZJ and Sembcorp Marine.
YZJ is down 22 per cent year to date, but if we look at the stock's performance since mid-July (close to trough for the market and prior to most companies' third-quarter results release), it has appreciated by 34 per cent, outperforming most local stocks by a wide margin.
Another outperformer since mid-July is Sembcorp Industries, which is up 14 per cent, aided by a turnaround in India operations amid a tightening power market.
Among transport-related names (ComfortDelGro, Singapore Airlines (SIA), Sats, SIA Engineering), all are down year to date except for ComfortDelgro, which is up 14 per cent, aided by a rally in April-May.
Investors looking for good dividend yields and some growth prospects over the long term could consider ComfortDelGro, which offers a 4.6 per cent yield at current levels, and Sats, which has been increasing its dividends by one cent per year since FY13. Based on last year's 18 cents per share, there is a 3.6 per cent yield at current levels.
SIA and SIA Engineering also offer dividend yields of 4.2 per cent and 4.4 per cent based on last year's dividend figures, but we note that there is relatively less consistency compared with ComfortDelgro and Sats, which have been increasing their dividends over the years.
CapitaLand Commercial Trust | Buy
Sept 13 close: $1.74
Target price: $2.12
Broker: DBS Group Research, Sept 13
CapitaLand Commercial Trust (CCT) announced it has signed a one-year lease extension with HSBC for the whole of 21 Collyer Quay. The original lease with HSBC was scheduled to expire next April. The news is a disappointment as we had originally assumed HSBC would extend its lease for a longer period... Nevertheless, should CCT decide to continue owning the building, it has another two years to find a replacement tenant, which is ample time.
Alternatively, given the higher demand for office buildings in Singapore with recent transactions at "tight" yields, there is potential for CCT to sell the building above book value to demonstrate the conservative valuation of its buildings and why it deserves to trade at a premium to book as implied by our target price.
Kimly Ltd | Buy (maintained)
Sept 12 close: 32.5 cents
Target price: 46 cents
Broker: RHB Research, Sept 12
Kimly has launched a productive coffee shop this year, tapping automation and digital solutions to improve operational efficiency and decrease reliance on manpower. It has built-in self-service kiosks for patrons to pay by scanning unique QR codes. We think, however, the adaptation of the QR code system will take a while, with more improvements to be made.
As customers are rewarded with a discount if they return their trays to the station, 80 to 90 per cent of them cleared their own trays during our visit. Management said this initiative has been well received by customers.
With about $60 million in cash remaining after acquiring Asian Story Corp, we think there will likely be larger and similar-styled acquisitions to come, as management is keen to expand Kimly's presence rapidly in the beverage space - which should further improve profitability.
Avi-Tech Electronics | Neutral
Sept 12 close: 34.5 cents
Target price: 38 cents
Broker: RHB Research, Sept 12
As Avi-Tech mainly provides burn-in services for chipmakers in the automotive sector, where there has been gradual and steady growth, we expect the burn-in business to continue to grow by 10-15 per cent per annum, and not be impacted by the slowdown in the semiconductor sector.
In H2 FY18, its engineering segment took a hit due to delays in customer projects and a slowdown in orders. Management believes the segment has hit a low already, and business will likely pick up from here with new customers. But it will likely take six to nine months to ramp up, and the engineering business will likely continue to be a drag on profitability in FY19 - albeit to a smaller extent. With a slowdown in the sector, we maintain "neutral" on the counter.