Singapore Exchange | Buy (Initiate)
Target price: $8.30
Broker: Maybank Kim Eng, Dec 20
SGX focuses on its multi-asset strategy to grow different businesses and asset classes. We see support from its strong cash position, healthy balance sheet and decent dividend yields of 4 per cent.
SGX is a good proxy to ride the cyclical upturn. We see scope for earnings to improve from: 1) higher market cap from a healthy initial public offering (IPO) pipeline, barring significant market risk-off sentiment; 2) stronger momentum of securities daily average traded value; and 3) derivatives daily average volume growth to sustain on the back of higher open interest, expansion of its product offerings, and its ability to extend the derivatives value chain.
Low turnover velocity, low valuations of companies and lack of bigger IPO listings are structural issues for its equities business.
Clearing fees are also likely to trend lower. For derivatives, a concentration risk exists as volume growth is driven by key contracts. That said, it looks to diversify volume and revenue mix through other products, such as foreign exchange futures.
Hi-P International | Buy
Target price: $2.11
Broker: Maybank Kim Eng, Dec 20
We see Hi-P entering a phase of record revenues and improved earnings quality. Full year 2018 to 2019 (estimated) earnings per share compound annual growth rate of 19 per cent is driven by its key wireless customer, as well as the ramp-up of business with Internet-of-Things customers and P&G.
Returns on equity profile should also markedly improve now that Hi-P has selectively moved way from unprofitable assembly projects to focus on stable ones from blue-chip customers, such as Apple, Keurig and Colgate.
We estimate that about 80 per cent of revenue is now contributed by blue-chip customers, each leaders in their fields with stable market shares. This is a transformation from a few years back when wireless assembly was a key contributor, at one point accounting for more than 50 per cent of revenues.
While distribution per share has spiked in 2017, this is funded by strong free cash-flow generation, and Hi-P has not forgone investments. Risks include: i) timely customer orders and payment; ii) global recession; and iii) stiff competition.
Thai Beverage | Hold (Downgrade)
Target price: $1
Broker: CIMB Research, Dec 19
Vietnam Beverage wins bid for 53.6 per cent of Vietnam's largest brewer Saigon Beer Alcohol Beverage Corp (Sabeco); ThaiBev now has a 26.3 per cent effective stake in Sabeco.
The aggregate acquisition price for the 53.6 per cent stake is 109.7 trillion Vietnamese dong (S$6.5 billion), based on 320,000 Vietnamese dong per share.
We tweak our forecasts and downgrade our sum of the parts-based target price to $1. ThaiBev may embark on prospective mergers and acquisitions to re-optimise its balance sheet but near-term uncertainties may cap interest in the stock.
