Consider investing in undervalued firms as trading picks up in S’pore stock market: Panel

SINGAPORE - Singapore stocks saw their best rally in years over the week of July 8, with the Straits Times Index rising 2.6 per cent through the week to close on July 12 at 3,497.78.

The benchmark index was supported by the three Singapore banks – DBS, UOB and OCBC – which all hit record highs during the week, as well as interest rate-sensitive real estate investment trusts and property stocks.

But besides the blue chips, there could be some firms with smaller market capitalisation which are undervalued that are worth looking into, said panellists at a July 11 seminar organised by Maybank Securities to highlight stock opportunities for retail investors.

At the event, guest speaker Ven Sreenivasan, who is a senior columnist at The Straits Times, noted there has been a resurgence of trading activity in the Singapore stock market in recent weeks.

“There is some interest returning to the market. It is, after all, a market which gives dividends of 3.5 per cent to 4 per cent, and there are lots of undervalued players. Companies are generally well regulated and well managed.”

Mr Thilan Wickramasinghe, Maybank’s head of research for Singapore, who moderated a panel discussion at the seminar, noted separately that the current rally has been driven by financials and a few industrial stocks.

“However, if sentiment strengthens, the rally could broaden and investor attention will increasingly shift towards good-quality laggards,” he said.

He added that by stock picking, investors can find companies whose valuations are cheap compared with their peers, and check if the management team has a plan.

“Are there clear targets with timelines to achieve these (plans), especially when it comes to shareholder returns?” he asked.

Mr Sreenivasan noted that stock picking is about finding a strategic balance between maximising returns, or prioritising stocks with high potential returns, and minimising the risks.

Investors looking for undervalued stocks can examine aspects such as earnings growth, business models and management, as well as consider if there is potential corporate action such as mergers and acquisitions on the cards, he said.

Mr Sreenivasan highlighted the three companies on the panel – aviation cargo and food specialist Sats, marine and offshore company Beng Kuang Marine, and specialised accommodation assets operator Centurion Corporation – as examples of businesses with strong growth potential and a bright outlook.

After buying European air cargo player Worldwide Flight Services (WFS) for $1.8 billion in 2023, making it the world’s biggest air cargo operator, Sats saw its

revenues for the financial year ended March 31 reach $5.1 billion,

up from the $1.8 billion in the previous financial year, while its net profit of $56.4 million was a turnaround from its net loss of $26.5 million before.

Sats also announced ambitious targets

to bring in over $8 billion in revenue by financial year 2028,

and achieve a return on equity of 15 per cent. It also aims to reach a market capitalisation of $10 billion after 2028. 

Chief executive Kerry Mok said the Covid-19 pandemic was a challenge, but it drove the company to diversify by establishing a new air cargo division through the acquisition of WFS. It has also expanded into food services, on top of its original aviation catering business.

Analysts

have a “buy” call on Sats,

expecting its earnings recovery to accelerate in 2025.

A DBS research report in April said there is a likelihood of a 3 per cent to 5 per cent increase in global air cargo volumes in 2024, on the back of easing global inflation, increased demand for cross-border e-commerce deliveries, and ongoing container shipping disruptions – trends that have encouraged a shift towards air freight.

The report added: “Apart from an increase in global air cargo volumes, Sats’ cargo handling segment could also see stronger yields, benefiting from stronger pricing, and the group offering more value-added services.”

Beng Kuang Marine is another stock that could be undervalued after withdrawing from its loss-making businesses. For instance, it disposed of two-thirds of its Batam shipyard and liquidated its vessels business to weed out businesses where the firm does not have a strong value proposition or leading market position.

CEO Yong Jiunn Run said the firm now services floating production systems, which are used by the offshore oil and gas industry. It has served 24 assets spanning nearly 10 countries in regions such as South America, West Africa, South-east Asia and China.

He added that the business is also expanding into offshore renewable energy, and that integrating environmental, social and governance aspects will be one of its priorities going forward.

Mr Jarick Seet, Maybank’s research vice-president and head of small-mid caps, initiated coverage on the stock with a “buy” call, saying it has grown to become a major player in the maintenance, repair and servicing of offshore and marine equipment. It is also benefiting from robust global activity in that area, and is supported by a pipeline of projects, he added.

Centurion Corporation, a global specialised accommodation provider, is also a stock to watch. It has 17 purpose-built workers’ dormitories in Singapore and Malaysia, and 17 student accommodation properties in Britain, the US and Australia.

CEO Kong Chee Min noted that between 2011 and 2023, there has been a 26 per cent compound annual growth rate in revenue from core business operations.

“In terms of the growth pipeline, we are also not stopping here, despite having recurring income,” he said, noting that the company has its expansion plans laid out, such as rolling out a new dormitory here by the end of 2024 and redevelopment plans in Australia.

UOB Kay Hian analyst Adrian Loh maintained a “buy” call on Centurion, citing healthy occupancy rates in its British and Australian student accommodation, as well as growth initiatives such as its announced entry into Hong Kong.