UOBKH Research: 4 Singapore Stocks To Consider In August 2017
In the past month, the Straits Times Index (STI) managed to register one of its best monthly performance since the start of the year. But how can investors invest to achieve a better than market return in the month of August?
In this article, we highlight four recommended stocks from UOB Kay Hian (UOBKH) Research for the month of August as well as a review of UOBKH Research’s recommended stocks for the month of July.
Review of July picks
Having seen its share price grow by 20% since 2016, UOBKH Research believes that investors should be looking to take profit on China Aviation Oil (Singapore) Corporation Limited (SGX: G92) as the share has limited upside in the coming months.
Previously, UOBKH Research also recommended investors to take a tactical short position on Singapore Airlines Limited (SGX: C6L).
However, given its 1Q18 surprise positive earnings due to declining pace of pax yield decline, Singapore Airlines surprised by ending the month with a 3.0% increase in share price.
Given that the tactical short call on Singapore Airlines did not work out, UOBKH Research recommends investors to close the short position on Singapore Airlines.
On another note, here are four stocks to consider.
1. SATS: Beneficiary of improving yields; higher cargo throughput in aviation industry
In 1Q18, SIA’s pax yield declined by just 1.9 percent year-on-year. Given that SIA’s pax yields have shown a sequential improvement for two quarters, UOBKH Research believes that SATS will be the leading beneficiary of SIA’s pax yield improvement.
As pressure on airline yields subsides, the average selling price of SATS’s inflight catering will likely stabilise in upcoming quarters. Overall, that should boost inflight catering revenue and margins for SATS.
UOBKH Research analysts also expect SATS to benefit from stronger global cargo volumes and drive gateway services revenue higher.
UOBKH Research recommends adding SATS as a play on stabilising pax yields and higher cargo throughput within the aviation industry, compared to SIA, which has exposure to volatile fuel prices.
UOB Kay Hian Research: SATS Limited (SGX: S58) – BUY; Target Price $5.40
2. ThaiBev: Beer sales turning around
According to UOBKH Research, Thaibev is showing early signs of a beer sales recovery. Based on June 2017’s industry data points by the Bank of Thailand, it shows an emerging trend of stronger beer sales volume growth of 19% year-on-year compared to May (+10% year-on-year) and April (+5.0% year-on-year).
Another factor that could boost Thaibev’s share performance is an upcoming excise tax hike on 16 September 2017. UOBKH Research expects sales volume to increase in 4Q17 as sales agents typically accumulate inventory before that happens.
Based on past excise tax adjustments, Thaibev usually passes on 100% (or more) of its excise tax increase to customers through higher average selling prices. That can potentially lead to margin expansion for Thaibev.
UOB Kay Hian Research: Thai Beverage Public Company Limited (SGX: Y92) – BUY; Target Price $1.09
3. Tianjin ZhongXin: Deep value to be unlocked
Tianjin Zhongxin is one of the newest recommendations from UOBKH Research that UOBKH Research is confident of bringing alpha to investors. Tianjin Zhongxin is a renowned Traditional Chinese Medicine (TCM) pharmaceutical giant in China.
From a business perspective, Tianjin Zhongxin has a strong brand equity among its consumers. Its strong R&D efforts (851 patents) also make it one of the leading players in a growing TCM space.
UOBKH Research opines that the current steep discount between Tianjin Zhongxin’s A-shares and S-shares presents investors with a unique opportunity to buy Tianjin Zhongxin at a discount.
Tianjin Zhongxin is currently undergoing the latest round of reforms for China’s State-owned Enterprises (SOEs). There is a possibility of Tianjin Zhongxin being delisted from the Singapore stock exchange, which could lead to its value being unlocked.
UOB Kay Hian Research: Tianjin Zhongxin Pharmaceutical Group Corporation Limited (SGX: T14) – BUY; Target Price US$1.66
4. ISDN: Beneficiary Of China’s Demand For Automation
Another potential alpha pick identified by UOBKH Research is ISDN, a market leader in motion control.
UOBKH Research foresees an outstanding 2Q17 for ISDN group, given that two of ISDN’s top customers (Foxconn and AEM holdings) are reporting terrific financial performance in 2Q17.
ISDN also has close to 30 years of experience as an integrated engineering solutions provider.
In the long run, UOBKH Research believes that ISDN will become a beneficiary of China’s automated manufacturing drive and the Belt and Road Initiative (another name for One Belt, One Road), given its long-standing relationship supplying customised locks and hinges to state-owned China Railway Construction Corporation (CRCC).
UOB Kay Hian Research: ISDN Holdings Limited (SGX: I07) – BUY; Target Price $0.35
