UOB Kay Hian’s (UOBKH) Singapore research team says that its alpha picks portfolio for the month of January has held steady amid market weakness. It beat the Straits Times Index (STI) by 2.77 percentage points (ppt), and 0.77 ppt on an equal- and market-weighted basis respectively, as the STI slipped into negative territory.
For its Feb 2024 portfolio, UOBKH adds Yangzijiang Shipbuilding (YZJ) as they see dividend upside and potential earnings upgrades from its upcoming results and remove Seatrium as uncertainty over the size of its 2023 write-offs may weigh in the short term.
Stocks were off to a “bumpy start” in Jan, as 10-year US treasury bond yields ticked higher with potential delay in monetary easing weighing on sentiment. A higher-than-expected US retail sales numbers in Dec 2023 reinforced such expectations.
On top of this, Red Sea shipping disruptions continue to hit global manufacturing. As a result, the STI fell 2.7% m-o-m in Jan 24, says the analysts.
Given the backdrop, the alpha picks portfolio remained flat m-o-m. On a market-cap weighted basis, the portfolio outperformed the STI by 0.7ppt with a 2% m-o-m fall.
According to the analysts, the portfolio performance was mainly dragged by Seatrium, which dropped 15.3% m-o-m and Frencken, which dropped 3.7% m-o-m.
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“A $250 million contract cancellation and profit warning by Seatrium led to its share price retreat, while Frencken followed the weakness in US technology stocks as profit-taking took place after Big Tech’s earnings release,” the analysts say.
They note that this was largely offset by Food Empire, which saw a 19.5% increase m-o-m, which rallied in response to the company’s proposed dual listing on the Hong Kong stock exchange, and SembCorp Industries a 6.8% increase m-o-m, with its continued news on acquisitions underlining its medium- and long-term growth potential.
For UOBKH’s Feb alpha picks, the analysts have included YZJ in our portfolio with its 2023 results on Feb 28 likely to see higher order win guidance, higher dividends and better shipbuilding margins.
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They remove Seatrium due to uncertainty over the size of its 2023 write-offs potentially weighing on its share price in the short term.
Other stocks in their portfolio for Feb include Sembcorp Industries U96 , Singapore Telecommunications Z74 , Marco Polo Marine 5LY , Bumitama Agri P8Z , Civmec P9D , Food Empire Holdings F03 , Frencken, Valuetronics BN2 , Venture Corporation V03 , CapitaLand Ascott Trust HMN , Mapletree Industrial Trust ME8U , Oversea-Chinese Banking Corporation, ComfortDelgro and SATS.
