UOB Kay Hian has added Sembcorp Industries and BRC Asia to its alpha picks portfolio for the month of August.
The team’s portfolio outperformed the Straits Times Index (STI) in July, increasing by 5.4% on a market cap weighted basis versus the market’s 3.5% increase.
Six stocks in UOB Kay Hian’s alpha picks recorded positive absolute returns of more than 5%. These are Genting Singapore (+11.8% m-o-m), Frencken (+9.9% m-o-m), Venture Corp (+5.7% m-o-m), DBS (+6% m-o-m) and Keppel Corp (+6% m-o-m).
The stock which saw a weak month was MM2 (-7.1% m-o-m), where its auditors issued an audit opinion with a material uncertainty related to growing concern for its financial statements ended March.
After a positive share price rally following its 1HFY2022 results, the UOB Kay Hian team is switching out Keppel Corp and adding Sembcorp as they believe that the latter will continue to re-rate on the back of its green energy expansion.
“While a number of the acquisitions are still in the planning stage, we highlight that Sembcorp has built up its renewables portfolio quite aggressively from 2.6GW gross installed capacity at the start of 2021 to 5.3GW at present — this excludes another 1.1GW that is currently under development.
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“Thus, we believe that the company is on target to achieve its plans of increasing its renewable capacity to 10GW by 2025,” says analyst Adrian Loh.
He maintains a “buy” call on Sembcorp with a target price of $3.59 based on a target PR multiple of 13.6x. This is 1 standard deviation above the company’s past five year average PE of 11.2x.
“We highlight that Sembcorp is inexpensive versus its Asia Pacific utilities peers, trading at 30%-40% discount on both PE and P/B bases for 2022. We expect Sembcorp to continue to re-rate in the next six months due to the scarcity of solid ESG companies in Singapore,” adds Loh.
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Having removed MM2 due to a lack of near-term share price catalyst, the UOB Kay Hian team has added BRC to ride on the upturn in the construction industry.
BRC remains a strong proxy for Singapore’s construction sector, given its commanding market share domestically, says analyst Llelleythan Tan. He points out that Singapore’s Building and Construction Authority (BCA) has projected total construction demand for 2022 at $27 billion-$32 billion.
“The country has a strong pipeline of upcoming public sector projects along with an increased supply in HDB launches. Some notable projects include the relocation of Singapore Science Centre, Cross Island Line, Changi Terminal 5 and the Toa Payoh Integrated Development,” says Tan.
BRC’s orderbook remains robust, standing at $1 billion, lower than the $1.3 billion at end-1QFY22 due to higher delivery volumes made in 2QFY2022, adds Tan. “We expect the group to deliver half of its current orderbook in the next 3-4 quarters as BRC’s current production capacity of around 70% starts to ramp up.
“Also, BRC is not affected by China’s ongoing Covid-19 lockdowns as BRC has diversified its supply chain to regional suppliers closer to home.”
Tan maintains “buy” on BRC with a higher target price of $2.15, based on 7.0x FY22F PE, pegged to -0.5 standard deviation of BRC’s long-term average PE.
As at 10.23am, the STI is trading at 3.19 points higher or 0.1% up at 3,242.34 points.
