Excerpts from UOB Kay Hian's report
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Mid-cap stocks may see additional trading volatility when market trading volume shrinks during the upcoming World Cup. We think any weakness could present opportunities to accumulate stocks such as Sino Grandness, Overseas Education, Halcyon and RH PetroGas. Buy selected mid-caps on weakness. We believe the thin trading volume during the upcoming World Cup could throw up selective opportunities particularly for mid-caps that are relatively less liquid.
In addition, mid-cap stocks (represented by FTSE ST Small Cap Index) have corrected sharply after the penny stock crash saga in 4Q13. Themes for mid-caps. Despite inexpensive valuations for selected mid-caps, we would generally tread with caution as market sentiment remains relatively fragile ahead of lacklustre corporate earnings in Singapore as well as external uncertainties such as lower growth in China and geo-political risk.
We see potential outperformance in themes within the mid-cap space such as: a) asset monetisation, b) energy proxies, including E&P and oil services, c) M&A, and d) strong cashflows and pricing power. |
At Sino Grandness' booth at the Hubei trade fair in Oct 2013, the lit-up panels highlight its range of loquat concoctions to distributors. Photo: CompanyAsset monetisation plays. Sino Grandness stands out within this theme as we believe the group may monetise the value of its subsidiary Garden Fresh via a potential listing exercise.
The stock is trading at an undemanding 4.2x 2014F PE, vs Hong Kong-listed peers’ 25.6x.
We see potential upgrade in our target price of S$1.06/share as the Garden Fresh listing gets closer, and if the listing comes with a lower-than-expected dilution or a higher valuation obtained during the book-building process for Garden Fresh.
Energy proxies. In the energy space, investors have a choice of exploration and production (E&P) or oil services industry.
Tan Sri Datuk Sir Tiong Hiew King is chairman of RH Petrogas. Photo: companyInvestors with higher risk appetite could opt for the former via RH PetroGas whilst investors looking for more earnings visibility should consider Pacific Radiance.
RH PetroGas (RHP) is compelling as investors can look forward to the approval of the development of RHP’s oilfield in China and acquisition of new production assets to enhance shareholder value.
Maintain BUY with a target price of S$1.40 based on NPV and risking model.
Pacific Radiance is on our BUY list with a target price of S$1.22 and offers: a) an experienced industry-veteran management, b) strategic market positioning, and c) strong earnings growth, a 3-year EPS CAGR of 19%.
Tan Sri Datuk Sir Tiong Hiew King is chairman of RH Petrogas. Photo: companyInvestors with higher risk appetite could opt for the former via RH PetroGas whilst investors looking for more earnings visibility should consider Pacific Radiance. RH PetroGas (RHP) is compelling as investors can look forward to the approval of the development of RHP’s oilfield in China and acquisition of new production assets to enhance shareholder value.
Maintain BUY with a target price of S$1.40 based on NPV and risking model.
Pacific Radiance is on our BUY list with a target price of S$1.22 and offers: a) an experienced industry-veteran management, b) strategic market positioning, and c) strong earnings growth, a 3-year EPS CAGR of 19%.
Growth booster from M&A. Through M&A, Halcyon has significantly raised its midstream rubber processing capacity. Nevertheless, we think the group is not resting on its laurels and will consider more M&As should the opportunity arise. We expect the group to be more selective after its recent completion of several asset purchases.
We have a BUY recommendation and a target price of S$0.92/share (based on a peer sector average PE of 10x).
We have a BUY recommendation and a target price of S$0.92/share (based on a peer sector average PE of 10x).
Last but not least, companies with strong cashflow and pricing power. In this bucket, we like Overseas Education Limited (OEL).
The group’s resilient education business enjoys operating cashflows of at least S$30m per annum. In addition, we think OEL has pricing power to stave off rising costs as its tuition fees are 17-30% below its peers.
We maintain BUY with a DCF-based target price of S$0.98/share.
Recent story: SINO GRANDNESS: Will its Garden Fresh IPO be boosted by rival's rising valuation?
The group’s resilient education business enjoys operating cashflows of at least S$30m per annum. In addition, we think OEL has pricing power to stave off rising costs as its tuition fees are 17-30% below its peers.
We maintain BUY with a DCF-based target price of S$0.98/share.
Recent story: SINO GRANDNESS: Will its Garden Fresh IPO be boosted by rival's rising valuation?
