CIMB: Our alpha picks for 2H2015

Excerpts from CIMB report on small-cap top picks

CIMB head of research Kenneth Ng, CFAOur alpha picks for 2H2015 are:

1. CDL Hospitality Trust is favoured for attractive yields of 6.9% and a positive outlook supported by: 1) the sustained performance of its Maldives portfolio, 2) the Claymore Link commencing operations in 2Q15, 3) four of the six Singapore hotels winning the tender to provide accommodation for 2015 SEA games participants, and 4) gradual recovery of corporate spending given the tailwind of Singapore’s 50th Jubilee celebration.

2. GuocoLeisure has significant value to be unlocked in its hotel assets (prime locations in London). The new management team is successfully driving the hotel rebranding exercise and the efforts are starting to show. The latest results show the benefits of hotel refurbishment efforts and reduced financing costs. GuocoLeisure is trading at a wide RNAV discount of >40%; we expect bottomline delivery in 2016 to give confidence to the success of its repositioning and act as a major re-rating catalyst.

3. Mapletree Greater China Commercial Trust’s strength lies in its stable and resilient portfolio of Festival Walk (FW) in HK and Gateway Plaza in Beijing. Its latest results show an admirable operational performance from FW which managed to drive a 10% hike in tenant sales despite a sluggish Hong Kong retail market. Lastly, with 74% of gross asset value exposed to HK$ through exposure to FW, we expect a rising HK$, in tandem with a strengthening US$, to help boost DPU.

4. Pacific Radiance – PACRA’s fleet expansion programme and hence, its implied increase in market share, as well as its attractive valuations (the stock is trading at its liquation value) underpin our Add call. We expect the group to almost double its chartering EBITDA to US$100m by FY17, thanks to its expansive newbuild programme. By FY16, we project PACRA to add c.14 net additions to its 28 high-value fleet count (as at end-FY14). Furthermore, the group’s clean balance sheet and fleet of shallow-water assets underscores our confidence in our RNAV estimates. Unlike niche assets, shallow-water vessels are arguably more realizable and have transparent, established secondary transaction values.



5. Sheng Siong Group’s store expansion momentum has picked up pace. Since Dec 14, SSG has secured five new stores, of which two have been opened and the remaining three by Jun 15. Flush with cash, it has the resources to add stores and a track record of doing so during market downturns. Another positive is that the current labour shortage has kept competition well-behaved and is likely to drive some store closures by competitors in 2015. Meanwhile, SSG is improving gross margins by forcing down input costs with its central distribution centre.

6. Tianjin Zhongxin Pharmaceutical Group is a play on China’s ageing population. Its flagship product Su Xiao Jiu Xin pills, a well-known cardiovascular drug, would benefit from the authority’s removal of price ceiling on low-priced drugs. The company’s S-share is trading at a 58% discount to its A-shares and its 15.5x CY15 P/E is cheaper than peers’ average of c.20x. Catalysts include sales and margin expansion. Rising raw material cost is the key risk.

7. Venture Corporation’s past efforts in R&D and higher value-added manufacturing appear to be bearing fruit now as sales contribution from such higher-margin activities has increased, helping the company to regain its 6-8% pretax margin goal. The disappointment in the most recent results was a higher effective tax rates, as tax breaks expire; these will come back as new products gain traction. A historically stable S$0.50 DPS provides share price support. The key risk is M&A consolidation among its customer base.