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4Q Earnings Roundup: 9 Gems To Invest In If You Are Looking For Quality (Part 2)

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Following the first part of the series where we focus on four of CIMB’s nine quality stock picks, we continue the series with another five quality stocks that are worth investing in.

Investors Takeaway: 5 Gems To Invest In If You Are Looking For Quality

  1. DBS

According to CIMB, DBS is forecasted to grow its earnings in 2019 on the back of a slew of macro tailwind. CIMB notes that DBS will continue to enjoy upside in net interest margin as mortgage board rate loans continue to catch up to SIBOR-pegged loans. Furthermore, with a high CASA deposit base (59 percent), the low funding cost will further support DBS’ net interest margin. Besides growing net interest margin, CIMB also foresee an improvement in market-related fee income.

BUY, TP $29.00; Current $25.28

  1. Keppel Corp

Keppel Corp has been underperforming against the STI in the last 12 months following the property cooling measures in China and Singapore. Right now, Keppel Corp’s share price implies a 35 percent discount to its property RNAV and 1.5 times FY19F price-to-book value for its O&M segment. This implies that investors are getting the rest of the business for free. As such, CIMB believes that Keppel Corp’s current valuation of 0.9x PB, which is -1 standard deviation of its long-term mean, has more than priced in the negatives. Should stronger order wins and settlement for Sete Brasil rigs come, it could catalyse Keppel Corp’s share price.

BUY, TP $8.41; Current share price $6.22

  1. ST Engineering

Much has been said about ST Engineering’s acquisition of MRAS, but it doesn’t hurt to re-emphasise that the MRAS acquisition is a key contribution to ST Engineering’s growth over the next two years. With the acquisition, CIMB forecasts net profit to grow by 13-26 percent for its aerospace division in FY19-20F.

Besides the aerospace division, CIMB notes that ST Engineering’s marine sector is also riding on the back of a potential recovery. Backed by its 2018 order wins, better cost control in shipbuilding and firm ship repair margins, it appears that investors have underestimated the impact of ST Engineering’s marine sector.

CIMB also likes ST Engineering as a proxy for heightened investments in physical, cyber defense and smart nations in the region and Singapore.

BUY, TP $4.08; Current share price $3.74

Small Cap

  1. HRnetGroup

HRnetGroup is the only SGX-listed proxy for the labour market in China and Singapore. Its unique position coupled with its asset-light and scalable business model has put it on the map of CIMB’s small cap gem finder. In FY19, CIMB highlights that the twin pillars of professional recruitment and flexible staffing become earnings growth engines for HRnetGroup to drive net profit. CIMB notes that HRnetGroup is sitting on excess cash of $120 million that is available for overseas expansion. This could bring in an additional 15 percent earnings upside that has not yet been factored in by the market.

HRnetGroup is currently trading at 13.7 times FY20F price-to-earnings, which is at a 20-50 percent discount to its peers. It also comes with a 3.5 percent dividend yield based on a 50 percent payout.

BUY, TP $1.03; Current share price $0.78

  1. Silverlake Axis

Silverlake Axis emerged from its FY18 earnings with 1H19 net profit increasing by 77 percent year-on-year. This came on the back of higher project-related revenue and enhancements. CIMB believes that this is an upbeat sign for Silverlake as banks’ capex cycle remains on an uptrend amid the digitalisation drive in ASEAN. Another source of optimism could come from further core banking contract wins in CY19 from banks in Indonesia or Thailand.

BUY, TP $0.62; Current share price $0.545

Related Article:

4Q18 Earnings Roundup: 9 Gems To Invest In If You Are Looking For Quality (Part 1)

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