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Investment Strategies For 2019: Dividend From Cash Machines; M&A Plays

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We highlight two investment themes that UOBKH recommends for investing: Dividend From Cash Machines and M&A Plays.

Investors Takeaway: 2 Cash Rich Stocks For Dividend Seekers

With the rising interest rate environment, UOBKH recommends investors to focus on high dividend yield stocks that are less correlated with higher rates. For this investment theme, UOBKH favours CSE Global and Valuetronics. There are also large caps that UOBKH prefers, like SingTel, DBS, SATS and ST Engineering.

According to UOBKH’s estimates, these stocks offer sustainable dividend yields of at least four percent. They are also forecasted to grow their dividends in the next 1-2 years.

  1. CSE Global

CSE Global has benefitted from higher oil prices in 2018. Going forward, there are potential synergies from its new partner (Serba Dinamik), which could see it open up new markets in Malaysia and the Middle East for CSE Global.

With a healthy operating cash flow and a strong balance sheet, CSE Global is well positioned for accretive M&As should the opportunity arise. CSE Global also offers investors sustainable dividend yield of at least six percent for investors.

BUY, TP $0.59; Current share price $0.415

  1. Valuetronics

In the coming quarters, Valuetronics is expected to see an improvement in earnings. UOBKH expects higher utilisation rate from Valuetronics’ consumer (CE) segment and robust growth from the industrial commercial (ICE) segment to contribute to the earnings improvement.

UOBKH also likes Valuetronics for its strong cash flow generation, estimating that net cash accounts for over 40 percent of Valuetronics’ market capitalisation. After stripping of the net cash position, Valuetronics’ FY19F ex-cash price-to-earnings of four times is very attractive for investors, according to UOBKH. Moreover, with its dividend yield at over six percent, it makes a strong case for Valuetronics’ addition into investors’ portfolio.

BUY, TP $0.96; Current share price $0.67

Investors Takeaway: 2 Potential M&A Plays To Ride On The Privatisation Wave

After the privatisation of Wheelock Properties, investors may be on the lookout for potential M&A stocks, particularly those that are deep in value or those that may undertake accretive M&As. From UOBKH’s view, stocks that could enjoy M&A interest include Ho Bee Land and Sunningdale Tech.

  1. Sunningdale Tech

Although Sunningdale missed its earnings expectation in 3Q18, its revenue continues to rise by 1.9 percent year-on-year, driven by growth in automotive, consumer/IT and healthcare.

Despite challenging market conditions, Sunningdale remains confident towards its resilient business model, backed by its global presence which spans 20 manufacturing sites in nine different countries. Sunningdale continues to receive business queries from both new and existing customers who are interested in Sunningdale’s technological capabilities and ability to handle projects across multiple geographic regions.

Sunningdale is currently in the midst of selling its Zhongshan factory after Knight Frank (Shanghai) Property Consultants were appointed in April 2018. This will add both cash proceeds and disposal gains to Sunningdale upon completion of the sale. Sunningdale is currently trading at a 24 percent discount to its net asset value.

BUY, TP $1.70; Current share price $1.49

  1. Ho Bee Land

Ho Bee Land (Ho Bee) reported an increase in revenue of 12.4 percent year-on-year in 3Q18. This was due to higher rental revenue from Ropemaker Place that was acquired on June 2018. Share of profits from associates also increased due to contributions from the development projects in Shanghai and Zhuhai.

A few of Ho Bee’s geographic region of operation have been impacted by cooling measures. In particular, it has dampened demand for residential properties in key markets like Singapore and China. The UK is also seeing heightened uncertainty over Brexit. That being said, with a portfolio of investment properties and strong recurrent income (more than 90 percent), the group is well-positioned to cushion any adverse impact from these headwinds.

BUY, TP $2.79; Current share price $2.40

Related Article:

Investment Strategies For 2019: Solid Blue-Chip Anchors (Part 2)

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