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Shifting Gears With 3 High Risk-To-Reward Plays

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The STI rallied to a year-to-date high of 3,400 points in April, but that came to an end. As the market enters correction mode following renewed trade war tensions, Credit Suisse thinks that a high risk-to-reward investment strategy will be the go-to strategy in the current investment environment. Here are three high risk-to-reward plays for investors who are looking to shift gears in your investment portfolio.

Investors Takeaway: Shifting Gears With 3 High Risk-To-Reward Plays

  1. Keppel Corporation

A key reason that Credit Suisse picked Keppel Corporation (Keppel Corp) as one of its top risk-to-reward play is the improving O&M outlook. With plans to hire 1,800 full-time staff over the course of 2019, it seems that Keppel Corp’s management is confident of the improving prospects in the offshore & marine (O&M) sector. So far, Keppel O&M has already secured $1 billion worth of orders.

Besides its O&M segment, Credit Suisse is also positive on Keppel Corp’s property segment. With continued capital recycling, Credit Suisse notes that Keppel Corp will continue to record strong property return on equity (ROE) in FY19. Moreover, sales from its property developments in China is expected to pick up with the recovery in land sales at Tianjin Eco-city.

BUY, TP $8.00; Current share price $6.38

  1. Wilmar International

Wilmar International (Wilmar) is one of the three plays with multiple re-rating catalysts that are waiting to happen. One of the re-rating catalysts is its potential IPO of its China business in 2H19, which has been in the works for a while now. Given its strong Arawana branding in China, listing of its China business could give an added boost to Wilmar’s valuation.

Another catalyst for Wilmar is the recovery in crude palm oil (CPO) prices and biodiesel demand. Since early 2017, CPO price has fallen by 35 percent. Yet, Wilmar managed to limit its fall in share price to only 13 percent, thanks to its more diversified portfolio comprising Oilseeds and Grains, Tropical Oils and Sugar. Credit Suisse highlights that a recovery in CPO prices will put Wilmar back on track for a decent return with limited downside risk.

BUY, TP $4.20; Current share price $3.53

  1. ST Engineering

As at 1Q19, ST Engineering’s order book stood at a high of $14.1 billion. In 2H19, ST Engineering is expected to acquire 100 percent stake in Newtec, a Belgian satellite communication company.

While the deal is still subjected to regulatory approval, the acquisition is forecasted to provide ST Engineering with a new growth engine. The acquisition of Newtec would expand the group’s capabilities in existing satellite communications businesses, in which would further enhance digital connectivity for “Smart City”.

In its recently concluded AGM, the management also highlighted its keen interest in exploring new business opportunities in health and medical technologies. ST Engineering is now looking to build and operate a global HealthTech business as one of its growth drivers.

Overall, Credit Suisse notes that the strong order win and plans for expansion should provide strong foundation for ST Engineering to revive its profit growth.

BUY, TP $4.00; Current share price $3.94

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