Top 5 Singapore stocks to watch in March 2020

Below are the top five Singapore-listed equities for investors and traders to take note of for the month of March 2020, based on recommendations provided by Singapore bank DBS’ equity research team.

Read also: Top 5 Singapore blue-chip stocks impacted by the coronavirus

CapitaLand Limited

Target price: S$4.50 per share

Estimated upside from current price: 23.6%

While share price of Singapore’s largest real estate group CapitaLand Limited dropped to a five-month low of S$3.48 a share on 02 March, DBS analysts have kept the stock on its ‘buy’ list, with a share price target of S$4.50 per share, in its latest update.

DBS said that despite near-term disruptions to CapitaLand’s China operations due to COVID-19, it is still optimistic that the group’s newly-acquired subsidiary Ascendas-Singbridge can maintain a solid return on equity (ROE), as ‘this is also an opportunity for the group to capitalise on the situation to deploy capital opportunistically’.

One of Asia’s largest diversified real estate groups, CapitaLand owns and manages a global portfolio worth over S$131.7 billion as of 30 September 2019, spanning across the commercial, retail, industrial, and residential sectors.

The group also manages eight listed real estate investment trusts (REITs) and business trusts as well as over 20 private funds.

With most markets struggling to stay above the coronavirus outbreak’s drag on investor sentiment – CapitaLand included, it remains to be seen how the group will bounce back later this year.

However, for now, the company is pulling out all the stops to cushion any blow from the contagion. Last week, the group – in anticipation of ‘COVID-19’s adverse impact’ on its operations and trading results – announced that its board members and senior management team will be taking a 5% to 15% reduction in fees and base salaries from April.

It will also freeze wages of all employees in managerial and above positions. A review will be conducted after six months, or once COVID-19 stabilises.

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Thai Beverage Public Company (ThaiBev)

Target price: S$1.04 per share

Estimated upside from current price: 33.3%

If you’re a beer drinker, chances are you would have heard of Chang Beer, a brand that is manufactured and distributed by the Singapore Exchange-listed Thai Beverage PCL (ThaiBev).

The company was the second-performing Singapore stock overall in 2019, and the number one blue-chip performer, achieving a 47.1% increase in share value.

ThaiBev’s share price might be down 14.3% so far this year, but like most other equities, its performance outside of the coronavirus period has been relatively strong. DBS analysts said share value was also likely impacted by a slowdown in the Thai economy as well as drink driving laws in Vietnam.

For the first quarter of its 2020 fiscal year, the company saw net profit grow 14% year-on-year to 8.4 billion Thai baht, above DBS estimates. The outperformance has been attributed to a strong Thai domestic spirits and beer volume growth, which came in at 7% and 13.5%, respectively.

DBS said the group’s current stock valuation is reasonable at 17.1x FY20F P/E (price-to-earnings) ratio, which is below its historical five-year forward average PE of 22x.

On that note, the research team has maintained a ‘positive stance’ on ThaiBev equity, giving it a ‘buy’ rating and target price of S$1.04 per share.

Read also: Top 5 Singapore blue-chip stocks impacted by the coronavirus

Yangzijiang Shipbuilding

Target price: S$1.50 per share

Estimated upside from current price: 68.5%

Yangzijiang Shipbuilding Holdings (Yangzijiang) is one of China’s largest shipbuilders. It also counts offshore among its core business, with trade logistics, ship-leasing and real estate as supplementary businesses.

The Singapore Exchange-listed company’s shipbuilding output from 2009 was continuously ranked in the top five of the Chinese shipbuilding industry. In 2018, the group was ranked 449 out of 500 companies in China.

According to DBS researchers, Yangzijiang is one of the world’s best-managed and profitable shipyards, with its forward core shipbuilding revenue backed by an order backlog of US$2.9 billion (approximately 1.5% revenue coverage) as of December 2019.

They added that that the stock is ‘unjustifiably’ trading below its net cash position of approximately S$1.05 per share, as current valuation is compelling at 0.6x P/BV against a 9% ROE and 4-5% dividend yield.

‘We believe its share price has priced in the 1Q weakness to a large extent and has yet to reflect the positives from its Chairman’s return. The stock was trading at ~S$1.50 prior to the negative news relating to the Chairman’s assistance with an investigation involving a former government official which has now been completed,’ the analysts wrote.

In December 2019, executive chairman Ren Yuanlin returned to his role after being put on leave for more than four months to assist a government investigation into a company associate’s disciplinary violations. Ren himself was not the subject of the investigation.

DBS analysts have reiterated a ‘buy’ rating for the stock with a lowered target price of S$1.50 per share from SS1.68 previously. The reduced share price estimate came in view of COVID-19’s impact on the Chinese economy.

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United Overseas Bank (UOB)

Target price: S$27.20 per share

Estimated upside from current price: 13.4%

United Overseas Bank (UOB), Singapore’s third largest bank by market capitalisation at S$40.3 billion, has cautioned shareholders in its 2019 financial report that ‘many signs point to more challenging times ahead including the unfolding impact of the COVID-19 epidemic’.

Deputy Chairman and CEO Wee Ee Cheong had stated that he expects there to be ‘downward pressure in customer margin’ alongside ‘slight uptick in credit costs’, given that Mainland China accounted for S$30 billion or 7% of the group’s total assets as of 31 December 2019.

He added that to help cushion the contagion’s impact on customers, the group has implemented a range of relief assistance measures for affected companies, especially small- and medium-sized enterprises and homeowners.

For now, the lender has managed to achieve 8% higher post-tax net profit for the full 2019 fiscal year of S$4.34 billion as compared to 2018. This is in line with the average estimates of analysts surveyed by Refinitiv. Its loan-to-deposit ratio was also stable at 85.4% and the Common Equity Tier 1 ratio robust at 14.3%.

DBS analysts have maintained their ‘buy’ call on UOB with a revised target price of S$27.20 a share, on the basis of the bank’s high dividend yield of around 5%. In 2019, total shareholder dividend paid out was S$1.30 cents per ordinary share, up from S$1.20 in 2018.

The same researchers added that current valuations of c.1.1x for 2020’s price-to-book value (P/BV) ratio below a 10-year historical mean valuation remain undemanding, given UOB’s balance sheet strength.

Furthermore, UOB’s share price tends to outperform in weaker market conditions. As such, analysts believe that UOB is likely to sustain its S$1.30 per share full-year dividend for FY2020, if a second-half recovery takes place as expected.

Koufu Group

Target price: S$0.84 per share

Estimated upside from current price: 4.6%

One of Singapore’s largest food and beverage (F&B) shop operators, Koufu Group – which also has a presence in Macau – saw full-year net profit for 2019 grow by 13% from the previous year to S$27.7 million. Top-line also rose by 6.1% to a revenue of S$237.5 million for 2019.

The growth was driven by stronger revenue contributions from both its synergistic business segments lifted by year-on-year increase in number of outlets. This includes maiden contributions from a total of six newly-opened food courts and coffee shops (including the new University of Macau food court), 20 new F&B kiosks, and two new full-service restaurants.

The group now owns a network of 48 food courts and 16 coffee shops in Singapore, along with two food courts in Macau.

The group said in its 2019 year-end investor report that it ‘cautiously expects to remain competitive with its productivity efforts’ amid COVID-19.

DBS researchers have reduced its 2020-2021 net profit forecast for Koufu by 5%, on grounds of the group being marginally affected by the coronavirus outbreak, especially in Macau which contributes an estimated 10% of total revenue.

As such, analysts have reduced their target price for the stock to S$0.84 a share, while keeping a ‘buy’ rating. At that price target, the stock will offer an estimated 18% upside, when including dividends.

‘We have reduced our earnings forecasts in view of lower footfall from casino operators undergoing a 15-day suspension of gaming operations in Macau. Nonetheless, we continue to like the stock for its sound fundamentals including stable earnings, strong balance sheet, cashflows, ROAE, and decent dividend yield of 3.4% with long-term growth expected to be driven by a larger store network and better operating scale,’ the analysts wrote.

Finally, Koufu Group announced 03 March that it will not be releasing its financial statements for the first quarter ending 31 March 2020, following amendments to the Listing Rules of the Singapore Exchange Securities Trading Limited stating that companies will not be required to release its financial statements on a quarterly basis.

The group’s next financial report will be for the half-year ending 30 June 2020, on or before 15 May 2020.

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