Thursday, December 6, 2012

BUY target call from UOB Kay for 2013

Singapore Strategy - Screening Out Yield Stocks With High ROE Screening for ideas.
In a low interest rate environment, we believe stocks offering sustainable high dividend yield will continue to outperform. We screen stocks with attractive dividend yield and high ROE for BUY ideas. This report highlights our top picks based on this screening exercise. Result of our high yield and ROE screen. Under this exercise, stocks that appear compelling include M1, SIA Engineering, ST Engineering, Yangzijiang and SPH. SMRT also appeared on the screen but we are not positive on this given expectations that the group may have to reduce dividends in view of its heavy cash outflow for capital expenditure. The group had already cut its FY13F interim dividend. We have a SELL on SMRT with a target price of S$1.27.

M1 (BUY, Target Price: S$3.02)
- Expect sequential improvement in 4Q12 revenue and earnings.
- Healthy growth momentum in mobile segment. Pre-paid ARPU increased by a steady 5.1% qoq to S$16.50.
- Compelling dividend yield of 5.2% in FY13F and 5.6% in FY14F, with potential for special dividends.

SIA Engineering (BUY, Target Price: S$4.55)
- Strong operating cash flow, dividend payments from associates and limited capex allows SIA Engineering to consistently pay
dividends.
- Captive engine maintenance business which provides stable earnings and steady growth.
- Room for yield compression especially if risk-averse investors increase exposure to high-yielding stocks whose dividends are well
supported by earnings.

ST Engineering (BUY, Target Price: S$3.85)
- Strong free cash flow and new initiatives such as rotables leasing at ST Aero could contribute to growth next year.
- Target price of S$3.85, based on a dividend discount model (required rate: 6%, terminal growth: 1%)

Yangzijiang (BUY, Target Price: S$1.43)
- Clinched its first jackup drilling rig and signed LOI of an FPSO.
- Newbuild cycle for commercial vessels is bottoming out and valuations remain attractive.
- Undemanding FY13F PE of 6.6x with 4.6% dividend yield.

SPH (HOLD, Target Price: S$4.30)
- Share price is likely range bound. Traditionally, SPH’s share price has a close relationship with its newspaper advertising revenue
(AR) growth. We see weak AR growth capping near-term share price.
- Offer attractive dividend yield, projected at 5.3% for FY13-15.

What about REITs?
REITs don't feature in the list as the 2013 ROEs are below 10%. This is due to the nature of business as investors accept low
yields of the underlying properties and acquisitions for their stable income-producing qualities, tax benefits, asset enhancement
and growth prospects. We remain OVERWEIGHT on REITs with Suntec REIT and Ascott Residence Trust as our top picks for high
yield.

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