Top 9 billion-dollar SGX shares by fundamentals
Researchers have picked out these nine Singapore Exchange-listed stocks as ones to watch, based on a thorough fundamental analysis.
With the 2019 novel coronavirus driving most stock markets down to 2008’s Global Financial Crisis (GFC) levels, equity analysts from CIMB have painstakingly studied most of the Singapore Exchange's (SGX) indexed stocks and small cap alpha picks, to reveal which ones are worth buying, when is the ideal time to buy, and their preferred entry share prices.
They also provided in-depth analyses of why a stock should or should not be valued at GFC levels, with arguments from liquidity and business resilience perspectives.
According to the research paper, stocks still have a 30% downside on average from current values to the ‘crisis’ level, and 18% to fundamental comfortable buy levels. This indicates that more losses could be in store.
With this in mind, the analysts have listed down the top 9 stocks (above US$1 billion market capitalisation) that are around their ‘comfortable buy levels’. Below is a summary of what they wrote.
(Share price target entry: below S$2.70)
Based on 1 standard deviation (sd) below its 2006- 2020 mean enterprise value/EBITDA less Capex (OpFCF). It is currently offering attractive FY20-22F dividend yields of 5.9% per annum (pa). This should provide share price support, as it is close to the 6.1% yield when Singtel's share price hit the trough in Oct 2008 during the GFC.
(Share price target entry: below S$3.68)
Represents 20% below CIMB’s SOP target price of S$4.58 (pricing in listing of its Chinese businesses at 18-22x forward P/E ratio). Analysts do not think it should be pegged to GFC valuations (5.36x P/E) given the current catalyst of listing its China assets. In addition, its integrated business model has allowed the group to produce consistent average core net profit of US$1.2 billion over the past 10 years.
(Share price target entry: below S$7.50)
Based on a 0.75x historical P/BV pegging to GFC low. Factoring in massive marked to market losses based on forward Brent price curve on 10 March, CIMB’s book value of equity per share (BVPS) would reduce to S$8.71.
(Share price target entry: below S$0.85)
It is trading at 0.48x CY20F P/BV, below GFC (2x P/BV) and 2016 oil crisis (0.6x P/BV), pricing in risks of contract cancellations and slowing order momentum, in the research team’s view. Risk to analysts’ earnings forecasts is low as they had recently tempered their order expectations to US$1.2 billion versus the management's target of US$2 billion. Year-to-date order win is about US$320 million. Orders dropped to a low of US$450 million in 2009.
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(Share price target entry: below S$3.84)
Based on a 16.7x FY21F P/E (pegged to trough valuation during oil crisis in 2016). CIMB’s stress test still points to a 5% y-ear-on-year earnings growth in the 2020 financial year, assuming:
revenue decline for aerospace (aircraft maintenance in FY20F on weaker aviation trend)
revenue decline for electronics (large-scale projects affected by reduced government spending
50% year-on-year decline in commercial ship repair volume on lower oil prices
6) Keppel Corp
(Share price target entry: below S$5.15)
Based on 0.8x CY20F P/BV (pegged to trough during the oil crisis in 2016). The near-term catalyst is the partial offer from Temasek Holdings at S$7.35 per share due in October this year. At current share price of S$5.55 and assuming the partial offer will be effective by 21 Oct 2020 (long-stop date), investor’s purchase price would be S$4.40 a share, or a discount of 20% to market value.
The caveat for the partial offer to de-rail is if Keppel group’s financial performance and condition deteriorate meaningfully over the period of Oct 2019 to the long-stop date. CIMB does not expect major provisions or a sharp plunge in earnings during this period, although the outlook for FY21F-FY22F could be dented by slow offshore & marine orders, and completion of property projects in China.
(Share price target entry: below S$1.64)
Current valuations imply Sembcorp (SMM) is trading at distressed valuations of 0.5x CY20F P/BV and 0.3x CY20F P/BV for its utilities business, ascribing very low confidence on its 9% ROE and S$300m FY20F earnings. Analysts said they did not pick SMM although it is trading at a new trough of 0.89x CY20F P/BV, a valuation ripe for merger and acquisition, as risks prevail with losses likely to persist into its fourth consecutive year in FY21F on lower oil prices and order momentum.
Read also: Top 5 Singapore stocks impacted by the coronavirus
8. Sheng Siong
(Share price target entry: below S$1.18)
Based on a long-term average of 20x forward P/E. Earnings growth of 12% in FY20F looks firm on higher store count.
(Share price target entry: below S$0.71)
Based on a -1 sd of long-term mean of 13.7x FY21F P/E. The analysts believe it should not be pegged to its GFC low of 10x P/E as it is a proxy for regional ecommerce growth, making its logistics assets more valuable. Its net cash should sustain yield at 5% in FY21F.
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