KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

KGI Daily Trading Ideas – 22 February 2021

US Trading Ideas

Palantir (PLTR US): Back to the beginning

  • BUY Entry – 28 Target – 38 Stop Loss – 24
  • We pitched PLTR exactly 1 month ago on the basis of a pre-earnings breakout, which occurred. The stock is now back to its prior trading range post-earnings due to bigger-than-expected losses. 
  • The company recently announced 4Q20 results. US322mn revenue in 4Q20 beat market expectations of US$300mn. However, the US$1.2 losses per share in FY20 (FY19 EPS: -US$1.02) missed market expectations of US$0.98 losses per share. 
  • While PLTR is an expensive stock on a fundamental basis, we saw sufficient buying volume to support the post-lockup period, with Cathie Wood’s Ark ETFs increasing their overall position in PLTR; ARK Innovation ETF and ARK Next Generation Internet ETF acquired 6.8mn shares of PLTR last week worth around US$172mn.
  • Market consensus of the estimated growth of revenue in FY21 and FY22 are 34.5% and 30.5% respectively, which translates to 34.4x and 26.3x forward price-to-sales (PSR). The current PSR is 26x.
PLTR US (Source: Bloomberg)

Axcelis Technologies (ACLS US): A semicon play with potential re-rating on easing trade tensions 

  • BUY Entry – 37 Target -45 Stop Loss – 32
  • ACLS engages in the design, manufacture and service of dry strip, ion implantation and other processing equipment used in the fabrication of semiconductor chips.
  • ACLS is a prime beneficiary of the increased capex among semiconductor companies given its position in the supply chain. 75% of its 4Q20 shipments went to foundry logic customers while the remaining 25% went to memory customers, with NAND accounting for 15% and DRAM accounting for 10%. China is the largest market for the company, accounting for 56% of total shipments in 4Q20, followed by the US at 20% and South Korea with 18%. 
  • The company earlier this month reported stronger-than-expected 4Q20 earnings of US$0.43 vs market expectations of US$0.30. Management has also guided for a stronger outlook for the year ahead with 1Q21 EPS in the range of US$0.22-0.42. 
  • While the company’s share has performed well year-to-date, we think that the removal of trade-related overhangs should provide a further re-rating to its share price. Certain customers in China were placed in an entity list requiring licenses from the US government. Thus, with the easing of trade tensions, it is likely for the company to report EPS on the upper range of its guidance.  
  • The company trades at 21x forward P/E, while Bloomberg consensus estimates are anticipating EPS growth of 192%/27%/41% for FY2020-22F. 
ACLS US (Source: Bloomberg)

HK Trading Ideas

China Resources Cement (1313 HK): Correction ends and the upward cycle begins 

  • Buy Entry – 9.1 Target – 11 Stop Loss – 8.2
  • China Resources Cement Holdings Limited is a Hong Kong-based investment holding company principally engaged in the cement and concrete businesses. The company operates through two business segments. The Cement segment is engaged in the manufacture and sales of cement and related products. The Concrete segment is engaged in the manufacture and sales of concrete and related products. The company is also involved in the trading of fly ash, mortars and shotcrete, as well as the property holding business through its subsidiaries.
  • The 7-day lunar holiday passenger traffic by air, rail, highway, and water was recorded at 98.4mn, dropping by 76.8% and 34.8% compared to the same period in 2019 and 2020. Hence, most people stayed at their residences over the long holiday. Therefore, the resumption of construction work and production is expected to be earlier-than-expected. 
  • As of 20th February, the domestic cement index was at 148.32, down 7.13% YoY; the domestic concrete index was 146.69, down 6.11% YoY. Recent respective highs were 155.31 and 148.32 on 16th December 2020.  
  • The market consensus of the estimated growth of net profit in FY21 and FY22 are 17.3% and 0.4% respectively, which translates to 6.6x and 6.5x forward PE. The current PE is 6.5x.
1313 HK (Source: Bloomberg)

AviChina Industry & Technology Company Limited (2357 HK): The sky is the limit

  • Buy Entry – 5.75 Target – 7.3 Stop Loss – 5
  • AviChina Industry & Technology Company Limited is principally engaged in the research, development, manufacture and sale of civil aviation products. The company operates its business through two segments. The Aviation Entire Aircraft segment is engaged in the manufacture, assembly, sales and servicing of helicopters, trainers and other aircraft. The Aviation Parts and Components segment is engaged in the manufacture and sale of aviation parts and components.
  • Right after the lunar holiday, the 18th meeting of the central committee for deepening overall reform presided by China President Xi Jinping underscored breaking through the bottleneck of core technologies and industries, and firmly grasping the initiatives of innovation and development. The military & defence sector is one of the key industries highlighted for reinforcement of development in 2021. 
  • We believe the abovementioned catalyst as well as the upcoming two sessions, NPC and CPPCC could soon disclose more detailed guidelines for the sector. The share price has been flattish after the big correction in late January this year. Before that, it had a 45% gain in the earlier half of January 2021. 
  • Market consensus of the estimated growth of net profit in FY21 and FY22 are 11.0% and 8.2% respectively, which translates to 17.6x and 16.3x forward PE. It currently trades at 21x PE.
2357 HK (Source: Bloomberg)

SG Trading Ideas

ISDN (ISDN SP): The age of automation is here

  • BUY Entry – 0.60 Target – 0.75 Stop Loss – 0.55
  • ISDN stands to benefit from industry tailwinds as an engineering company specialising in industrial automation (IA). The company engages in the entire engineering stage and derives almost 70% of its sales from China. 
  • Both Japanese and Taiwanese industrial automation stocks (THK, HIWIN, AIRTEC) have risen strongly over the past year on better than expected performance and guidance. Orders from semiconductor, smartphone and tablet makers were relatively strong in 3Q and 4Q 2020, while auto-related demand is recovering slowly. 
  • Fanuc, as a bellwether for Asia’s automation industry, has reported strong order volume, especially from China. Smaller players are starting to see longer lead times of up to 4-6 months from the typical 2-3 months. 
  • We have a trading TP of S$0.75 vs our fundamental TP of S$0.60, and will give an update after it reports its full-year earnings this week (tentatively 26 Feb). Last Friday (19 Feb), it issued a profit alert and expects full-year PATMI to increase more than 80% YoY. Read our previous report here and our initiation report here.
ISDN SP (Source: Bloomberg)

Q&M Dental (QNM SP): Even superheroes need dentists

  • BUY Entry – 0.58 Target – 0.70 Stop Loss – 0.52
  • QNM has the widest network of well-recognized clinics at strategic locations in Singapore, serving 10% of the local population. 
  • Healthcare-related stocks in Singapore have been among the best performers year-to-date in the local bourse due to potential M&A activities and attractive valuations.
  • QNM has remained resilient in its dental and medical services through Covid-19. While services were affected earlier in 2020, demand has quickly bounced back in the second half. As a result, its dental and healthcare services will continue to lend a greater level of stability to the business. 
  • We view upside potential from its timely investment into Acumen Diagnostics Pte Ltd. In 1H 2020, QNM invested in Acumen Diagnostics, which is involved in the manufacture, sale and distribution of diagnostic kits for Covid-19, in Singapore and internationally. We expect the business to contribute significantly to QNM in the short term. 
  • We have a fundamental fair value (read our initiation report here) of S$0.54 for QNM and will review it after the group reports full-year earnings next week. Meanwhile, given the positive sentiment among Singapore healthcare stocks, we believe this could be a good short-term play. 
QNM SP (Source: Bloomberg)

Market Movers – What’s Hot

Global/Macro

  • Bitcoin (BTC) market cap has now surpassed US$1 trillion as prices rose above US$55,000 on news that more institutional investors are warming up to the cryptocurrency. Payment giants Square (SQ US) and PayPal (PYPL US) have now allowed users to buy and sell BTC, while credit card processing companies Visa (V US) and Mastercard (MA US) are also embracing cryptocurrencies. 
  • WTI Crude oil prices declined 2.6% to US$58.97/bbl on Friday, as production in gas and oil fields in Texas continues to recover from a deep freeze. Meanwhile, Brent prices fell 2% to US$62.65/bbl. Energy Information Administration reported on Thursday that inventories fell by 7.3mn bbls to 461.8mn bbls, reaching their lowest level since March. 
  • The benchmark 10-year Treasury yields climbed above 1.35% last Friday, the highest since January 2020. 

United States

  • Palantir (PLTR US) +15.2% to US$29.0 after Cathie Wood upped her bets on the company. ARK Innovation ETF and ARK Next Generation Internet ETF acquired 6.8mn shares of PLTR last week worth around US$172mn. This comes after PLTR’s share price declined throughout the week after the company posted a surprise loss and as lockup expiration freed 80% of the stock to trade. All ARK ETFs reveal their trades in email to clients on a daily basis. 
  • Baidu (BIDU US) +14.1% to US$339.91 as the company expands into new areas such as autonomous vehicles. BIDU has selected a former executive from Fiat Chrysler and Ford to be the CEO of the company’s electric car venture with Chinese automaker Geely. Robin Li, BIDU’s CEO, hopes to launch its first vehicle within three years. 
  • Applied Materials (AMAT US) +5.3% to US$119.46 on 1Q FY2021 earnings beat and record quarterly revenue and non-GAAP profits. AMAT has guided for growth across all segments for the year ahead, while the latest analyst upgrades are now averaging around US$140 from around US$100 previously. 
  • Earnings Watch: Berkshire Hathaway (22 Feb), Square (23 Feb), Home Depot (23 Feb), NVIDIA (24 Feb), Salesforce (25 Feb), Airbnb (25 Feb)

Hong Kong

  • China National Building Material Co Ltd (3323 HK) +14.73%, closing at HK$11.84.  Anhui Conch Cement Co Ltd (914 HK) +9.57%, closing at HK$51.5. China Resources Cement Holdings Limited (1313 HK) +7.25%, closing at HK$9.47. China infrastructure sector stocks jumped due to the post-Chinese New Year effect and that the resumption of work and production is on schedule. Meanwhile, investors look forward to some form of supporting policies from the upcoming two sessions in March, namely the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). 
  • China Telecom Corp Ltd (728 HK) +9.79%, closing at HK$2.58. China Unicom Hong Kong Ltd (762 HK) +6.95%, closing at HK$5.08. China Mobile Ltd (941 HK) +6.44%, closing at HK$53.75. The telecommunication sector had been depressed due to the former US administration’s sanctions. However, the new administration under Biden seems to put all hostile policies against China’s 5G development on hold. Investors are expecting more favourable policies from the upcoming two sessions, NPC and CPPCC to lift three telcos out of the woods. 
  • CRRC Corporation Limited (1766 HK) +6.89%, closing at HK$3.88. The high-speed rail concept regained investors’ interest as expectations of more expansion plans from the upcoming two sessions, NPC and CPPCC.
  • Xiaomi Corp (1810 HK) +6.42%, closing at HK$30.65. The surge was due to the rumour that the company is planning to build electric vehicles.

Singapore

  • Oceanus Group (OCNUS SP) +13.6% week-on-week to S$0.075, gaining 971% over the last 6 months and now has a market capitalisation of S$1.8 bn. The seafood supplier was highlighted on Reddit as a “great growth potential stock” and for its pending application to exit SGX’s watchlist in April 2021. The company is due to report full-year earnings this week.  
  • Thomson Medical (TMG SP) +27.9% week-on-week to S$0.101 as it continues to be a favourite momentum play among traders, riding on the positive sentiment in the local healthcare sector. The stock is among Singapore’s best performing stock year-to-date, having gained 110%  over the last two trading weeks and now sports a market cap of S$2.9 bn. 
  • Sri Trang Agro (STA SP) +41.0% week-on-week to S$1.89 on earnings beat and a higher-than-expected dividend of 1.75 baht per share, equivalent to 7.658 Sing cents. Net profit in 4Q FY2020 surged to 5.5 billion baht, from just 74mn baht in the prior year period. While the Thai-based rubber producer posted strong earnings, it is still considered a pandemic play and as such, likely to be subjected to profit taking on positive headlines from vaccine developments. 
  • Medtecs (MED SP) +9.7% week-on-week to S$1.13 ahead of its full-year results to be announced this week. Trading volume for the medical supply company surged to the highest level in almost a month.

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