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KGI DAILY TRADING IDEAS – 4 August 2021

Singapore Trading Ideas | Hong Kong Trading Ideas | Market Movers  | Trading Dashboard

SINGAPORE

Dairy Farm International (DFI SP): Technical rebound in the cards

  • BUY Entry – 3.65 Target – 3.98 Stop Loss – 3.55
  • Dairy Farm International and its associates and joint ventures operate more than 10,000 outlets and employ some 230,000 employees. The group’s annual sales exceeded US$28bn in 2020. Some of its brands include Giant, Cold Storage, Market Place, 7-Eleven, mannings, guardian and Ikea (HK, China, Indonesia, Taiwan). DFI is a member of the Jardine Matheson Group.
  • Disappointing 1H2021 earnings. Shares has been under intense selling pressure after it reported a disappointing set of 1H2021 earnings last week. Net income for the first half dropped 85% YoY to US$17mn on the back of weaker sales. It cut its interim dividend to 3.00 US cents from 5.00 US cents in the year before. Furthermore, the group expects 2H to likely remain challenging. 
  • Bearish analysts outlook. With the recent earnings miss, analysts have downgraded their recommendations on the company. There are currently 5 HOLDS and 4 BUYS. Credit Suisse and Macquarie recently downgraded their recommendations to neutral and lowered their TPs to S$4.10 and S$3.50 respectively. Overall consensus TP is now lowered to US$4.22, a 17% downgrade from the average TP of US$5.06 in July 2021. 
  • We think all the bad news is priced in and it’s technically due for a rebound. Shares are looking oversold with RSI < 30. Shares have historically tended to rebound when RSI drops below 30. We believe all the negative factors have been priced in, given that its shares have been on a continual decline since June 2021, correcting by as much as 16%. Shares are now trading at their lowest since March 2020, when it was sold off at the start of the Covid-19 pandemic.  
DFI SP (Source: Bloomberg)


Rex International (REXI SP): The only game in town

  • BUY Entry – 0.21 Target – 0.32 Stop Loss – 0.19
  • Rex International Holding (Rex) is a pure-play oil & gas exploration and production company (Independent). It owns and operates an oil-producing field in Oman and has a portfolio of exploration licenses in Norway. Its recent acquisition of the Norwegian Brage oil field will add another production asset to its portfolio. This is an accomplishment from its early days when it was listed on the SGX as a pure-play explorer. 
  • Record free cash flows. Free cash flow generated by oil and gas companies are expected to break records this year with oil currently trading above US$70 per barrel. For Rex, the windfall will continue to strengthen its already strong balance sheet and give it opportunities to diversify.  
  • The coming of age. Rex’s value creation strategy is to leverage technology to identify and acquire assets that are near to relevant infrastructure. While it now has a portfolio of more than 10 licenses, including 3 discovery assets with commercial development potential, the group is currently in an excellent position to generate record free cash flows from its producing assets. Based on US$65 oil price, we forecast Rex’s net cash position to surge to US$107mn by FY2022F. This is equivalent to S$144mn or 54% of the group’s current market capitalisation.
  • Initiate with Outperform and TP of S$0.32. We initiate with an Outperform recommendation and a TP of S$0.32, based on discounted cash flows, taking into account a WACC of 11.0% and terminal growth rate of 3.0%. Rex’s strong balance sheet, free cash flow generation and access to capital, differentiates it from many other E&P companies. Rex is the only game in town (at least on the SGX) for investors looking for direct exposure to the neglected O&G sector.
  • Read our full initiation report here.
REXI SP (Source: Bloomberg)

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HONG KONG

China Resources Cement Holdings Limited (1313 HK): A perfect candidate of Peter Lynch’s “Turnarounds” classification 

  • BUY Entry – 6.86  Target – 8.0 Stop Loss – 6.36
  • 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.
  • On 2nd August, China released Caixin manufacturing July PMI which was 50.3, lower than the expectation of 51.0. However, the infrastructure sector rebounded substantially even though investors were concerned about the slowdown of the economic recovery. The counter-intuitive market reaction could be due to investors wagering on a new round of infrastructure expansion in 2H21 as consumption and exports are not expected to uphold the economic recovery. 
  • Infrastructure stocks have been out of flavour since February as investors were chasing technology, consumer staples & discretionary, and materials stocks in 1H21. The whole industrial sector has been dropping and breaking key support levels. At the moment, investors are trying to avoid sectors exposed to regulatory risks and are seeking safe havens. Industrial stocks are one of the candidates as their valuations are dirt cheap. 
  • Currently, China’s domestic average cement price have reached last August’s level where the previous uptrend started. The company’s forward PE dropped to the 10-year lows recently. Therefore, we see it as deeply undervalued right now.       
  • Updated market consensus of the estimated growth of net profit in FY21 and FY22 are -0.96% and 3.24% respectively, which translates to 5.7x and 5.5x forward PE. The current PE is 5.5x. The estimated respective dividend yield in FY21 and FY22 is around 8.3% to 8.5%. Bloomberg consensus average 12-month target price is HK$9.67.
1313 HK (Source: Bloomberg)

Xinjiang Goldwind Science & Tech Co Ltd (2208 HK): Go with the wind

  • Buy Entry – 13.8 Target – 15.9 Stop Loss – 12.8
  • Xinjiang Goldwind Science & Tech Co Ltd is a China-based company, principally engaged in the manufacture and distribution of wind turbine generator sets and spare parts. The company is also engaged in the provision of wind power services, as well as the investment and development of wind farms. The company distributes its products within domestic and overseas markets.
  • The recent overall market weakness resulted from the sell-down of the technology sector. The impact from regulation and policy risks are not expected to diminish in the near term. Investors are currently unsure of further policy risks and have turned risk-averse. However, several sectors or investment themes are relatively risk-free in terms of policy, namely semiconductor, electric vehicle, and clean energy.  
  • China’s wind power sector gained some positive momentum amid the market sell-down last week. According to the National Energy Administration’s announcement on 28th July, China has increased utility-scale offshore wind electricity generation capacity to 11.13 GW, surpassing 10.4GW of installed capacity in the UK at the end of 2020. With a 3.63 GW increase in installed capacity in 1H21, China has overtaken the UK to be the world’s largest operator of installed offshore wind capacity. In 1H21, wind power generation grew by 44.6% YoY to 344,180 GWh. Currently, China’s overall wind power installed capacity is 292 GW. 
  • Both onshore and offshore wind power installed capacity is expected to be 50 GW in 2021, 40 GW of which will be installed in 2H21. The overall wind power installed capacity during the 14th-Five-Year Plan period (2021-2025) is expected to be more than 300 GW. 
  • Updated market consensus of the EPS growths in FY21 and FY22 are 26.1% YoY and 4.4% YoY respectively, which translates to 14.3x and 13.7x forward PE. Current PER is 17.6x. Bloomberg consensus average 12-month target price is HK$15.24.

2208 HK (Source: Bloomberg)

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Market Movers

United States

  • Robinhood Markets (HOOD US) stocks soared to close up 24.2% at $46.80 on Tuesday after ARK disclosed that the ARK Innovation ETF now owns 4.9 million of Robinhood shares. The Robinhood stock is now trading above its $38 IPO price for the first time since its IPO.
  • Moderna (MRNA US) stocks were up 11.51% after the U.S. Food and Drug Administration (FDA) granted Fast Track designation for the company’s mRNA-1345 vaccine which combats respiratory synctial virus (RSV). There is currently no other vaccine available for RSV that has been approved. Related coronavirus stock Pfizer (PFE US) rose 3.4% following events that are pushing the U.S. and the world administer more vaccine doses. On Tuesday morning, New York City’s Mayor Bill de Blasio announced that the municipality is mandating proof of at least one vaccine dose for people working or frequenting a list of businesses. “If you want to participate in our society fully, you’ve got to get vaccindated,” said de Blasio in a press conference.
  • Nvidia (NVDA US) climbed as much as 2% on Tuesday morning, before declining 2% and closing 0.33% up at $198.15. J.P. Morgan boosted their target price from $176 to $215, stating that they expect the solid demand in PC gaming to be a strong driver for the company, offsetting declining personal computer sales. Nvidia is set to report its quarterly results on 18 August 2021.
  • Advanced Micro Devices (AMD US) shares were up 3.62% following the company’s sparkling second quarter earnings where the company reported a 99% YOY increase in sales. It was also announced on Tuesday that Apple would be updated their Mac Pro desktop computers with new graphics card modules featuring AMD’s Radeon Pro W6000 series Graphic Processing Units that are designed exclusively for the Mac Pro.

Singapore

  • Sarine Technologies Limited (SARINE SP) Shares rose by 5.7% yesterday even though there was no company specific news. Investors are likely buying ahead of the company’s 1H21 earnings which is expected to be released today, 4 August. Diamond prices have rallied over the past year and have reached a 5-year high of US$130.83 last Friday, 23 July. Other catalysts which might have boosted investors’ confidence in the stock was the approval of Sarine’s dual listing on Tel Aviv Stock Exchange (TASE) on 27 June and Sarine being featured on The Business Times on 28 June as a stock to watch.
  • Sembcorp Marine Limited (SMM SP) Shares rose by 5.2% yesterday, continuing the gains made last week. The company reported 1H2021 results last week, where the company reported a loss of S$647.2mn for H1 FY2021, widening from a loss of S$192.1mn in the same period a year before. On a brighter note, company executives said that, barring unforeseen circumstances, they expect losses to narrow in the second half of the year. An article in The Straits Times earlier last week made the case for minority shareholders with the means to apply for excess shares to further average down their investment cost.
  • Silverlake Axis Limited (SILV SP) Shares rose by 3.8% on higher-than-average trading volumes. The company provides digital economy software solutions and services to the banking, insurance, payment, retail and logistics industries. Investors could have a positive outlook on the company given that the banking industry has been ramping up digitalization. The Business Times published yesterday that GuocoLand and OCBC have partnered with local fintech, Doxa to pilot digital workflow solutions for development projects, which might have had a positive impact on the sector. We currently have a Trading TP of S$0.30 for Silverlake Axis, which represents 11.1% upside from yesterday’s closing price of S$0.27. Read here for 30 July trading ideas. 
  • Olam International Limited (OLAM SP) Shares rose by 3.7% yesterday on higher than average trading volume. Investors are likely buying ahead of the company’s 1H21 earnings which will be released on 13 August before trading hours. Olam announced yesterday that it is directly supporting over 500,000 smallholder farmers on the African continent in light of the adverse impact of Covid-19. Digital tools would be deployed to help smallholder farmers gain access to vital agronomic info and advice. These digital tools facilitate market linkages for the farmers as well as deepening relationships along the value chain to boost productivity and raise incomes. Olam also announced yesterday that it would be commencing this programme by building a hybrid cloud with Nutanix, a leader in hybrid multicloud computing to connect millions of farmers with their customers.
  • Sembcorp Industries Limited (SCI SP) Shares rose by 3.5% yesterday after the company announced profit guidance for its 1H21’s results. Despite an impairment of S$212mn for its 49% owned joint venture Chongqing Songzao Sembcorp Electric Power Co (Chongqing Songzao), the company expects its 1H2021 net profit to remain positive. Read here for the full announcement.
  • Wilmar International (WIL SP) Adani Wilmar, a 50/50 JV between Wilmar and Adani Group, has filed its draft red herring prospectus with the Securities and Exchange Board of India for the proposed IPO to raise as much as US$600mn on BSE and National Stock Exchange of India. It will use the proceeds to expand manufacturing facilities, repay borrowings and make strategic acquisitions and investments.

Hong Kong

  • Differ Group Holding Co Ltd (6878 HK) Shares closed at an all-time high, bringing the company’s market cap to HK$20bn. Previously, the company announced a positive profit guidance where net profit of the group was expected to increase by 125% – 150% YoY in 1H21. Its wholly-owned company, Tianjin Free Trade Gancheng Taifeng Technology Company Limited also entered into a strategic cooperation agreement with a bank in Tianjin. The bank will provide funding and settlement services which is expected to facilitate the Tianjin Free Trade Gancheng Taifeng Technology’s operation of its online e-commerce business.
  • Genscript Biotech Corp (1548 HK) The contract research organization theme stocks jumped after JP Morgan issued a report stating that recent regulations had no direct impact on the healthcare sector. Hence, the related stocks were oversold. Those companies with sound fundamentals will perform well moving forward. 
  • Cansino Biologics Inc (3808 HK) Vaccine-related stocks jumped as the new wave of delta variants is spreading in China. The company, as a COVID-19 vaccine theme stock, has been up for five consecutive trading days. 
  • China Youzan Ltd (8083 HK) Shares jumped after the company announced it is cooperating with Tiktok to develop the enterprise service ecosystem. 
  • Tencent Holdings Ltd (700 HK) Shares were trading lower and resting at last week’s low after the Chinese state media decried the “spiritual opium” of games, prompting the company to introduce a ban for kids and triggering fears Beijing will set its sights next on the gaming sector.

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