Go against property, offshore & marine flow: RHB
Depressed valuations in smaller counters of these sectors seen offering contrarian opportunity for bargain-hunters
Singapore
DEPRESSED valuations among smaller counters in the property and offshore and marine spaces offer bargain-hunters an opportunity to pick up contrarian value, RHB said on Wednesday as it unveiled its 2015 slate of small cap "jewels".
"If during ancient times there was such a thing as a stock market, and if I was to mention these two sectors, my tongue would have been cut off. I like offshore, marine, and I like property," RHB head of research Terence Wong said at a briefing.
Mr Wong, who believes that the Straits Times Index will hit 3,720 in 2015 based on a 15-time multiple of earnings estimates, said it was time to "reload" on small caps after two disappointing years. The Straits Times Index closed at 3,460.68 on Wednesday.
Going against the grain was his key message to investors.
In the offshore and marine space, the research firm believes that oil prices will rebound in the second half of 2015. The firm argued that prices have fallen below the marginal cost of production, and are therefore unsustainable. Inventories are also tight, with spare capacity estimated at only about 5 per cent, while the production of shale wells and the number of active land rigs are showing vulnerability amid low oil prices.
Even if oil prices do not recover as predicted, Mr Wong reckoned that some names, like Ezion Holdings, Nam Cheong and GSS Energy, are oversold bargains.
In terms of property, RHB believes that residential prices in Singapore could fall 6 to 10 per cent this year amid bulbous supply and moderating demand.
But the slowing market could pave the way for the government to unwind cooling measures that were put in place over the past few years. That would be positive for developers, many of which are now trading at steep discounts.
The successful privatisation bid of Keppel Land has also created merger and acquisition buzz. Mr Wong noted that at 30 to 50 per cent discount to analysts' market-based estimates of net asset value, companies like Wing Tai Holdings, Wheelock Properties (Singapore) and Hong Fok Corp could be privatisation candidates.
RHB's picks in other sectors were on a more case-to-case basis. In the technology and manufacturing space, RHB highlighted CDW Holdings and Valuetronics as cash-rich companies with low price-earnings valuations.
In construction, Lian Beng Group was picked as a larger company that can withstand margin pressures, while public housing-block painter ISOTeam was singled out as a possible beneficiary of election-year projects.
