UOBKH adds Sembcorp Marine, BRC Asia to December alpha picks

UOB Kay Hian (UOBKH) has added Sembcorp Marine (Sembmarine) S51 and BRC Asia BEC to its alpha picks for the month of December, and removed Sea and iFast AIY from the portfolio given the lack of share-price catalysts in the near term.

In a strategy note on Monday (Dec 6), the brokerage said Sembmarine was added with a target price of S$0.11 as it believes the marine and offshore engineering group's current share price has already priced in most of the company's negatives.

Much of the company's corporate-level risk, which has dissipated, included its S$1.5 billion rights issue, which completed in September, and Temasek's mandatory general offer at S$0.08 per share, which lapsed in early November, analyst Adrian Loh pointed out.

There is now "very limited downside at the current share price", he said, pointing out that Sembmarine's new order flow enquiries have improved, with its repairs and upgrades segment seeing a sequentially higher volume of business in Q3 FY2021.

The S$0.11 target price represents a 32.5 per cent increase from the closing price of S$0.083 on Friday (Dec 3). It is based on a target multiple of 0.74 times, pegged to the brokerage's 2022 estimated book value per share of S$0.14.

In adding Sembmarine, UOBKH pointed out that the outlook for the offshore renewables and drilling sector has improved markedly over the past 12 months.

"With its S$1.5 billion capital raising behind it, Sembmarine is now in a much stronger financial position to take advantage of a potential upswing in the offshore construction sector," it added.

Meanwhile, BRC - which designs, manufactures, and markets steel mesh - was also added with a target price of S$1.76, which represents an 18.1 per cent increase from the closing price of S$1.49 last Friday.

This comes as analysts Llelleythan Tan and John Cheong consider it a "proxy to the Singapore economy's continued reopening", pointing out that it "should benefit from the government's infrastructure spending".

Not only has BRC maintained its monopolistic market share, which has seen its order book grow steadily to S$1.2 billion amid the pandemic, the analysts said it is "set to benefit from the recovery in the construction sector and major upcoming projects".

Major upcoming projects include the new Tuas Megaport, Changi Airport Terminal 5, and Greater Southern Waterfront, which "would help raise earnings", they added.

The recently passed infrastructure bill, which lets the government borrow S$90 billion in bonds to fund national infrastructure projects and upgrades, will benefit BRC as well, they pointed out, noting that close to 90 per cent of its total annual revenue comes from Singapore.

"We think that the full reopening of Singapore's international borders to foreign labour would cause a higher re-rating to our share price," the analysts added.

UOBKH, meanwhile, withdrew its short-term tactical call to short DBS D05 and OCBC O39 , while noting that its call to short financials had worked well, with DBS and OCBC declining 5.3 per cent and 6.9 per cent month on month, respectively.

The brokerage's alpha picks portfolio outperformed the Straits Times Index (STI) by a slight 0.8 percentage point in November, declining 4.1 per cent month on month versus a 4.9 per cent drop in the STI.

It said "much red ink" was seen towards the end of last month due to news about the Omicron variant, with only Lendlease Reit registering a positive return within the portfolio. Sea's share price dropped the most, down 16.2 per cent month on month.

Shares of Sembmarine closed flat at S$0.083 on Monday, while BRC closed S$0.01 or 0.67 per cent higher at S$1.50.

Read more:

• Temasek makes mandatory general offer of S$0.08 per share for Sembcorp Marine
• Sembcorp Marine expects significant H2 loss with supply chain crunch
• BRC Asia posts full-year net profit of S$47m
• Hong Leong Asia to raise stake in BRC Asia to 20% for S$68.1 million