July 3

Top 7 Stock Ideas for July 2020

June was yet another eventful month with USA Fed giving a grim economy outlook, listed companies such as Hertz filing for bankruptcy, etc.

That said, there’s still a silver lining for these 7 top stock ideas we have cherry picked from various sources…

#1 Kimly Group

Kimly Group, more recognisable for its Kimly hawker centers sprawled across Singapore had been upgraded to Buy from RHB.

Kimly has announced a strategic shift to its future plans. The Group plans to “acquire more long-term and direct assets ownership of food outlets and food stalls to increase its revenue stream and reduce risks associated with leasing and tenancy.”

This is a favourable factor for investors who appreciate a company with steadier revenue streams than lumpy but higher revenue streams.

Moreover, RHB expects ” Kimly’s business to remain durable amidst this pandemic, and it will likely continue to reward shareholders with attractive dividends despite falling slightly for FY20F (Sep) of 4.7%.

We expect dividends to pick up over the next few years as things return to normal for the company post Circuit Breaker.” This is a factor interesting to investors who like steady dividends.”

#2 Innotek Limited

CIMB has initiated coverage on Innotek Limited with an Add recommendation. The strong balance sheet of Innotek was one of the main reason.

“it has been in a net cash position for the past five years. From a S$34.9m net cash (including marketable securities) balance in FY15, Innotek’s net cash (including marketable securities) balance has grown to S$69.3m as at end Dec-2019″.

Significantly, Innotek’s net cash (including marketable securities) as at end Dec-2019 accounted for 80.6% of its market cap.”

A favourable point for dividend investors is that dividend payments have resumed.

“Innotek resumed its dividend payments in FY16 with a DPS of 0.5 Scts. DPS was raised to 1.0 Scts in FY17 and 1.5 Scts for FY18, and maintained at 1.5 Scts for FY19.”

The dividend declared for FY 19 gives it a dividend yield of about 4.0%.

#3 Avi-tech Electronics

UOB Kay Hian has maintained Buy recommendation on Avi-tech.

The positive news is that the “industry is still in upcycle mode. Works at Infineon, the world’s largest automotive semiconductor manufacturer and Avi-Tech Electronics’ largest client, is healthy given the accelerating adoption of electric vehicles.”

“Despite COVID-19 headwinds and limited visibility on nearterm macro conditions, worldwide semiconductor billings rose by an impressive 6.4% yoy to an estimated US$136.75b for 4M20, reflecting the industry’s long-term resilience.”

The mid-long term prospects are still intact which make the company a worthwhile investment. Moreover, as it is considered an essential service, work resumed throughout circuit breaker.

“As work scope for Avi-Tech Electronics is classified as essential services, factory utilisation rates are not impacted by the circuit breaker implemented by the government in April-May.”

#4 Wilmar International

RHB maintained buy recommendation for Wilmar International as thhe IPO of its subsidiary Yihai Kerry is expected to be hastened.

“The group has submitted an updated prospectus to the SZSE for its review and approval on 22 Jun.

According to the new GEM stock issuance and listing review rules, the total time SZSE takes to review new listing and register with the China Securities Regulatory Commission (CSRC) should not exceed three months from the date it accepts the application documents.”

Issuers and sponsors are also required to response to SZSE inquiries within 3 months.

“Given that Yihai Kerry has previously undergone one round of review by CSRC, we believe the audit inquiry process with SZSE would be smoother this time and the approval could be hastened.”

Moreover, there is potential for upside for its IPO valuation.

“Since Wilmar plans to float 10% of Yihai Kerry, the indicative proceeds translate to a market capitalisation of CNY138.7bn and imply 25.6x FY19 P/E. The IPO price has not been set yet.

Hence, there could be room for higher IPO valuation to be achieved, given that China consumer peers are trading at c.34x FY20F P/E (FY19: 56.8x P/E).” The positive catalysts from these two factors make Wilmar a favourable mid term investment.

#5 Tuan Sing Holdings

DBS has initiated coverage on Tuan Sing Holdings with a Buy recommendation.

Tuan Sing is regarded as a deep value play by DBS.

“We see catalysts emerging for Tuan Sing in the medium term through the (i) potential value unlocking activities of a divestment or receipt of dividend from Gul Technologies (Gultech) amongst other non-core businesses, and (ii) rebound in performance of its core investment properties post COVID-19 outbreak.”

Also, property business side of Tuan Sing is expected to remain profitable in 2020.

“While COVID-19 has impacted Tuan Sing’s two hotels in Australia, we believe that a recovery is imminent due to the two properties’ large focus on the domestic market (estimated at c.75% of FY19 revenue) and the easing of Australian interstate movement restrictions.

On the property development end, c.S$165m of pre-sales from previous projects are set to be recognised over FY20-FY21 with a further boost expected from the Peak Residence project.

These should help offer earnings visibility and mitigate the downside stemming from COVID-19.”

Last but not least, these two compelling factors are good drivers for the company’s business moving forward.

#6 CSE Global

CSE Global’s businesses are derived from the oil and gas industry and spotted through NextInsight.com

Though O&G industry has been impacted by the fall in oil prices, CSE still remains a healthy company with the following reasons.

According to Nextinsight, “Most of CSE’s operations in Singapore, Australia, New Zealand and USA have been allowed to continue during lockdowns as they are essential services. And, thankfully, no work site has been hit by Covid infections.”

Remaining operational is extremely important as CSE can still going to bill its clients for the work done. Another important factor to be considered during this downturn is the possibility of payment defaults from customers.

However, “CSE’s oil & gas customers are major players and so there has been no material collection issues for CSE’s trade receivables.”

This is an important assurance to be taken into account. Though O&G industry is in the doldrums, CSE’s resilient positions affirm its status as a good investment.

#7 Frencken Group

UOB Kay Hian has initiated coverage on Frencken Group with a Buy recommendation.

Frencken group is in a good position to enjoy the positive tech sector trends.

“As a component supplier and provider of modular parts for companies in industries such as analytical & life sciences, healthcare and industrial automation, the group will benefit from higher demand for parts as the technology trends evolve towards mass consumption. ”

Another worthwhile factor to look at is its healthy balance sheet. It will help it tide through the volatile market conditions.

“As at end-1Q20, its net cash pile of S$92.9m, or 25% of market cap, should help weather any uncertainties in the current demand environment due to the Covid-19 outbreak.”

With the strong cash position it is in, Frencken will be able to pull through the bad market condition, and utilise the positive tech trends to grow stronger thereafter.

We hope you like the top stock ideas as shown above. If you want to stay in the loop for other top stock ideas and exclusive content, subscribe to our FREE newsletter here.


Tags

avi-tech, cse global, Frencken, Innotek, kimly, stock picks, top stock ideas, Tuan Sing, Wilmar


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