3 Stocks That Are Still Lagging Despite Earnings Beat

Earnings season is a good opportunity for investors to digest new financial information and sync up with the expectations of management teams. However, with so many companies reporting at once, it is easy to miss good results in all the noise.

According to UOBKH, 29 percent of the companies reported earnings beat in this 2Q season, marking one of the highest level of beats since 4Q16. However, despite beating estimates, some companies see their stock prices lagging in valuation. Here are three recommended stocks that could be could be smart additions to your portfolio.

Ho Bee Land

Ho Bee Land reported its 2Q18 revenue that jumped 16.1 percent to $43.4 million mainly due to higher rental revenue from Lombard Street and Ropemaker Place. The sale of a 30-year leasehold interest in petrol station site located along Bukit Timah Road amounting to $28.3 million further boosted the bottom line. Share of profits from associates surged 110.5 percent to $25.7 million from the JV development project in Shanghai and Zhuhai.

Net gearing rose from 0.42 times to 0.77 times as Co took on additional bank borrowings to fund the acquisition of Ropemaker Place. Net Asset Value (NAV) decreased marginally from previous quarter $4.79 to $4.78 per share.

Management also expressed confidence in London, which has maintained its position as the top financial city ahead of New York despite Brexit concerns. The recent property cooling measure will have limited impact on Ho Bee Land given that the group’s exposure is diversified across other markets which have helped to sustain and grow the group’s recurring income base.

UOBKH reiterated a BUY call but lowered the target price from $3.02 to $2.79, pegging at a 30-percent discount to a higher revised net asset value (RNAV) of $3.98 per share. The steeper discount to RNAV is to reflect the continued outlook in its key markets, such as cooling measures in Singapore, trade war in China as well as Brexit in UK.

Singapore Technologies Engineering

In 2Q18, Singapore Technologies Engineering (ST Engineering) reported net profits of $117.5 million above analyst forecasts of five to seven percent. Strong growth was led by the electronics division and improved profitability in the the marine division. Meanwhile, ST Engineering clocked in divestment gains of $9 million from associate Airbus Helicopters and recorded a breakage fee of $15.3 million due to early redemption of a medium-term note.

As at the end of June, ST Engineering’s order book stood at $13.4 billion and out of $2.7 billion is expected to be delivered in the rest of 2018. ST Engineering expects to recognise 29 percent higher revenue from orderbook-related revenue in 2H18. On that basis, UOBKH assumes a conservative 12 percent growth in revenue for 2H18 which raised the net profit estimate for FY18 by 2.2 percent. In the mid-term, ST Engineering’s bottom line is projected to grow at compound annual growth rate of 7.6 percent from FY18-20.

UOBKH expects ST Engineering to achieve a respectable return on invested capital of 13.5 percent in FY18, well above its weighted average cost of capital of 5.8 percent. Given its robust balance sheet and potential earnings growth, UOBKH is maintaining a BUY call with a target price of $4.10.

Bumitama Agri

The earnings surprise in 2Q18 from Bumitama Agri (Bumitama) is attributed to higher-than-expected external fruit intake and realised crude palm oil (CPO) average selling price (ASP).

Revenue increased 22.4 percent to IDR2.4 trillion in the quarter mainly due to higher CPO and palm kernel (PK) sales volumes offset by continued weakness in CPO ASP. Net profit grew 36.1 percent to IDR388.1 billion attributed to higher sales volume and higher production.

According to UOBKH, peak production likely to come during September to early November period before gradually entering into a low yielding season in December. However, operating costs are expected to be higher in 3Q18 as management is aiming to apply most of the remaining 64 percent of fertiliser before the rainfall season in 4Q18.

Meanwhile, management has remaining 1,922-hectares of land to be planted in 2H18. After factoring new areas coming into maturity, UOBKH expects higher fresh fruit bunches (FFB) yield and maintains FFB production growth target of 36 percent for FY18, higher than management’s guidance of 15 to 20 percent. UOBKH opines that the management would revise up the FFB production growth guidance in 3Q18 if FFB production remains strong.

UOBKH reiterated its “BUY” call on Bumitama with a target price of $0.93, representing a 32.9 percent upside from counter’s last closing price of $0.70. Share price of Bumitama has lagged behind its peers though Bumitama is delivering growth while its peers are losing profits. UOBKH continue to like Bumitama for its young tree-age profile which yields better production and hence is expected to offset low CPO ASP.