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SI Research: 5 Stocks For An Auspicious Chinese New Year!

Don Low

HUAT AH! Shares Investment wishes our dear readers a prosperous Chinese New Year! As with Chinese beliefs, saying or doing good things would help to spruce up our “luck” during this festive period. From sporting the colour red to decorating our houses with Pussy Willow, we all wish to usher in a bountiful year ahead.

For those who are still receiving red packets, bear in mind that the monies could be put to better use than on the “ban-luck” table ok? A more stable way to multiply your wealth is none other than to invest in the stock market! For those who are giving away red packets, same logic applies!

Now, with both the US and China drumming up about a possible trade deal, it seems like the God of Fortune may indeed be smiling down on investors this year. Nonetheless, here at Shares Investment, we picked out 5 stocks for an auspicious Chinese New Year 2019! Fret not, the successes of these stocks do not rely on mere luck itself!

Genting Singapore – Let Fortunes Roll [财源滚滚]

While gamblers try their luck in the casinos, investors are rolling their fortunes with Genting Singapore. The stock has been on tear since the beginning of the year. After closing 2018 at $0.975, stocks of Genting Singapore have risen to $1.11 to register a year-to-date return of 13.9 percent as of 21 January 2019. On the other hand, local benchmark Straits Times Index only recorded a rise of slightly above six percent.

After Naga2 opened in Phnom Penh of Cambodia in November 2017, concerns of VIP volumes have waned as 2Q18 marked a turning point where trade receivables for Genting Singapore hit a record low of $111.9 million. This gives scope for Genting Singapore to loosen its credit policy to lure back the VIPs. Meanwhile, based on latest data from Singapore Tourism Board, inbound tourist arrivals continued to grow in the months of October and November 2018 (December data not out) and hence why there could be some surprise in Genting Singapore’s upcoming 4Q18 results.

That said, there may be some major capex announcement for the integrated resort (IR) operator in 2019, as the government has identified Pulau Brani and the Greater Southern Waterfront as areas for future developments. Genting Singapore could very well be participating in the development given the proximity of the Sentosa and Pulau Brani.

Lastly, Japan is slated to issue licenses for three IRs in 2H19 of which Genting Singapore is expected to be amongst the top contenders. After having disposed its stakes in its South Korea venture on Jeju Island, Genting Singapore has propped up its balance sheet to focus on its Japan’s foray.

At the current share price, Genting Singapore is changing hands at a price-to-earnings (P/E) multiple of just 17.3 times despite the many potential catalysts. Notwithstanding that, its indicative yield is a decent 3.2 percent.

DBS Group Holdings – Money In The Bank [招财进宝]

Last year, the Federal Reserve hiked interest rate three times that bode well for banks’ net interest margins (NIM). However, investors feared that the Fed’s hawkishness may cause risk appetite to fall and curb loan growth, causing bank stocks like DBS Group Holdings (DBS) to plunge from the high of $31.28 to $23.69 by the end of 2018.

Starting 2019 on a different tone, the Fed then switched to a more dovish disposition by reassuring markets that it would be sensitive to risk of slowdown and would be flexible in its monetary policy. While NIM remained higher due to higher interest rates than compared to a year ago, the Fed’s latest gesture may bode well for loan demand going forward.

Market leader and Singapore’s most digitalised bank, DBS is slated to benefit from this trend in 2019. In its latest 3Q18 filing, DBS’ NIM rose to 1.86 percent compared to 1.73 percent last year. Meanwhile, non-performing loan ratio fell from 1.7 percent to 1.6 percent in the same period, suggesting a still sanguine lending environment.

Currently, DBS is trading at 12.2 times its earnings at $25.18 per share, with indicative yield at a solid 4.8 percent.

Jumbo Group – A Flavourful Year [多姿多彩]

Jumbo Group (Jumbo) is widely considered the company that popularised chilli crabs in Singapore and then later export it to overseas markets. As a household name, the stock was well-received when it first debut at $0.25 in November 2015. However, the stock “lost flavour” when it peaked out at $0.78 in January 2017.

At the current share price of $0.40, the stock is now not too far off the level as at the end of December 2015. In retrospect though, Jumbo’s latest 9M18 results showed that its financial performance has not gotten significantly poorer: For 9M18, Jumbo reported revenue of $113.3 million compared to $122.8 million for the full twelve month period of FY15. Gross margin for both periods was similar at 63 percent. However, net profit margin had come down to 7.6 percent in 9M18 from 8.6 percent in FY15.

That said, the lower net margin in 9M18 was attributable to higher employee benefits expense and other operating expenses relating to higher headcounts in the corporate office to support more outlets, as well as the company’s ongoing marketing efforts for its 30th anniversary celebrations. Such incremental costs though will typically be absorbed and offset by organic growth of new stores in the long-run. Hence, the fall from grace of Jumbo’s stock was largely due to overvaluation.

Now at a more compelling P/E of 22.8 times and indicative yield of three percent, investors may rediscover their taste buds for  the lost flavour of Jumbo’s stock.

Sheng Siong Group – Sea Of Abundance [年年有余]

Wishing you a year of abundance – just like how Sheng Siong Group’s (Sheng Siong) supplies never run dry. Uninterrupted by ongoing international trade uncertainties, Sheng Siong’s strong balance sheet and strong cash-generative business are the very reasons to like about the stock.

An easy business to understand, retail investors are no stranger to Sheng Siong. The supermarket operator continued to add new stores, with three being added in Singapore post-9M18 to bring its total store count worldwide to 55. Thus far, the group relied solely on internal funds to expand its operations and held no borrowings.

Maturing of newer stores would contribute to organic ramp-up in sales. Meanwhile, Sheng Siong is slated to complete the expansion of its bulk handling distribution centre in 2019, thereby giving scope to improve operating margins going forward.

Despite having bucked the broader market’s downtrend last year, stocks of Sheng Siong continue to do well in 2019. Since the start of the year, the stock climbed another 4.7 percent to the current share price of $1.11, translating to a P/E of 23.1 times and dividend yield of 3.1 percent.

Singapore Medical Group – A Pink of Health [身体健康]

What are all the riches in the world without having the good health to enjoy them? We continue to tout Singapore Medical Group as the better healthcare play in the local scene.

Despite posting record performances for the past few quarters, stock performance of Singmedical continues to languish. Despite that, Singmedical has been performing exceptionally well, with little to no blemish on all important financial metrics – revenue growth, gross and net margins, debt-to-equity ratio.

In terms of valuation, the stock which is changing hands at 15.3 times P/E also trails most of its local-listed peers like Raffles Medical Group (RMG). That said, we think another two or three quarters of excellent financial performance would eventually win attention back for Singmedical.

Given that the group’s aesthetics and diagnostic imaging operations drive higher margins, it is a good sign that Singmedical has been executing its expansion in these areas rather smoothly. Going forward, we can expect greater contribution to come from the ramp-up of its new imaging centre at Novena, and a new aesthetic offering in OUE Downtown Gallery slated to begin operating in 1H19.