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SIA Engineering & Sheng Siong Group: Trading On Defense
Tradeable Ideas is a new weekly column by Tradeable. This column focuses on locally listed companies or particular sectors that have attracted strong interest from analysts at various research houses. Tradeable Ideas is meant to serve as a springboard for investors’ interest in specific stocks or sectors in Singapore.
As uncertainties fill the market, many investors are turning to defensive plays as seemingly “safe havens”. Companies sitting on a cash pile and yet still pays out stable dividends are now the new favourite of investors. For the Tradeable Idea of the week, we will feature SIA Engineering (SIAE) and Sheng Siong Group (SSG), which both fits the characteristics mentioned above. In addition, the stock call from Collin Seow will give us the opportunity to trade on another defensive company!
SIAE
SIAE garnered much interest from analysts after it released its latest financial results. SIAE performed in-line with consensus estimates of a flat growth in revenue. Core operating profit came in lower due to higher staff cost, but was offset by higher contribution by its joint-ventures (JV). Little changes were made to the balance sheet as they still hold a high amount of cash, with a low debt figure on its sheets.
Three out of four analysts covering the firm gave SIAE a “Hold” rating. They cited limited growth space, high P/E (Price-to-Earnings), and unattractive dividend yield as factors to the rating. SIAE currently trades at 18 times P/E with a dividend yield of 4.46 percent (based on closing price of 24 July 2013). However, Maybank Kim Eng research (MKE) remains positive on SIAE, reiterating their “Buy” call. MKE expects higher contribution from SIAE’s JV with Rolls Royce as Trent engine (by Rolls Royce) is the only component option for the new A350 plane.
Based on calls from the street, the consensus estimates of SIAE indicates that it will appreciate by 8.18 percent.
Source: ChartNexus, technical chart of SIA Engineering
After seeing the peak of $5.31 on 8 May 2013, which also breaks the resistance set by the Fibonacci retracement level ($5.30), SIAE has failed to successfully close above the $5.30 level and has since moved down towards the 23.6% Fibonacci retracement level region. An obvious downward gap seen in its recent price movement, coupled with its price breaking below both its moving averages (MAs) suggest possible downward pressure. The price could continue to flirt with the resistance set at the 23.6% Fibonacci retracement level at $4.988, or break through and look to test the next Fibonacci retracement level (38.2%) at $4.796.
SSG
Another cash rich company which is committed to constant dividend payout (~4 percent) is SSG, which released its earnings earlier this week. SSG met market’s expectations with its 2Q13 earnings by recording a profit increase of 20.8 percent year-on-year (yoy) to $8.5 million.
The strong earnings came in despite the toughening operating environment that SSG has to deal with. As such, analysts favoured SSG for their effective cost management that defrayed the higher labour cost and the ability to retain their customers in this highly competitive environment. Initiatives by the SSG to renovate old stores that are facing declining sales are expected to help boost the sales.
Consensus estimates depict that SSG will appreciate by 9.57 percent. They cited higher growth potential over time as the new stores mature as well as the end of construction works at old stores.
Source: ChartNexus, technical chart of Sheng Siong Group
The price action of SSG seems to be gearing up momentum to test and hopefully, break the resistance of $0.72. It is now trading steadily above both its MAs, where a formed positive cross over can also be clearly seen, signalling upside potential. The relative strength index (RSI) also shows a beautiful break above the downward trend line, which further signals the potential upside move. In the event of a pullback, its price should look to fall back to its MAs. A significant support, if price derails unfortunately, shows a price level set at $0.63. If its price closes above the $0.72 level for the next couple of days, the upside potential will be further reinforced.
M1
Source: Source: Collin Seow, Daily Chart Of M1
Based on the signals generated from this chart, M1 is positioned for a move toward the long side.
The first buy arrow was generated on 18 July 2013.
Its price has broken the peak (Resistance) at $3.22 and the trough (Support) is at $3.11.
To learn more about the CSI Trading system, please go to here.
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