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Value Stocks Standout As Markets Plunge
Tradeable, Tradeable Ideas | 05 February 2014
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By: Justin Harper
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By: Nicholas Tan
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Even with celebrative spirit from the festive season, the FTSE Straits Times Index (STI) could not resist piercing its 3,000 support line on 3 February. Since the start of the week, the FTSE STI has lost 61.42 points or 2 percent to close at 2,965.80 on 4 February.

All this was due to panic in the market caused by a slowdown in China’s manufacturing growth coupled with a weaker-than expected reading on the Institute for Supply Management (ISM) index from the US.

Nonetheless, some market watchers expect the fall to be transient as a result of extreme weather conditions halting production. Thus, it may be an opportune time for deep value stock hunters to look out for undervalued stocks such as Genting Singapore (GS) and CDL Hospitality Trust (CHT).

Betting On Genting
Resorts World Sentosa (RWS) owner, GS, is not expected to report such a weak 4Q13 compared to Marina Bay Sands due to strong growth in its VIP business among ASEAN clients. Contrastingly, Marina Bay Sand relies heavily on mainland Chinese.

The trend in RWS’s VIP strength began in 3Q13 and could start to show in its financial results. GS will be announcing its 4Q13 results on 20 February after the market close. If its 4Q13 results confirm RWS’s lead in the VIP business, it will be a strong catalyst for the stock.

Other catalysts are an upturn in earnings growth and opportunities in Japan. GS is reported to be in talks with the Osaka government on plans for a 500 billion yen (US$4.8 billion) casino resort. But it is still early days and the Japanese government has yet to pass the legislation.

GS has expressed interest in developing and operating an integrated resort in Japan, although it will still be quite some time before these casinos in Japan materialise.

Major gaming rivals like Caesars, MGM and Las Vegas Sands are also in discussions with the Osaka government, suggesting that the competition for the initial project is likely to be fierce.

OCBC Investment Research maintains its “Hold” rating and a $1.48 fair value price for the share. On the other hand, DBS Vickers has a “Buy” call on Genting with a target price of $1.75 stating that the stock remains the main beneficiary of the sustained growth in visitor arrivals and tourists spending in 2014.

While CIMB Research has a similar rating with a higher target price of $1.78. The average uplift expected among analysts is for a 5.1 percent rise in GS share price.

Room For Improvement At CHT
CHT saw its FY13 distribution per unit (DPU) fall by 3.1 per cent to $0.1097, due to new hotel room supply and weak corporate demand in Singapore. The trust’s occupancy rate for its Singapore hotels also dipped slightly, to 87.4 percent for FY13 (FY12: 88.7 percent), along with the average room rate of $218 (FY12: $231).

But CHT’s balance sheet remains strong, with fixed rate loans making up 57 percent of borrowings and gearing still low at 29.7 percent.

This year, hotels may get a boost from major events such as the Singapore Airshow in February, Food & Hotel Asia in April and the WTA Championships at the new Singapore Sports Hub in October, which should draw strong crowds.

And with the US dollar rising against the “Sing” dollar, corporate bookings could be more favourable in FY14 too. CHT expects another 2,926 hotel rooms to be added in 2014 versus 4,138 (prior estimate) in FY13.

With a more positive outlook for the hospitality industry in FY14, Maybank Kim Eng thinks investors can position themselves early for a recovery story. It maintains its “Buy” call with an unchanged target price of $1.75.

OCBC Investment Research has a fair value of $1.84 on the counter while its “Buy” rating is under review. The average uplift predicted among analysts is for a 10.9 percent rise in the CHT share price.

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This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

Genting Singapore  0.900 +0.005 +0.56%   
Business: Develops, operates & mkts casinos & IRs globally, including Australia, M'sia, Philippines & UK. [FY18 Turnover] Gaming (66.1%), non-gaming (33.8%), others & invs (0.1%).

Insight: May-19, 1Q19, despite Co's non-gaming business reg... Read More
CDL Hospitality Trusts  1.630 +0.010 +0.62%   
Business: A stapled group comprising CDL Hospitality REIT and CDL Hospitality Business Trust.

Insight: Apr-19, 1Q19 gross revenue and NPI dropped 10.6% a... Read More


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