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DBS: 4 High Yield Stocks That Should Be In Your Portfolio
Aspire, Hot Picks | 06 April 2015
By: Lim Si Jie
Articles (169) Profile

The ECB (European Central Bank) begun its QE programme this month with a purchase of €60 billion worth of assets per month. The programme includes purchases of various government bonds. The Euro QE is one of the latest monetary policies in the market as countries race to stymie economic downturn.

Asia: Jumping On Easing Bandwagon

CHINA: In Asia, China’s PBOC (People’s Bank of China) announced its second rate cut in less than four months. The move saw a reduction in both the benchmark 1-year (1Y) deposit/lending rates. DBS’s economist expects the PBOC to “cut the benchmark 1Y lending/deposit rate symmetrically by 25 bps (basis points) again in 2Q15.”

JAPAN: The BOJ (Bank of Japan) announced late last year that it will increase its balance sheet by 15 percent of GDP per annum and extend the average duration of its bond purchases from seven to ten years.

SINGAPORE: The MAS (Monetary Authority of Singapore) adjusted its monetary policy in January by letting the SGD appreciate at a slower place in an inter-meeting move that surprised many investors. The MAS is expected to introduce further easing in the upcoming policy meeting in April this year.

While most central banks are adopting an easing stance, DBS highlights that “consensus expectations remain for the FED to hike rates somewhere in 2H15.”

DBS: Hunt For Yield Plays

According to DBS, Singapore’s equity market has been “rather resilient” against the volatility thanks to its “attractive valuation.” DBS’s strategy in the Singapore market is to invest in companies that are currently in net cash positions, generating stable cash flows and attractive dividend yields.

Sheng Siong (SSG): Stable Earnings With Long Term Growth Opportunities Ahead

Supermarket businesses are non-cyclical and therefore provide stable earnings and dividends to shareholders.

SSG is expected to deliver higher margins as fresh product sales mix improve over time. A new income stream in FY15F will come from its newly acquired property in Tampines. Having opened two new stores since December 2014, SSG is also on track to meet estimates of four new stores in FY15F.

Longer-term growth opportunities lie ahead in SSG’s investment in China. DBS expects the first store to commence operations in 2H15 with breakeven anticipated after FY15F. On top of that, SSG offers an attractive dividend yield of about four percent, as it pays out 90 percent or more of its earnings as dividends.

Verdict: BUY, TP $0.83

Thai Bev: Higher Revenue, Lower Costs

The surprise bump up in final DPS (Dividend Per Share) for FY14 indicates management’s confidence in cash flow generation and gearing ratio of the company.

Driven by sustained contribution from spirits, continued profitability in beer and lower losses from non-alcoholic beverages, DBS expects Thai Bev’s profit to grow 12 percent and eight percent for FY15F/16F respectively.

Verdict: BUY, TP $0.80

China Merchants Holdings (Pacific): Potential Debt-Funded Acquisition

DBS expects the group’s toll revenue and earnings to “continue growing steadily” as traffic increases along with China’s economic growth. Jiurui E’way will also be contributing on a full-year basis in 2015.

Assuming all of the outstanding convertible bonds are converted by year-end, CMHP’s net gearing would stand at just 0.15x, leaving room for debt funded acquisitions. The group’s firm cash flow should put the group in a firm position to declare a $0.07 DPS, which gives an attractive dividend yield of 6.6 percent.

Verdict: BUY, TP $1.42

Amtek Engineering: US Demand To Drive Recovery

Earnings recovery will be driven by the US, a key market for automotive products, which is expected to see steady growth in demand in view of lower fuel cost. The acquisition of Interplex Industries, a miniature precision engineering player in July 2014 is positive, allowing cross selling opportunities and benefits of cost cutting.

Verdict: BUY, TP $0.85

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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