Singapore Small & Mid Cap Picks 2017

Edison Chenedisonchen@uobkayhian.com

+65 6590 6637

Nicholas Leownicholasleow@uobkayhian.com

+65 6535 6616

Exchange Rate – USD to SGD

Source: Investing.com

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Oil Prices – Contango Market

Source: CME Group

7 Mar 17WTI Spot Price: US$53.19

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Long-term trend:

Which Stock Thrives Under This Environment?

China is expected to overtake the United States as the world’s largest passenger market (defined by traffic to, from and within) by 2029.

In 2034 China will account for some 1.19 billion passengers, 758 million more than 2014 with an average annual growth rate of 5.2%.

Source: Bloomberg, Google Images, IATA

Short-term trend: •Rising oil prices threatens the airline sector, but beneficial for distributors like China Aviation Oil.

• SG$ listing benefits from US$ strength as it reports and receives majority of profit in US$

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Monopolistic Fuel Distribution

Source: CAO, UOB Kay Hian

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Exclusive refueller - SPIA

Source: BAFS, CAO

Oil storage facilities

Into-plane refuelling operations at Shanghai Pudong International Airport

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China Aviation Oil Singapore Corp (CAO SP/BUY/Target: S$2.21/Market Cap: S$1,306.0m*)

*Based on last report dated on 24 Feb 17*Share Price at S$1.51

Sleep Soundly At NightRare monopoly on China’s jet fuel imports is growing source of recurring income (cost-plus business model). Second solid recurring income is from immensely profitable SPIA refueller.

A proxy to China’s global aviation traffic boom: Jet fuel consumption to grow 7.9% CAGG.

Beneficiary of US$ strength. China Aviation Oil Singapore Corp (CAO) reports in US dollars with all of its revenue and gross profits derived in US dollars.

Oil price contango delivers risk-free profits to CAO.

Maintain BUY with target price raised to S$2.21 based on 14.4x 2017F PE, pegged at a 20% discount to peers’ average PE of 18x.

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Precision Engineering Firms With Significant Automotive Exposure

PRIVATISATIO

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Source: Respective companies, UOB Kay Hian

Recent offers for SGX Listed Precision Engineering Firms

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Source: Respective companies, UOB Kay Hian

PRIVATISATIO

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Light Vehicle Sales

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Source: IHS Automotive

Annual Light Vehicle Sales

Global Light Vehicle Sales – Jan 17

Source: LMC Automotive

Peer Comparison

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Sunningdale Tech Limited(SUNN SP/BUY/Target: S$1.83/Market Cap: S$256.7m*)

*Based on last report dated on 06 March 17*Share Price at S$1.365

Best Value Under The Sun

A potential M&A target. With the recent M&As for precision engineering firms with substantial automotive exposure (Spindex and Innovalues), Sunningdale is the only large precision plastic player left on the SGX that fits the bill.

One of the top global players with a diversified customer base. Founded 30 years ago, Sunningdale operates in 10 countries, making it a truly global force in the plastics industry.

Strong cash flow and S$15.5m net cash position supports growing dividends. Supported by strong free cash and a solid balance sheet (net cash of S$15.5m at 31 Dec 16, or 6% of market cap)

Initiate coverage with a BUY and PE-based target price of S$1.83. Despite our conservative earnings forecasts, Sunningdale Tech (Sunningdale) is trading at a compelling 8.1x FY17 PE with an attractive dividend yield of 4.8% for FY17.

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RUB/USD (2012 – 2017)

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Source: Investing.com

TRUMP SAYS THE US SHOULD ‘MOVE ON’ RATHER THAN SANCTION RUSSIA

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Source: Bloomberg, Google Images

ESTIMATED US$ AND LOCAL-CURRENCY REVENUE

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Source: UOB Kay Hian

FOOD EMPIRE’S BRANDS

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Source: Food Empire

Food Empire Holdings(FEH SP/BUY/Target: S$0.57/Market Cap: S$303.9m*)

*Based on last report dated on 02 Mar 17*Share Price at S$0.57

2016: Full Turnaround Achieved; Back To Paying Dividends

The 2016 comeback is real for this coffee mix leader in Eastern Europe. Food Empire is the instant coffee mix market leader in Eastern Europe and Vietnam with the largest market share in Russia (>50%), Ukraine (>40%) and Kazakhstan (>70%).

Revival of the rouble swings 2016-17 profits into space. There were two primary causes for the 2014 Russian crisis -falling oil prices and economic sanctions. Oil prices have sincestabilised with the rouble firming up as US President-elect Trump looks to lift economic sanctions on Russia.

Explosive growth in Vietnam. Other than the Russian rouble, Vietnam is the next growth driver for Food Empire where sales have been exploding with superstar product, CaféPho.

Maintain our BUY rating on the company with a PE-based target price of S$0.78. Our target price is conservatively based on 2017F EPS of US$0.029 and pegged to peers’ average FY17F PE of 19.0x.

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