The Straits Times / The Business Times News on OSIM

Brokers take their pick of top S'pore stocks

Offshore theme still strong for 2007; stable cash flow, earnings visibility also favoured

They say good things come in threes.

So getting into the new year, The Business Times asks local and foreign brokerages what their top three stock picks are for the Singapore market in 2007. And their choices?

We find their picks reflect a continued bias towards the oil-and-gas offshore sector, even though favour has shifted slightly away from blue chips like Keppel Corp and SembCorp Marine to up-and-coming players like Cosco Corp.

Another theme is a preference for stable cash flows and earnings visibility, as reflected in Citigroup's picks. And there is also a groundswell of varied picks across industries from food to property, banking, and even manufacturing.

Keppel remains a top pick for Citigroup, JP Morgan and Merrill Lynch, the stock having been included on Merrill's Asia Pacific Focus 1 list - its highest conviction 'buys' across Asia - since last October.

Citigroup says Keppel's three divisions - offshore and marine (O&M), property, and infrastructure - 'should power ahead in 2007' on secular trends. It likes the long-term visibility in the O&M sector and the continued recovery in the property segment. Keppel's infrastructure business should also grow from contributions from power barges, cogeneration plants, a NEWater plant and a recent waste management contract won in Qatar, says Citigroup.

OCBC Investment Research (OCBCIR) prefers SembCorp Marine. It says that despite the slow pace of orders, 'we cannot yet convince ourselves that a relatively established rig and offshore builder like SembCorp can suddenly lose its competitiveness'.

CIMB, however, feels that 'with spare yard capacity and beefed-up technological expertise, the upcoming yards are poised to take over the growth mantle from the top-tier yards in the next few years'. It believes Labroy Marine is ahead in rig-building. But it thinks Cosco has more capacity in the mid-term, with 'easily five times Labroy's land capacity for rig building when its Zhoushan yard is completed'.

DBS also picks Cosco. But OCBCIR turns to another stock with exposure to oil - rig refurbisher KS Energy - while Westcomb Financial Group likes Technics Oil & Gas.

Moving away from O&M, Citigroup's two other top picks are Singapore Technologies Engineering and Singapore Press Holdings. ST Engineering is favoured for its efforts to align its core operations and for its strong orders; SPH is liked for its cash-generating near-monopoly in print and significant non-core assets.

JP Morgan also likes ST Engineering, saying that, like Keppel, its robust earnings growth has yet to be fully priced in by the market. Morgan also believes the banks will continue to do well, and DBS is its top choice for the sector. It advises investors to avoid property stocks like City Developments, where domestic revaluation has pushed valuations too far ahead.

Merrill, however, likes exposure to property revaluation and has picked CityDev and OCBC as the two other local stocks on its Asia-Pacific Focus 1 List. It expects a catch-up between the mass and luxury housing markets in Singapore, projecting that an upside in housing values will benefit the two companies.

Meanwhile, DBS likes SIA as a 'beneficiary of continued strong regional air travel demand and integrated resorts in Singapore'. It also likes Sino-Environment, which it says will benefit from stricter enforcement of environmental laws in China and, backed by capacity expansion, will move into larger, more lucrative projects.

Among food-related stocks, OCBCIR has Pacific Andes Holdings as a top pick. The Malaysian-owned company with exposure to demand for fish in China has seen its share price stabilise after rising 46 per cent in 2006. The 'consolidation phase', says OCBCIR, is a good time to invest, as Pacific Andes' fishing operation 'remains a gem largely for its valuable quota to fish in Russian waters'.

Another top-pick China stock is potato starch maker China Essence, which Phillip Securities says has been expanding capacity. Phillip also likes Sino Techfibre, which it feels is a 'purer play on the fast-growing China synthetic leather industry' compared with Fibrechem.

Other consumer stocks are also favoured. Phillip likes Best World International, a direct seller of health products, whose expansion into Taiwan, China, South Korea, India and Japan is aimed at replicating its success in Singapore.

CIMB likes OSIM International, on account of its 'commendable reinvigoration of Brookstone', a once-ailing acquisition that has recovered same-store-sales year-on-year growth and incorporated two of OSIM's products into its top five best-selling ones.