UOB Kay Hian's alpha picks portfolio has beaten the STI in 16 out of the past 18 months.
The Singapore research team at UOB Kay Hian has added Mapletree Industrial Trust (MINT)
ME8U to its September alpha picks portfolio due to “favourable tailwinds for its data centre segment”.
Analyst Jonathan Koh has kept his “buy” call on the REIT after the REIT’s strategic diversification to Japan’s data centre market. Koh has also kept his target price of $2.89 unchanged.
MINT, on May 25, had announced the acquisition of a 98.47% interest in a newly-built data centre in Osaka for JPY52.0 billion ($507.9 million).
“We expect MINT to continue to expand in Japan due to positive yield spread with cap rates of 3% - 4% and low funding cost in JPY,” says Koh.
MINT, which is currently in “advanced negotiations” with a potential replacement tenant for its data centre at Brentwood, Tennessee is also a positive development for the REIT. The potential replacement tenant will take over the lease currently occupied by AT&T with a net lettable area (NLA) of 347,515 sq ft. AT&T’s lease will expire in November 2023. The new tenant intends to sign a long-term lease for the entire data centre with rental escalation, notes Koh.
Removing Raffles Medical
Meanwhile, the team is removing Raffles Medical
BSL from its alpha picks portfolio given the “overall market weakness” in the healthcare sector.
The healthcare counter was included in the brokerage’s portfolio in June as its transitional care facilities (TCF) were expected to operate till June 2024 at least due to the Singapore government’s renewed focus on them.
“With healthy margins due to its asset-light nature and contributing nearly 40% of FY2022 operating profit, this would help support Raffles Medical’s profit for FY2023 – FY2024,” said analyst Llelleythan Tan at the time.
Overall portfolio performance
UOB Kay Hian’s overall portfolio fell 4.5% on a m-o-m basis from August on an equal-weighted basis compared to the benchmark Straits Times Index’s (STI) 4.2% decline. The 0.3 percentage point difference was boosted by the brokerage’s industrial stock picks which continued to thrive. For instance, Yangzijiang Shipbuilding
BS6 and CSE Global
544 both did well on the back of their strong 1HFY2023 results. Yangzijiang Shipbuilding grew by 9.7% m-o-m while CSE Global grew by 3.6% m-o-m. Delfi’s
P34 robust top- and bottom-line growth in the 1HFY2023 also contributed to the brokerage’s overall portfolio performance. Delfi saw its share price grow by 5.6% m-o-m.
On a price-weighted and market capitalisation-weighted basis, however, UOB Kay Hian’s alpha picks portfolio “significantly underperformed” due to Sea Limited, which plunged by 43% m-o-m. To the team, the recent sell-off, which was caused by Sea’s e-commerce guidance, was seen as “overly harsh”. Other contributors to the underperformance were LHN Limited
41O, which fell by 11.7% m-o-m. CapitaLand Ascott Trust (CLAS)
HMN also underperformed, declining by 10.3% m-o-m.
Nonetheless, the team points out that its alpha picks portfolio has beaten the STI in 16 out of the past 18 months.
As at 3.14pm, the STI is trading 7.86 points higher or 0.24% up at 3,241.16 points.