Dividend Stocks, Growth Stocks or Value Stocks?

Have you read or heard of analysts referring to stocks as dividend stocks, growth stocks and value stocks and wonder what’s their differences?

Let the Research team at Lim & Tan Securities explain this to you, and give you some insights as to which counter they are looking for each of these.

1. Dividend Stocks

Dividend stocks are generally regarded by the investing community as companies which have a track record of giving consistent and high dividends.

Click here to find our recommendation.

2. Growth Stocks

Growth stocks are generally regarded by the market as stocks that have good growth business prospects and are not operating in a sunset industry.

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3. Value Stocks

Value stocks are slightly more straight-forward, as most investors consider a company to be a value stock when its share price is trading at a significant discount to its book value.

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Dividend Stocks Recommendation

UOB (TP:S$30.15, 14% upside from current level) – UOB is one of the 3 banks listed in Singapore and we like it because of rising interest rates, attractive valuations (11x PE and 1.1x P/B ratio) and high yield (about 4%). Amongst local banks, UOB is also least exposed to the problematic property sector in China while still benefitting from the robust demand for mortgage loans in Singapore, thanks to the robust demand for Singapore property.

Read more about UOB
Growth Stocks Recommendation

Tiong Woon Corp (TP:S$0.84, 43% upside from current level) – Tiong Woon is a crane specialist that serves the O&G, infrastructure, petrochemical and construction sectors. We like it due to the recovery of construction demand, it’s unique value proposition and a strong balance sheet in the construction sector. Valuations are undemanding at 10x PE & 0.4x P/B.  Dividend yield while low at 0.6% is on a gradual increase in the past 3 years (from 0.25 cents to 0.4 cents).

Read more about Tiong Woon Corp
Value Stocks Recommendation

Hongkong Land (TP:US$5.84, 13% upside from current level) – We like HKL because it is a diversified developer with stable recurring income, thereby providing investors with a sustainable yield play of 4.2%. HKL also has a strong balance sheet (low gearing of 13%) and current “fire sale” valuations (0.3x P/B ratio) are unjustified.

Read more about Hongkong Land
Research Disclaimer
The research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult your independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report.
The information, tools and material presented herein this report are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Lim & Tan Securities Pte Ltd (“LTS”) to any registration or licensing requirement within such jurisdiction.
The information and opinions presented in this research report have been obtained or derived from sources believed by LTS to be reliable. Their accuracy, completeness or correctness is, however, not guaranteed. Opinions and views expressed in this report are subject to change without notice, and no part of this publication is to be construed as an offer, or solicitation of an offer to buy or sell securities, futures, options or other financial instruments or to provide investment advice or services. Therefore, LTS accepts no liability for loss arising from the use of the material presented in this report where permitted by law and/or regulation. LTS may have issued other reports that are inconsistent with the assumptions, views and analytical methods of the analysts who prepared them.
LTS, its directors, its connected persons and employees may, from time to time, own or have positions in any of the securities mentioned or referred to in this report or any securities related thereto and may from time to time add to or dispose of or may be materially interested in any such securities. LTS’s research analysts are primarily responsible for the content of this report, in part or in whole, and certifies that the views about the companies expressed in this report accurately reflect his personal views. LTS prohibits the research analysts who prepares this report from receiving any compensation (excluding salary and bonuses) or other incentives and benefits receivable in respect of this report or for providing specific recommendation for, or in view of a particular company or companies mentioned in this report.

United Overseas Bank (U11)

UOB (TP:S$30.15, 14% upside from current level) – UOB is one of the 3 banks listed in Singapore and we like it because of rising interest rates, attractive valuations (11x PE and 1.1x P/B ratio) and high yield (about 4%). Amongst local banks, UOB is also least exposed to the problematic property sector in China while still benefitting from the robust demand for mortgage loans in Singapore, thanks to the robust demand for Singapore property.

1. Rising Interest Rates

The yield for 10 year US government bonds has risen by 80 basis points on a year to date basis to 1.61% in May 21.  In Singapore, bond yields have also moved up in tandem.  The yield on 10 year Singapore government bonds rose by 76 basis points to 1.60%.  Higher bond yields are a reflection of faster economic growth ahead as the US economy is expected to rebound 4-5% in 2021 while the Singapore economy 4-6% in 2021.

Banks are best positioned to benefit from rising bond yields as they foreshadow higher future interest rates and historically every 1% point movement in interest rates is estimated to add $400-600 million to Singapore banking sector bottom-lines. Higher bond yields would also reduce competition from the bond markets as an alternative source of funding for corporate customers, thus benefitting corporate loans growth. 

Singapore’s Covid-19 vaccination program is expected to be completed sometime in 4Q 21.  As the Singapore economy moves towards an “endemic” phase and more “Vaccinated Travel Lanes” are gradually re-opened, the nascent economic recovery in Singapore is expected to pick up pace going forward.

Banks are cyclical plays and they are well positioned to benefit from the improving consumer and business sentiments and the continued economic recovery would reduce credit costs as well as non-performing loan formations.

2. Attractive Valuations

UOB’s current share price at S$26.85 is currently 13% below the high of S$30.14, and this has not factored in the imminent rising interest rates. Consensus expects UOB’s earnings to grow 40% in 2021 to S$3.9bln and 13% in 2022 to S$4.4bln. This translates to FY21 and FY22 PE of 11.3x and 10.0x. Currently, UOB’s 2022 PE of 10x is 23% below historical mean of 13x, and current PB ratio of 1.11x is 26% below average of 1.48x which indicates under-valuation.  Bloomberg consensus 12 month target price of S$30.15 implies a potential upside of 14% from current level.

When MAS relaxed the buyback rules, UOB has also spent S$80mln plus buying back shares in 2021 with 72k daily shares bought back from Aug 21 to Oct 21. During this period, about 3mln shares have been bought up and only represents 2.0% of their overall share buy-back program. This points to about 158mln more shares/fire power to buy back from the market, which is certainly positive for UOB.

3. Tailwind from Singapore property sector yet having the least exposure to the problematic property market in China

Amongst the 3 banks, UOB has the least exposure to China’s problematic property sector as the China government tightens their control of China’s property sector due to the high debt levels which has caused China Evergrande to default on their debt obligations.  At the same time, UOB will also allow investors to gain exposure to the re-acceleration in Singapore’s property market via higher mortgage loans growth.

Based on the Private Property Price index, overall PPI has grown 4.1% in 2021 and during the same period, there were 64.7% increased new sales and 91.8% increased resales when compared to 2020, signifying strong sales momentum.

Sales momentum continue to gain traction and defies pandemic woes. Some of the drivers at play includes Singapore being expected to register one of the strongest FY21 GDP growth amongst other countries at 6.5%, Singapore being a safe haven for investments and also having managed the pandemic relatively better than other countries.

Tiong Woon Corp (BQM)

Tiong Woon Corp (TP:S$0.84, 43% upside from current level) – Tiong Woon is a crane specialist that serves the O&G, infrastructure, petrochemical and construction sectors. We like it due to the recovery of construction demand, its unique value proposition and a strong balance sheet in the construction sector. Valuations are undemanding at 10x PE & 0.4x P/B.  Dividend yield while low at 0.6% is on a gradual increase in the past 3 years (from 0.25 cents to 0.4 cents).

1. Recovery of construction demand

In 2021, the BCA have projected S$23-S$28bln worth of projects (S$21bln in 2020) but abruptly fell short due to Covid-19. While projects are being delayed, it is hard to see cancellation of construction projects in Singapore unlike other countries. As such, we think that the recovery is now pushed back as the economy slowly re-opens. Various industry reports have also confirmed a V-shaped recovery as the Singapore slowly normalizes post the Covid-19 pandemic.

2. Unique Value Proposition

Main income from Tiong Woon stems from rentals of its cranes. Unlike other players in the construction sector (i.e. pre-fab steel providers, concrete providers), Tiong Woon is in a better position as they charge on a per hour/month/contract basis. If there is a delay in a project (i.e. due to Covid-19), TWC would be able to utilize their cranes longer and receive higher payments from their customers unlike material providers who are contracted to provide a fix amount of materials as per their project requirement. The risk factor is ensuring that the customer is able to pay and to counter that, TWC has been tightening up their accounts receivable risk profile.

3.  Strong Balance Sheet

Despite being in the construction sector where firms need high working capital due to the capital intensive nature of their project, TWC is not highly leveraged unlike its peers. This is because their cash flows are very strong (which can fund their working capital) with 5-years average operating cash flow coming in at S$38mln (TWC’s market cap of S$111.4mln). Majority of TWC’s leverage also comes from a property loan (not part of operations), which currently has an estimated valuation surplus of S$45mln (42% of market cap/$0.19cts per share).

Hongkong Land (H78)

Hongkong Land (TP:US$5.84, 13% upside from current level) – We like HKL because it is a diversified developer with stable recurring income, thereby providing investors with a sustainable yield play of 4.2%. HKL also has a strong balance sheet (low gearing of 13%) and current “fire sale” valuations (0.3x P/B ratio) are unjustified.

1. Diversified developer

Pre-covid, HKL has 61% recurring income and most of it stems from HK/Macau, which explains how HK’s political crisis and US-China trade war tensions have affected HKL. The fact that 87% of assets are Investment properties (with 83% of IP in HK), but only makes up 61% recurring income suggests that HKL’s recurring income would be sensitive to changes in HK. Although HKL reported net losses, the bulk of it came from revaluation, and underlying net profit only fell 11%. NAV overall fell 7% as a result of the revaluations.

Operationally, recurring income stream continues to be, resilient and can be expected to continue contributing to HKL’s recurring income stream. Sold development properties have been increasing and also assures HKL’s income stream visibility. Recently, HKL bought a plot of land in Shanghai West Bund for c.S$6.2bln (43% interest), and have secured 2 strategic partners to co-develop the commercial site. HKL will remain largest shareholder, and launch expected from 2022. Site can yield 1.1 mln sqf of GFA and is expected to be developed into a world class finance hub.

2. Firesale Valuations

HKL trades at an attractive 0.3x PB, which is grossly unrepresentative of its underlying asset quality. For comparison basis, HKL traded at a PB of 0.56x during SARS back in 2003 and 0.35x during the Global Financial Crisis.

We did a review on its major/more prominent properties of HKL and found that most of its recurring income assets are located in the CBD area of HK and Singapore. This ensures that the building are of quality and can continue to contribute positively to bottom line.

Gearing has also been historically low and it is one of the lowest amongst blue chip developers in Singapore at a gearing of 12.8% in FY20. In comparison, Keppel’s gearing was 91% and CapitaLand’s gearing was at 68% back in 2020.

Based on our own tabulated PB valuation of all property acquisitions dated back to 2010, we note that the average PB buyout was at 1.25x. Compared to HKL’s price to book of 0.3x, we think there will be considerable upside if there was a privatization.

3. Share buybacks

On 6 Sep 2021, HKL proposed a US$500mln share buyback program plan which will extend till Dec 2022, with the purpose of this plan being to reduce the company’s capital. The company said in a bourse filing that the buyback is in line with its longstanding capital-allocation practice. This practice prioritizes investment in new assets to drive long-term growth and shareholder value; continue paying steady and over time, increasing dividends; as well as invest in existing assets on an opportunistic basis, including through share buybacks. Since that day, HKL has bought back close to 10.5mln shares which represents 14.6% of their total mandate. We believe that this program will provide sufficient firepower for the stock to gradually appreciate over time. This also indicates that HKL thinks that current share price is undervalued, reaffirming our buy call on HKL.

Research Disclaimer
The research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult your independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report.
The information, tools and material presented herein this report are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Lim & Tan Securities Pte Ltd (“LTS”) to any registration or licensing requirement within such jurisdiction.
The information and opinions presented in this research report have been obtained or derived from sources believed by LTS to be reliable. Their accuracy, completeness or correctness is, however, not guaranteed. Opinions and views expressed in this report are subject to change without notice, and no part of this publication is to be construed as an offer, or solicitation of an offer to buy or sell securities, futures, options or other financial instruments or to provide investment advice or services. Therefore, LTS accepts no liability for loss arising from the use of the material presented in this report where permitted by law and/or regulation. LTS may have issued other reports that are inconsistent with the assumptions, views and analytical methods of the analysts who prepared them.
LTS, its directors, its connected persons and employees may, from time to time, own or have positions in any of the securities mentioned or referred to in this report or any securities related thereto and may from time to time add to or dispose of or may be materially interested in any such securities. LTS’s research analysts are primarily responsible for the content of this report, in part or in whole, and certifies that the views about the companies expressed in this report accurately reflect his personal views. LTS prohibits the research analysts who prepares this report from receiving any compensation (excluding salary and bonuses) or other incentives and benefits receivable in respect of this report or for providing specific recommendation for, or in view of a particular company or companies mentioned in this report.