Alpha Picks: Short Financials, Removing Innotek And UMS, Adding iFast, Thai Bev, Civmec And Uni Asia

Our Alpha Picks portfolio marginally underperformed the STI, rising 2.9% mom vs the latter’s 3.6% increase. For Nov 21, we advocate a tactical short on DBS and OCBC given Sea Ltd’s materially higher weighting in the MSCI Singapore index by end-Nov 21. In addition, we remove Innotek and UMS and add iFast, Thai Beverage Civmec and Uni- Asia, with the latter two being recent initiations of coverage.

WHAT’S NEW

Slight underperformance in Oct 21. Our Alpha Picks portfolio underperformed the STI by a slight 0.7ppt in Oct 21, up 2.9% mom vs the STI’s 3.6% increase. Small cap tech was the key drag on performance for the month with Innotek declining 3.8% mom and UMS falling 2.9%. Conversely, large share buybacks by the STI’s key constituents helped its outperformance: Hongkong Land (HKL SP, Not Rated) rose 14.6% in Oct 21 while Jardine Matheson (JMH SP, Not Rated) gained 12.7%.

Shorting DBS and OCBC, removing Innotek, UMS. In the lead up to Sea’s material reweighting within the MSCI Singapore index (from 12% currently to 20%) in end-Nov 21, we believe that bank stocks may underperform and thus we have called a tactical short on DBS and OCBC for Nov 21 in contrast to our fundamental BUY ratings on both companies. In addition, we have removed Innotek and UMS given the general rotational play out of tech-related manufacturers.

Adding iFast, Thai Bev, Civmec and Uni-Asia. We have added iFast as we believe there is decent upside to the stock post its sell-off post 3Q21 earnings, and Thai Bev due to the recent announcement of the re-opening of Thailand to tourism. We have also
included two recent initiations of coverage: a) Civmec given its record earnings in FY22, a robust orderbook of A$1b and an underappreciated defence business, and b) Uni Asia which represents deep value given favourable demand/supply dynamics within the dry bulk industry.