UOB Kay Hian has added Frencken and Lendlease Global Commercial REIT (LREIT) to its alpha picks portfolio for the month of June.

 

The team&rsquo s portfolio fell 2.9% m-o-m in May, but still outperformed the benchmark Straits Times Index (STI)&rsquo s 3.7% m-o-m decline.

 

&ldquo Key stocks that outperformed for us were Venture (+7.4% m-o-m), ThaiBev (+2.3% m-o-m) and Keppel (+0.3% m-o-m) while mm2 (-13.8% m-o-m) and Singtel (-6.5% m-o-m) underperformed,&rdquo the team writes in their report dated June 2.

 

To the analysts, Frencken&rsquo s current valuations are deemed inexpensive, trading at an FY2022 P/E and EV/EBITDA of 7.5x and 3.4x respectively along with a prospective yield of 4%.

 

Analyst Clement Ho has kept &ldquo buy&rdquo on the counter with a target price of $1.63, which is pegged to Frencken&rsquo s FY2022 P/E of 10.4x, or its historical mean P/E range.

 

The group posted growth across most of its segments for the 1QFY2022 save for the automobile segment. During the quarter, Frencken&rsquo s revenue of $198.4 million, which increased by 9.3% y-o-y, was led by growth from the semiconductor, analytical & life sciences and industrial automation segments.

 

Sales in the medical segment remained relatively stable.

 

The automobile segment, however, was impacted by constrained customer demand on the back of the chip shortage and disruptions arising from the Russo-Ukraine conflict.

 

&ldquo We believe the global automobile industry will face an extended period of slow production amid adjustments in the global supply chain,&rdquo Ho writes.

 

&ldquo We maintain the view that the current forward P/E valuation of 7.7x for Frencken is attractive due to its diverse stream of revenue sources, which would help the company stand out amid a volatile macro environment,&rdquo he adds.

 

LREIT was also added to UOB Kay Hian&rsquo s alpha picks portfolio as the analysts are positive on the REIT&rsquo s organic growth from its new asset, Jem.

 

LREIT&rsquo s exposure to sequentially higher tourist arrivals, which will benefit its Orchard Road mall, 313@Somerset, is yet another plus, in the analysts&rsquo view.

 

Analyst Jonathan Koh has kept &ldquo buy&rdquo on LREIT with a target price of $1.01.

 

To him, LREIT&rsquo s maximising returns from Jem, which attracts shopper traffic of some 22 million a year, is a positive move.

 

&ldquo Management plans to unlock additional net lettable area (NLA) at level one (4,600sf) and basement one (850sf) to cater for demand for more retail space,&rdquo he says.

 

In addition to the return of tourists to Singapore, which would restore shopper traffic to 313@Somerset, LREIT&rsquo s redevelopment of the Grange Road carpark is expected to be operational by early-2023.

 

Take profit on Singtel SingPost removed despite bullish sentiment

 

Meanwhile, the analysts have removed Singapore Telecommunications (Singtel) from its portfolio, opting to take profit on the counter&rsquo s gains.

 

The counter has done well for the brokerage, gaining some 5% since its inception into the portfolio.

 

On the other hand, Singapore Post (SingPost) was dropped from the portfolio despite their bullish outlook in the medium term. The removal comes as air freight rates have not shown signs of dropping.