Singapore's UOB Kay Hian has increased its Alpha Picks portfolio's exposure to the maritime sector with the addition of Sembcorp Marine.
The investment bank's Alpha Picks are its high conviction calls, usually around 10 to 12 companies, selected by its Singapore-based research team.
UOB Kay-Hian said the addition of Sembcorp Marine to the portfolio was because it believes the risk/reward from the shares has "become compelling".
"We have added Sembcorp Marine as we believe that the current share price has already priced in most of the company's negatives and the outlook for the offshore renewables and drilling sector has improved markedly over the past 12 months," the bank said
"With its SGD 1.5bn capital raising behind it, Sembcorp Marine is now in a much stronger financial position to take advantage of a potential upswing in the offshore construction sector."
Adrian Loh, head of research at UOB Kay Hian, said importantly the capital raising proceeds can be used more ably to execute and complete the projects as well as for working capital needs for new orders and projects.
"The company does not expect any more capital raisings given that its banks can see that the overall industry is improving and that Sembcorp Marine is transitioning well into renewables," he said.
Sembcorp Marine is now the third stock to be included in the portfolio alongside long-time member Yangzijiang Shipbuilding and Japanese bulker owner Uni-Asia Group.
Uni-Asia, which has been listed in Singapore since 2007, has a combined fleet of 18 handy-sized bulkers, with 10 wholly-owned and eight jointly owned.
Of the 10 wholly-owned bulk carriers, six are up for renewal in the second half of the financial year and three more in the first half of next year.
"We believe the perfect storm has begun for a demand surge in the dry bulk industry, where shipowners will likely benefit with the anticipation that freight rates will stay elevated into end-2022," said analyst Clement Ho, who covers the stock.
"As charter rates remain elevated in 2022 given the industry supply shortage, our estimates suggest a revenue growth of 15% in 2022."
Ho adds that Uni-Asia has a solid dividend track record since 2017 and continued paying dividends despite a loss-making 2020.
UOB Kay Hian has target prices for Sembcorp Marine, Yangzijiang Shipbuilding and Uni-Asia Group of SGD 0.11, SGD 2.00 and SGD 2.34, which represent potential upsides of 32.5%, 55% and 80% respectively.
