DBS picks seven ‘stocks to watch’ that could gain from Avanda’s coming fund strategy

DBS Group Research analyst Lim Rui Wen has picked seven “stocks to watch” as liquidity flows into small- and mid-caps via new fund strategies from three chosen asset managers, which will share a $1.1 billion placement from the Monetary Authority of Singapore (MAS) under its $5 billion Equity Market Development Programme (EQDP).

According to Lim, the 54 Singapore-listed small- and mid-caps under DBS’s coverage averaged month-to-date returns of 7.1%, outperforming the 6.1% registered by the Straits Times Index (STI).

In a July 22 note, Lim says she is “watchful of an August pullback for the STI from seasonal factors (likely led by banks), upcoming tariff deadlines and an overbought McClellan Oscillator (short-term market breadth) reading of 33.6 (above 30 considered highly overbought).”

Still, Lim sees room for “rotational interest” among small- and mid-caps on further liquidity injection from the EQDP going forward and improving investors’ sentiment.

Avanda’s beneficiaries

Among the three chosen asset managers — Avanda Investment Management, Fullerton Fund Management and JP Morgan Asset Management — only the former readily answered queries about their selected strategy.

In response to The Edge Singapore, Avanda says its strategy is fully allocated to Singapore-listed companies with a “strong focus” on the small- and mid-cap segment. “Being highly active and benchmark-agnostic allows us the flexibility to invest outside of the Straits Times Index constituents; this would direct more attention and liquidity to off-benchmark stocks.”

The firm adds in an email: “There are three themes running through the strategy: Value-up, Local Champions and Turnaround. This distinguishes us from most of the existing Singapore-only funds, which are benchmarked to the indices and have a significant overweight to large caps.”

Lim quotes The Edge Singapore’s July 21 report, which revealed details about the upcoming Avanda Singapore Discovery Fund, to be managed by Richard Chan, partner and head of equities; and Sherman Lim, portfolio manager, equities.

Lim lists seven “potential candidates” that should fall under Avanda’s three focus themes.

Under the “value-up” theme, Lim thinks former STI constituent stock ComfortDelGro could be a likely pick, as it trades at an “attractive” price/earnings to growth (PEG) ratio and yield compared to its industrial peers.

Two other stocks under this theme are GuocoLand, which is trading at 0.4 times price-to-book value (P/B) with potential for restructuring into a stapled security; and F&N, on three potential corporate actions to improve liquidity and unlock value.

According to DBS analysts Chee Zheng Feng and Andy Sim, these three potential actions to improve liquidity are a privatisation for eventual combined listing with other ThaiBev’s non-alcoholic beverage assets, a share swap to restructure ThaiBev’s Thailand non-alcoholic beverage assets under F&N, and a share issuance to increase its 20.2% Vinamilk stake.

Meanwhile, under Avanda’s “local champions” theme, DBS thinks Sheng Siong could be a potential beneficiary as a household supermarket chain with “industry-leading margins and store network expansion”.

Another potential pick is UMS, which counts two leading global semiconductor equipment makers as key customers, says Lim.

Finally, two stocks could gain from Avanda’s “turnaround” theme: Raffles Medical on narrowing losses in China and refreshed capital management strategy and AEM Holdings on a ramp-up from new customers from FY2025 and onwards.

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