City Developments
Price target:
UOB Kay Hian ‘buy’ $8.00
OCBC Investment Research ‘buy’ $8.91
Citi Research ‘buy’ $10.29
‘Buy’ but be cautious about potential dampeners
Analysts at UOB Kay Hian (UOBKH), OCBC Investment Research (OIR) and Citi Research have kept their “buy” calls on City Developments (CDL) C09 but issued different target prices for the real estate group.
UOBKH’s Adrian Loh has announced an unchanged target price of $8, noting that CDL had a muted 1HFY2023 results ended June, with its strong ebitda growth overshadowed by financing costs and one-off items.
CDL reported a revenue of $2.7 billion for the 1HFY2023, an 84% increase y-o-y which was boosted by the completion of the Piermont Grand executive condominium (EC), resulting in full revenue recognition of the project.
Loh notes that its ebitda of $478 million (excluding divestment gains and impairments) was 48% higher than the same period a year ago and while it beat his expectations, it missed consensus estimates.
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CDL’s $66 million net profit was substantially lower than the 1HFY2022 which had seen substantial gains from the divestment of its hotel in Seoul and a gain from the deconsolidation of CDL Hospitality Trusts, says Loh.
CDL’s special interim dividend of 4 cents was also lower than the 12 cents announced a year ago.
Loh notes that CDL’s $34 million impairment loss witnessed a 20–50 basis points (bps) expansion in cap rate, leading to a drop in its valuation. In addition to the impairment loss, there was also a fair value loss of $20 million on property-linked notes for an Australian project.
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“Although financing costs in the UK have risen by four times vs same period last year, management sees near-term stabilisation, and continues to believe that its UK investment properties have bright prospects,” says Loh.
Loh notes that CDL’s Singapore residential sector looks stable, with the sales launch of Tembusu Grand, a new EC launch in 1QFY2024, and Central Mall redevelopment in early 2024.
CDL’s hotel operations remain “a bright light” with a 69% increase in ebitda with occupancy increase by 12 percentage points (ppt) y-o-y to 79% and revenue per available room (RevPAR) up 43% to $152.
Loh says that new projects in CDL’s pipeline in the UK and Japanese living assets present a strong outlook, and notes that the company is looking to get back into China.
Finally, Loh notes that CDL’s balance sheets have been slightly weaker over the past six months, with the upper limit of its net gearing reaching 65% at end 1HFY2023 vs 57% at end 1HFY2022.
“We also note that its interest cover has declined from 9.8x at end FY2022 to 2.8x at end 1HFY2023, and its cash and available committed credit facilities had fallen from $4.1 billion at end FY2022 to $3.4 billion at end 1HFY2023,” he adds.
For this reason, Loh has put through a material 65% downgrade of his FY2023 earnings, but notes that this is “very much in the rear-view mirror” given that they mostly relate to one-off items in 1HFY2023, as well as higher-than-expected financing costs. He says that the outlook appears reasonably solid with interest rates likely to decline over the next 12 months, and continued robust performance from its property development and hotel arms.
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While the research team at OIR has also retained its “buy” call, it has reduced its target price from $8.91 to $8.87, citing strong revenue but “weak core earnings recognition” as its reason.
The analysts say that CDL has shown clear signs of recovery from the pandemic across various business operations, and note that the company has been proactive in reconstituting its portfolio to unlock value for shareholders.
This includes the divestment of assets at a premium to their book values and the redevelopment of some of its older commercial properties in Singapore to benefit from the government’s Central Business District (CBD) Incentive Scheme.
Notwithstanding these positives, they believe the softer global economic outlook and higher interest rates could be potential dampeners to its growth prospects.
The analysts say that management pushed out its target of achieving $5 billion in assets under management from 2023 to 2024 due largely to lacklustre capital market conditions.
Finally, Citi’s Brandon Lee is the most positive on CDL, with the highest target price of $10.29, as he is optimistic about the group’s overseas acquisitions.
Lee notes that CDL continues to push for acquisitions in the UK, China, Australia, Japan and Vietnam, and will focus on the private rented sector for its asset classes.
“Our key assumptions include a 2%/3%/2% rise in residential prices in Singapore in 2022/2023/2024, flat cap rate changes of +6%/+3%/-5% in Singapore Grade A office rents in 2022/2023/2024, flat cap rate changes and 5% rise in 2022 RevPAR following the 1% improvement in 2021 for hospitality, and flat cap rate changes and 1%–2% rise in Singapore retail rents,” he says. — Nicole Lim
Centurion Corporation
Price target:
UOB Kay Hian ‘buy’ 50 cents
CGS-CIMB Research ‘add’ 60 cents
Robust 1HFY2023 results
Analysts from UOB Kay Hian Research and CGS-CIMB Research have maintained their “buy” and “add” ratings on Centurion Corporation OU8 with increased target prices of 50 cents and 60 cents, up from 43 cents and 58 cents, respectively.
In his report dated Aug 15, Adrian Loh of UOB Kay Hian says that Centurion’s strong 1HFY2023 ended June 30 revenue and patmi of $98 million and $38 million, up 8% and 16% y-o-y, came in line with expectations.
One of the largest providers of purpose-built workers’ accommodation (PBWA) in Singapore and Malaysia, the company saw a 4.6 percentage points expansion in gross profit margin to nearly 72%, due to strong occupancies and positive rental revisions across all of its asset classes, which also includes purpose-built student accommodation (PBSA) in Australia, the UK and the US.
Revenue and patmi for the period formed 52% and 59%, respectively, of Loh’s full-year estimates, and an interim dividend of 1 cent per share was declared compared to 0.5 cents in 1HFY2022, implying a yield of 2.3%.
The analyst says this robust performance was driven by strong occupancies and positive rental revisions across Centurion’s PBWA and PBSA segments which were able to cushion the impact of higher interest rates. Both segments performed well in 1HFY2023 with profit growths of 21% and 17% y-o-y, respectively.
Occupancy rates for PBWA in Singapore and Malaysia were strong at 98% and 94% respectively, while PBSA also had a significant occupancy increase, in particular, with Australia witnessing a marked improvement to 86% in 1HFY2023 from 58% a year ago, when Covid-related travel restrictions were not yet fully lifted.
The lifting of Covid-related restrictions has also created an increase in the migrant worker population to address deferred projects during the pandemic. This has resulted in supply and demand imbalances which have driven high occupancy rates for PBWAs of 98% in Singapore and 94% in Malaysia, up from 70% in 2021, adds Loh.
He notes that the positive rental rate reversions that began in 4QFY2022 will continue to be priced into new leases expiring over the next few quarters.
Singapore’s Ministry of Manpower reported 434,000 foreign workers in Singapore as of May, which is in excess of the supply of 401,000 beds. “As a result, Cent believes that it may take until 2025 for new PBWAs to cater to demand, assuming that demand remains static. Channel checks with dormitory users indicate that they are prepared for 8% to 10% rental reversions in the near to medium term,” the analyst says.
Loh adds: “The better-than-expected numbers were driven by better metrics across Singapore, Malaysia and Australia, and more importantly, were able to demonstrate Centurion’s ability to increase rentals to cushion the impact of higher finance expenses.”
There is a healthy pipeline of new PBWA contracts and expanding bed capacities, such as a 10-year management contract for Westlite Cemerlang in Johor, Malaysia with a 2,196-bed PBWA to commence operations in 4Q23. Centurion also intends to continue to enlarge its portfolio bed capacity in Johor, with another 1,060 beds by 3Q23 and 2,720 beds by 2024.
In Singapore, Centurion was also awarded a JTC tender to develop and operate a new Purpose Built Dormitory starting 2025. “The company appears to have high expectations for occupancy rates due to a shortage of quality bed supply in East Singapore,” says Loh. “Going forward, we expect Centurion to continue to see strong volume and rental growth with a strong pipeline of new contracts and robust demand.”
The UOB Kay Hian analyst’s target P/E multiple has been upgraded to 6.1x, which is 1.5 standard deviations (s.d.) above the company’s average P/E multiple since 2020, and has been applied to his FY2024 earnings per share (EPS) estimate. As such, he has raised his target price to 60 cents. “In our view, our prior target P/E multiple of 5.8x, or 1 s.d. above Centurion’s mean P/E, is an inadequate reflection of the company’s ability to continue to deliver earnings growth out to 2025.”
“In addition, we believe that the company’s current metrics are inexpensive, trading at FY2023 P/E of 5.3x and 0.5x P/B. Year-to-date, Centurion’s share price has easily outperformed the STI’s -0.1% return and we expect continued outperformance in the next 12 months,” Loh adds.
Ong Khang Chuen and William Tng of CGS-CIMB are also positive on Centurion’s results. They have raised their FY2023 to FY2025 EPS by 3.3% to 6.4% on higher rental rate assumptions, which has lifted their blended target price to 60 cents.
Similar to UOB Kay Hian’s Loh, they believe Centurion’s valuation is undemanding at 5.1x FY2024 P/E or a 53% discount to its RNAV.
Emphasising further rental growth that will arise from the tight PBWA supply in Singapore, Ong and Tng note that Centurion is actively bidding for new leases in the country across dormitory types, such as quick build dormitory (QBD) purpose-built dorms and healthcare worker hostels.
Post-asset enhancement initiatives (AEIs) in the PBSA segment, they expect Centurion’s PBSA’s financial occupancy to further recover to 94% and 85% in the UK and Australia for FY2024, compared to 90% and 80% last year. Rents could grow by another 10% to 15% in the upcoming academic year, they add.— Bryan Wu
Food Empire
Price target:
Maybank Securities ‘buy’ $1.36
Continued robust demand
Food Empire Holdings’ F03 strong revenue growth in 1HFY2023 ended June and robust demand from core markets have prompted Maybank Securities to maintain its “buy” call with a higher target price of $1.36 from $1.29 previously.
On Aug 10, Food Empire’s earnings for 1HFY2023 stood at US$26.6 million ($36.10 million), down 1.6% y-o-y due to a foreign exchange difference of US$8 million. Despite the slight dip, Food Empire’s results still stood above analysts Jarick Seet and Eric Ong’s expectations at 55% of their FY2023 forecast.
In 1HFY2023, Food Empire’s revenue grew to US$198.2 million, 11.8% higher y-o-y due to strong demand from its core markets in Russia, Ukraine and other Commonwealth of Independent States. Demand from Vietnam has also reversed a decline and increased y-o-y due to the group’s marketing efforts, Seet and Ong say.
They also note that gross margins increased from 29.3% to 35.1% while operating profit surged 67.7% y-o-y to US$34.6 million. The analysts say that management will be raising prices from next month by 7%–15% in two tranches, mainly to combat the impact of a weaker ruble which has depreciated significantly in the past few months.
“We expect softness in revenue and gross profit in 3QFY2023 as these price increases typically take about three to six months to fully take effect but performance should pick up in 4QFY2023,” they add.
Finally, Seet and Ong note that Food Empire has proven its business model to be resilient and has shown a strong performance despite an ongoing war in its core markets. — Nicole Lim
Delfi
Price target:
DBS Group Research “buy” $1.63
DBS still sweet on Delfi
DBS Group Research has maintained its “buy” call on Delfi P34 with a higher target price of $1.63, up from $1.52 previously, as confectionery consumption in Indonesia looks to remain high.
In their report dated Aug 10, analysts Chee Zheng Feng and Andy Sim say they expect Delfi, the market leader in chocolate confectionery in Indonesia, to benefit from “buoyant” consumer confidence that is likely to drive higher chocolate consumption. The company’s “solid” 1HFY2023 ended June results are paving the way for a strong set of full-year numbers, according to the analysts.
In 1HFY2023, Delfi’s revenue increased 16.2% y-o-y and earnings increased 30.1% y-o-y to US$286.2 million ($386.1 million) and US$25.2 million, respectively. While the analysts say that this formed 53% of their full-year FY2023 earnings estimates, they also note that the first half period has historically contributed to around 60% of Delfi’s full-year revenue.
Nevertheless, the top line in 1HFY2023 grew, boosted by stronger growth of 21.5% in regional market sales while Indonesia sales grew by 13.7%. Excluding the currency effect arising from weaker regional currencies, overall revenue grew by 22.2% and earnings grew by 30.1%.
Gross margins for the period expanded 0.6 percentage points y-o-y, due to an improved sales mix and pricing actions which offset ingredient cost increases, as ebitda margins remained flat on slightly lower operating income in 1HFY2023.
Meanwhile, higher selling and distribution costs as a percentage of sales were offset by lower administrative expenses as a percentage of sales in 1HFY2023 compared to 1HFY2022.
With around 90% of Delfi’s operating profit coming from Indonesia, they have taken the country’s overall economic performance and the Indonesia Consumer Confidence Index (CCI) as key indicators for Delfi’s sales performance and, by extension, its share price.
According to them, Indonesia’s CCI has been on the uptrend and has recovered to pre-Covid levels, signalling buoyant consumer sentiment, which is positive for discretionary chocolate consumption.
Meanwhile, Delfi’s newly integrated agency brand is driving top-line growth with margins remaining stable amid high raw material costs. As such, the analysts expect revenue and earnings to grow at 15.2% and 5.0% in FY2023 and 10.2% and 5.7% in FY2024, respectively.
The analysts see Delfi’s margins remaining relatively stable in the near term with tight cost control offsetting increases in raw material costs, especially cocoa and sugar prices, which have surged year-to-date.
For FY2024, Chee and Sim see a normalised growth of 5% and higher depreciation costs on higher FY2023 capex spend, which came to US$13.6 million for 1HFY2023. Overall, they have adjusted their FY2024 revenue and earnings estimates higher by 2.1% and 1.7% on continued growth from FY2023, negated partially by higher depreciation expenses.
The analysts have rolled forward their valuation and applied a 14.4x PE ratio or 0.25 standard deviations (s.d.) above its five-year average on FY2024 earnings. They estimate that about 70% of the target price upside comes from their projected FY2022 to FY2024 earnings growth of 16%, while the remaining 30% is from a valuation re-rating, with investors gaining more confidence in the sustainability of the growth trajectory.
The key risk remains inventory write-offs which will impact margins and earnings should demand fall short.— Bryan Wu
Nanofilm Technologies International
Price targets:
Citi ‘sell’ 85 cents
CGS-CIMB ‘reduce’ 91 cents
DBS Group Research ‘fully valued’ 88 cents
UOB KayHian ‘hold’ $1
All-round cuts to target prices
With Nanofilm Technologies International’s MZH 1HFY2023 results ended June coming in lower than expected and multiple recovery hurdles on the horizon, analysts have cut their target prices on the stock.
On Aug 10, the company, which provides coating services for consumer electronics and other industrial products, reported a loss of $7.6 million for 1HFY2023 versus earnings of $19 million a year ago. Revenue decreased 34.4% to $73.2 million because of lower volume.
The company’s management expects an uncertain demand outlook which will weigh on the top line and warns that because of costs from capacity expansion, its margins will remain under pressure.
In his Aug 12 report, Citi’s Jame Osman maintains his “sell” call on the stock and has cut his target price to 85 cents from $1.05, given how he has reduced his FY2023 earnings forecast by 73% and FY2024 EPS by 26%.
Osman is maintaining his “cautious view” of this stock. “We anticipate further headwinds driven by uncertain demand recovery and margin pressure from the capacity expansion plans,” writes Osman, whose current target price is based on 22x FY2024 earnings.
DBS Group Research’s Ling Lee Keng similarly sees a challenging outlook for the company. While 2HFY2023 might be better than 1HFY2023 because of a seasonal pick-up in demand, order momentum might be slower than anticipated.
“Higher costs from the various initiatives to drive long-term growth are also expected to affect margins. We have slashed our earnings estimate further to factor in the near-term challenges and slow order momentum,” writes Ling in her Aug 14 report, where she has cut her target price to 88 cents from $1 while keeping her “fully valued” call.
William Tng from CGS-CIMB also highlights that while 2HFY2023 could see better revenue due to seasonality, the year might still end with a loss. Tng, in his Aug 11 note, has maintained his “reduce” call on the stock but with a lower target price of 91 cents, based on 12.8x FY2024 earnings estimate, which is lower than the 14.3x previously. Tng’s previous target price was $1.13.
UOB Kay Hian’s John Cheong believes that despite the near-term challenges, Nanofilm continues to enjoy “strong” mid to long-term prospects given how it is a “choice” vendor to its clients with deeper penetration and geographical strategic sites coverage of supply chains of the various consumer end-products
In addition, Nanofilm is well poised to capture new markets in the coming FY2024 in segments such as green plating applications of EV battery connectors and functional coating applications in industrial end-markets.
Cheong, which had earlier downgraded the stock with a target price of $1.11, changed his rating to “hold” but with a lower target price of $1. — The Edge Singapore
AEM Holdings
Price targets:
Citi ‘buy’ $4.87
DBS Group Research ‘hold’ $3.11
Maybank Securities ‘buy’ $3.77
CGS-CIMB ‘reduce’ $2.92
Lower revenue guidance
Analysts have lowered their target prices for AEM Holdings AWX after the chip tester reported lower-than-expected earnings for 1HFY2023 ended June. In addition, it is guiding for lower revenue for FY2023, suggesting that industry recovery will take longer to manifest.
Furthermore, a full accounting of an arbitration settlement of some US$20 million ($27.12 million) will only be booked in the current 3QFY2023, which will likely drag AEM into the red for this quarter.
In 1HFY2023, AEM reported revenue of $275.2 million, down 49% y-o-y because of lower volume handled and the delay of new-gen equipment volume as the schedules of customers have been postponed.
Coupled with lower margins, AEM’s earnings for 1HFY2023 were down 76.3% y-o-y to $19.7 million. AEM will not pay an interim dividend versus the 6.7 cents paid for 1HFY2022.
For FY2023, AEM expects revenue to range between $460 million and $490 million, down from an estimate of $500 million previously. In Citi analyst Jame Osman’s view, the lowered revenue guidance is a “key disappointment”, given how there had been recent “supportive” data points from Intel Corp, AEM’s key customer. Osman has maintained his “buy” call and $4.87 target price for now.
DBS Group Research’s Ling Lee Keng keeps her “hold” call on the stock but with a reduced target price of $3.11, which remains pegged to 10x FY2024 earnings. Her previous target price was $3.35.
In her Aug 14 note, Ling says that with inventory destocking still underway for the rest of the year, meaningful recovery could be deferred to 2024. With the gloomier prospects, Ling has reduced her FY2023 revenue forecast by 20% as the semiconductor recovery is deferred to 2024.
CGS-CIMB’s William Tng is keeping his “reduce” call while cutting his target price from $3.30 to $2.92 to reflect the cut in his FY2023 earnings forecast by 31.5%. The new target price is still based on an unchanged 10.2x FY2024 earnings estimate. “Should AEM’s major customer bring forward its purchase requirements, this would result in an upside to our FY2024 and FY2025 revenue and net profit forecasts,” says Tng.
Jarick Seet of Maybank Securities is more upbeat about AEM than his peers. While the reported earnings were lower than expected, he believes the worst is over for the company. He is upgrading his call from “hold” to “buy” but with a trimmed target price of $3.77, pegged to 12x FY2024 earnings, from $3.90 previously.
Seet, citing AEM’s management, notes that the company was able to defend its market share with its key customer. It expects more new orders from key customers in the first half of FY2024. “While we believe the recent share price pull-back has priced in AEM’s negatives, delays in current customer device release schedules also point to a rebound in FY2024,” the analyst says. — The Edge Singapore
