City Developments
Price targets:
Phillip Securities ‘buy’ $6.87
Citi Research ‘buy’ $9.51
Strong sell-through rate proof of improvement
Early signs of improving property market conditions have emerged, with declining interest rates boosting buying sentiment and transaction activity while easing financial burdens. This has helped City Developments (CDL) post a strong sell-through rate for its new Singapore launches in 3QFY2024 ended Sept 30.
CDL and its associates sold 321 units with a total sales value of $611.1 million In 3QFY2024, nearly double the 183 units sold with a total sales value of $325.0 million in the same quarter last year.
Sales were driven by the launch of the 276-unit freehold Kassia in July, with 179 units (65%) sold. Other launched projects continue to sell well; to date, Tembusu Grand and The Myst have sold 91% and 73% of units, respectively.
Still, Phillip Securities analyst Darren Chan warns that CDL posted high net gearing following several acquisitions, including the Hilton Paris Opéra hotel and four Japan private rented sector (PRS) properties.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Chan says CDL’s interest coverage ratio stood at 2.1 times, and the developer remains in a “strong” liquidity position with $2 billion in cash.
In a Nov 25 note, Chan maintains his “buy” call on CDL with an unchanged target price of $6.87, representing a 45% discount to his revalued net asset value (RNAV) of $12.50.
“There is no change to our estimates. We believe asset monetisation, unlocking value through asset enhancement initiatives [AEI] and redevelopments, establishing a fund management franchise, and the continuous recovery in the hospitality portfolio are potential catalysts for CDL, which could help drive the share price recovery,” writes Chan.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Singapore residential
Chan says Singapore’s residential sales have notably increased since 3QFY2024, supported by a more favourable interest rate environment.
CDL launched the 348-unit Norwood Grand at Champions Way in October to an “overwhelming” response, selling 84% of units sold at an average selling price (ASP) of $2,067 psf during the launch weekend.
CDL’s 366-unit luxury Union Square Residences in prime District 1 at Havelock Road was launched in November, with 95 units (26%) sold at an ASP of $3,200psf.
Meanwhile, the group plans to launch its 777-unit Toa Payoh joint venture project, The Orie, in 1Q2025. Citi Research analyst Brandon Lee notes that CDL has brought forward this launch from 1H2025. He expects an ASP of $2,600 to $2,700 psf, which implies a profit before tax margin of 7%–10%.
In a Nov 25 note, Lee says CDL’s shares have fallen some 20% year to date, underperforming the Straits Times Index, which has risen some 16% over the same period. Still, Lee is maintaining “buy” on CDL with a target price of $9.51, much higher than Phillip Securities’ Chan.
‘Healthy’ rental reversion
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Meanwhile, CDL’s Singapore office portfolio saw “healthy” rental reversion, with committed occupancy up 4.4 percentage points (ppts) q-o-q to 97.4%, helped by Republic Plaza (up 1.3ppts to 98.3%) while City House and King’s Centre remain unchanged at 98.6% and 100%, respectively.
Likewise, CDL’s Singapore retail portfolio registered “strong” committed occupancy of 98.5% as at Sept 30, up 0.9ppts.
However, in CDL’s two core overseas markets of the UK and China, committed occupancies weakened by 4.5ppts and 3.9ppts to 85.8% and 68%, respectively.
CDL says the office leasing market in China, in particular, remains “challenging”. Still, CDL has replenished its residential land bank in Shanghai.
The group announced on Nov 1 that it and its partner, Lianfa Group, had jointly acquired a 27,994 sqm mixed-use development site in Shanghai for RMB8.94 billion.
Located in the core and mature Xintiandi area in Shanghai’s Huangpu District, the site has a GFA of 76,000 sqm. Up to 77% of the gross floor area is for residential use, 19% for commercial purposes, and 4% for public amenities.
Phillip Securities’ Chan notes that despite challenges in China’s real estate sector, tier-1 cities like Shanghai remain promising due to their economic growth.
Hotel performance
CDL’s 9MFY2024 portfolio revenue per available room (RevPAR) grew 2.7% y-o-y, reaching $167.4, driven by strong growth in Australasia following the acquisition of the Sofitel Brisbane Central hotel.
Citi’s Lee notes that the y-o-y growth is slower than before, at 3.0% in 1HFY2024 and 5.3% in 1QFY2024.
Lee says the slowdown was seen across the majority of its regions. Australasia saw RevPAR rise 27.2% in 9MFY2024 compared to 30.4% in 1HFY2024, as international tourists had yet to hit pre-pandemic levels. This was mitigated by the higher average room rate (ARR) of the newly acquired Sofitel Brisbane Central Hotel in December 2023.
Asia RevPAR fell 1.6% y-o-y in 9MFY2024, compared to 1.3% growth in 1HFY2024, while RevPAR in the US rose 5.6% y-o-y in 9MFY2024 compared to 7.4% in 1HFY2024.
Europe RevPAR was a bright spot, at 7.0% higher y-o-y, compared to 0.6% lower y-o-y in 1HFY2024, supported by the acquisition of Hilton Paris Opéra in May 2024 and strong demand during the Paris Olympic Games.
Four hotels are currently or soon to begin major renovations. Between 1H2025 and 4Q2025, Millennium Hotel London Knightsbridge will be upgraded and renamed M Social Knightsbridge at a cost of $29 million.
Copthorne Orchid Hotel Penang is being upgraded and rebranded to M Social Resort Penang at a cost of $29 million, with a soft launch slated for 1Q2025.
Millennium Downtown New York is being upgraded and rebranded to M Social Downtown New York at a cost of $60 million, with works between 3Q2024 and 2Q2025.
Finally, M Social Hotel Sunnyvale is undergoing a $159 million AEI and will open in 2H2026.
Group RevPAR in 9MFY2024 stood at 123% of pre-Covid-19 levels, according to Citi’s estimates, led by Europe (157%), the US (121%), Australasia (114%) and Asia (111%, including Singapore: 118%). — Jovi Ho
PropNex
Price target:
OCBC Investment Research ‘hold’ 96 cents
Higher target price on uptick in new launches
OCBC Investment Research (OIR) has downgraded PropNex from “buy” to “hold” while upgrading its target price from 91 cents to 96 cents, given the recent uptick in market activity.
October saw a surge in new private home sales, reaching an 11-month high of 738 units, and this is expected to continue into November.
This is supported by strong performances from new launches such as Chuan Park, which sold 76% of its 916 units, and Emerald of Katong, which sold 99% of its 846 units.
OIR analyst Donavan Tan notes that the introduction of new homes from these highly anticipated projects has rejuvenated the market, with buyers who were previously sidelined re-entering.
Tan raises his FY2024 and FY2025 free cash flow (FCF) assumptions by 6.1% and 7.1%, respectively.
Tan notes that the risk-reward profile seems less attractive at current levels. Investors seeking to diversify their holdings may want to consider switching to stocks with greater upside potential.
Despite the downgrade, Tan expects PropNex to remain a solid dividend yield play. He projects a dividend payout of 90%, implying FY2024 and FY2025 yields of 5.6% and 6.1%, respectively. — Cherlyn Yeoh
Parkway Life REIT
Price target:
DBS Group Research ‘buy’ $4.80
A rare jewel among S-REITs
DBS Group Research has kept its “buy” call and raised its target price for Parkway Life REIT to $4.80 from $4.50, calling the owner of hospitals and nursing homes “a rare jewel” among S-REITs offering “highly visible, stable and sustainable offerings”.
In their Nov 25 note, analysts Tabitha Foo and Derek Tan laud the REIT’s position in a resilient industry along with long leases with downside risk protection.
They believe the REIT’s recent unit price correction is an attractive re-entry point. At current levels, the unit price implies an attractive forward FY2026 yield of 5.0%.
“A cross-check across four major valuation metrics: yield, yield spread, P/B, and implied asset return - points to an over-correction, positioning the stock for a rebound,” the analysts say.
In a bid to grow its portfolio, Parkway Life REIT recently announced the acquisition of a chain of 11 nursing homes in France for $159.9 million, thereby building a key third market on top of Singapore and Japan.
The French nursing homes are acquired at an initial net property income yield of 6.5%, a premium above 4.75% fetched on average by other nursing home deals in France, the analysts say, citing data from Cushman & Wakefield.
Foo and Tan believe that Parkway Life REIT’s ability to extract a 1.5% spread versus market competition could be deal-specific or a result of timing, where the sharp rise in interest rates could have provided a liquidity window for investors to enter the market.
“Looking ahead, with interest rates expected to decline in 2025-2026, we believe there is certainly potential to compress yields with NAV upside,” they add.
Another positive aspect is the 2021 renewal of master leases for the three Singapore hospitals that form the core of the REIT’s portfolio.
Under the terms of the renewal, the REIT is benefitting from a 40% rent increment, a 27% rise in NAV, and a 20-year extension of the lease tenure from FY2026.
“Further, the upgrading works in Mount Elizabeth Orchard could boost underlying hospital income, driving potentially higher growth for the REIT in the medium term,” state Foo and Tan, referring to one of the three hospitals here.
“Meanwhile, distributions are projected to increase at around 2% p.a. in FY2024 to FY2025, with minimal downside,” they add.
The analysts acknowledge that DPU growth from FY2024 to FY2025 will be muted due to the renovation of Mount Elizabeth Orchard and the provision of rent rebates.
However, they project DPU to jump 20% in FY2026 to a yield of 5%, a level close to 1 standard deviation (s.d.) above the REIT’s historical mean.
“In addition, the stronger cash flows could also potentially drive a re-rating of its NAV towards the $3.00 level,” add Foo and Tan, alluding to how Parkway Life REIT is a rarity among S-REITs in trading at a premium over its NAV.
“In the medium term, we expect Parkway Life REIT to maintain its premium valuations for the foreseeable future and remain excited about its ability to continue to acquire and grow inorganically,” they add.
Organic growth aside, the REIT’s sponsor, IHH Healthcare Q0F , has another hospital, Mount Elizabeth Novena, that the REIT can potentially acquire under its rights of first refusal arrangement.
The hospital is valued at around $2 billion, and if and when it is acquired by the REIT, it will be a new growth catalyst, the DBS analysts say.
They note that the REIT’s medium-term fair value ranges from $4.54 to $5.13, supported by historical multiples. “We advocate investors to look to the long term and continue to add to this name,” the analysts say. — The Edge Singapore
Keppel Infrastructure Trust
Price target:
OCBC Investment Research ‘buy’ 51 cents
Accretive acquisition
OCBC Investment Research (OIR) analyst Ada Lim has maintained her “buy” call on Keppel Infrastructure Trust A7RU (KIT) while maintaining her fair value estimate of 51 cents.
Her report, dated Nov 18, comes after KIT announced its proposed acquisition of a 50% equity interest in Keppel Marina East Desalination Plant (KMEDP) on the same day for an enterprise value of $323 million.
KIT expects the acquisition to be accretive to unitholders. On a pro-forma basis, it would have increased funds from operations by 3.6% to $298.4 million and distribution per unit (DPU) by 0.4% to 3.87 cents in FY2024, while net asset value (NAV) remains flat at 15.8 cents, notes Lim.
The asset has an existing $315 million term loan facility, which has commenced amortisation. Upon its completion, KIT will extend a non-interest-bearing shareholders’ loan of $35 million to the holding company.
According to KIT, the acquisition will be funded by internal sources and existing debt facilities, nudging net gearing up by 0.4 percentage points (ppts) to 40.2% as at Dec 31, 2023, on a pro-forma basis.
KIT’s management has shared that this is not a comfortable gearing level, and they are not looking to conduct an equity fundraising as seen in previous acquisitions.
In Lim’s view, KDEMP is a high-quality asset that generates long-term, stable cash flows and deepens KIT’s exposure to water treatment solutions in Singapore.
KDEMP has been extended a 25-year concession from Singapore’s Public Utilities Board (PUB) until 2045, translating to long-term, stable cash flows.
KIT’s assets under management (AUM) will grow from $9.7 billion as at Sept 30 to around $9 billion upon completion of the proposed acquisition.
KIT’s exposure to the environmental services segment will increase from 7% to 11% of its total portfolio, while the proportion of Singapore-based assets will rise from 19% to 22% as at Sept 30.
The proposed acquisition is considered an interested person transaction, and unitholders’ approval will need to be sought at an extraordinary general meeting (EGM), expected to take place in December 2024.
Lim maintains her forecasts pending the completion of the transaction, which is expected to take place by 1Q2025. — Cherlyn Yeoh
Singapore Post
Price target:
Maybank Securities ‘buy’ 74 cents
Deeply undervalued
Maybank Securities has initiated coverage on Singapore Post S08 (SingPost) with a “buy” call and a sum-of-the-parts-based target price of 74 cents. In his Nov 25 note, analyst Jarick Seet calls the logistics and postal company “deeply undervalued”.
Seet points out that SingPost is underway in its bid to monetise and streamline its businesses. He sees “significant potential value” from two fronts: the sale of SingPost’s Australia-based units such as Famous Holding.
Next, SingPost Centre generates significant rental income from its retail space. It is valued at around $1.2 billion and can be sold along with other properties over the next one to two years.
Smaller properties that might be sold will come from the company’s shrinking network of more than 40 post offices, which can be reduced by half, he suggests.
Seet’s estimates that SingPost might fetch between $0.9 billion and $1 billion from these divestments. It can then use the proceeds to pare down debt and finance costs.
SingPost now carries some A$600 million ($525.2 million) worth of debt at 5% tied to its Australian operations, implying financing costs of some $50 million a year.
He says several of Singapore’s listed government-linked companies, like Keppel and Sembcorp Industries U96 , have undergone restructuring, and share prices have risen at least 18 to 150% since then. “We believe SingPost will follow suit,” says Seet.
“We expect further sharp rises in earnings and dividends from synergies and cost optimisation, as seen in 1HFY2025,” says Seet, adding that “the conclusion of SGX’s review may also be a catalyst”.
Seet’s sum-of-the-parts-based valuation is at 86 cents per share, but he has applied a 15% holding company discount to derive his target price of 74 cents. — The Edge Singapore
Grand Banks Yachts
Price target:
Lim & Tan Securities ‘buy’ $1.05
Stellar 1QFY2025
Lim & Tan Securities has maintained its “buy” call on Grand Banks Yachts, upgrading its target price to $1.05 from 54 cents.
The report dated Nov 25 comes after Grand Banks Yachts’ “stellar” 1QFY2025 ended Sept 30 results.
During the quarter, Grand Banks Yachts reported a revenue of $40 million and a net profit of $5.4 million, a 29% and 95% y-o-y increase, respectively.
The increase was mainly attributed to a previously cancelled boat contract in 3QFY2024 that was resold in 1QFY2025.
The results follow a stellar FY2024, when Grand Banks Yachts surpassed all expectations with record-high revenue of $133.7 million and net profit of $21.4 million, representing 17% and 112% y-o-y growth, respectively.
The company’s balance sheet remains healthy, with net cash at $35.8 million, while its order book currently stands at $116 million. Grand Banks Yachts recorded seven new boat orders and two trade-in boat sales in 1QFY2025.
Lim & Tan Securities analysts Nicholas Yon and Chan En Jie note that the gradual decline in the order book is not “particularly alarming” given that the company is more efficient in fulfilling its order book post-Covid and taking in new orders.
However, Yon and Chan recognise that the boat market typically softens during an election year in the US.
Yon and Chan note that Grand Banks Yachts has successfully built a strong brand by producing superior boats at competitive prices. With this advantage, the company aims to capture more market share in the US through its new range of boat models designed to appeal to previously untapped customer segments.
Grand Banks Yachts is completing the construction of its facility expansion at Pasir Gudang, Malaysia, and will increase usable floor space by 25%.
The upcoming yard, which will be ready in December, will support this by enhancing efficiency, reducing lead times by 15% and allowing the company to produce higher-margin stock boats strategically.
Yon and Chan expect the full impact of this expansion and Grand Banks Yachts’ efforts to capture additional US market share to be realised in FY2026. — Cherlyn Yeoh
Nio
Price target:
Morningstar ‘four star’ HK$52.50
On track to breakeven
Morningstar analyst Vincent Sun has reduced his fair value estimate on Nio to HK$52.50 ($9.09) from HK$58.50 but maintains a “four star” rating following the company’s 3QFY2024 ended Sept 30 update.
Nio, a global smart electric vehicle company, was listed on the Singapore Exchange S68 in May 2022. It is the first Chinese company listed in the US, Hong Kong and Singapore.
In its 3QFY2024 results, Nio announced a 12% gain in vehicle delivery but a 14% decline in vehicle price and a 2% drop in revenue to RMB18.7 billion ($3.48 billion).
Nio’s vehicle margin grew 2 percentage points (ppts) y-o-y to 13%, in line with the company’s guidance.
However, higher-than-expected marketing expenses and research spending offset gross margin improvement. As such, the net loss remained at around RMB5 billion, similar to the past two quarters, despite a decent delivery volume pick-up.
Sun has pushed back his breakeven estimate for Nio by one year to 2027, noting that shares are undervalued for “patient investors”.
Sun has also raised the 2024 to 2028 delivery forecast to account for new models and the third brand, Firefly.
Given lower price assumptions due to discounts and growing contributions from the Onvo brand, Sun’s 2024 to 2028 revenue estimates are largely unchanged.
Given higher operating expense ratios, Sun lifts his 2024 to 2025 net loss forecasts by 4% and 22%, respectively.
“We now expect Nio to make a small loss of RMB315 million in 2026, versus our previous forecast of RMB1 billion profit, and to turn profitable in 2027,” Sun adds.
For 4QFY2024, Nio has guided vehicle delivery to grow 44%–50% y-o-y to 72,000 units to 75,000 units, in line with market expectations.
Nio aims to double its vehicle delivery next year. The target compares to Sun’s forecast of 33% growth, given the potential cannibalisation between the Nio brand and Onvo and Firefly’s niche focus. — Cherlyn Yeoh
Frencken Group
Price targets:
DBS Group Research ‘buy’ $1.47
Maybank Securities ‘buy’ $1.50
CGS International ‘add’ $1.38
Lower target prices amid slower recovery
DBS Group Research, Maybank Securities, OCBC Investment Research (OIR) and CGS International have maintained their “add” or “buy” calls on Frencken Group E28 while downgrading their target prices.
CGS International analyst William Tng has downgraded his target price to $1.38 from $1.55, while DBS analyst Ling Lee Keng lowered her target price to $1.47 from $1.77.
Meanwhile, Maybank analyst Jarick Seet downgraded his target price to $1.50 from $1.54, noting that Frencken remains his top pick in the Singapore tech sector.
OIR analyst Donavan Tan has downgraded his target price from $1.74 to $1.42 but remains positive on Frencken’s long-term prospects.
RHB Bank Singapore, on the other hand, has maintained its “buy” call with a target price of $1.71, remaining “upbeat” on Frencken as its 3QFY2024 results are in line with its expectations.
The reports follow Frencken’s business update for 3QFY2024 ended Sept 30, on Nov 19. During the quarter, Frencken’s revenue rose by 7.7% y-o-y to $198.6 million, while its patmi surged by 29.3% y-o-y to $9.2 million. The figures were below the estimates of the consensus, DBS and Maybank.
Frencken reported 9MFY2024 revenue of $571.3 million, a 6.7% y-o-y increase, in line with 74% of CGSI analyst William Tng’s full-year forecast but below Bloomberg’s consensus forecast at 72%.
Frencken’s 9MFY2024 net profit of $27.3 million, a 42.5% y-o-y increase, formed 63% of both CGSI Tng’s and Bloomberg consensus full-year forecasts, below expectations.
Frencken’s 9MFY2024 revenue and patmi accounted for 75.4% and 67.7% of OIR’s Tan’s forecast, respectively.
Frencken’s management expects 2HFY2024 revenue to be higher than 1HFY2024 revenue of $372 million, with semiconductor revenue expected to be higher in 2HFY2024.
DBS’s Ling notes that semiconductor revenue is expected to grow 18.8% y-o-y in 2024 and 13.8% y-o-y in 2025, according to Gartner.
DBS’s Ling expects the rebound in the semiconductor segment to be accompanied by wafer shipments reaching new highs and increases in demand for silicon, which would support artificial intelligence (AI), high-performance computing (HPC), 5G, automotive, and various industrial applications.
“However, we believe the much-anticipated ramp up in orders will now likely only come in 2QFY2025 to 3QFY2025 as we do not see any signs of incoming ramp up yet from our channel checks,” Maybank’s Seet says.
This is supported by OIR’s Tan, who notes that although 3QFY2024 results are “mildly positive,” the supply chain, key customers and guidance from management suggest that anticipated growth in the semiconductor business is likely to materialise in late 2HFY2025.
Furthermore, potential trade restrictions between the US and China are likely to impact global demand, although Maybank’s Seet believes the long-term growth story is intact.
While the life sciences and medical segments performed well during Covid-19, they are now showing signs of slowing down.
In 3QFY2024, revenue from the medical segment contracted 4.3% y-o-y to $29.8 million, while life sciences increased 4.2% y-o-y to $44.7 million.
Maybank’s Seet acknowledges that while there is room for growth, it will be “slower than earlier anticipated”.
Similarly, OIR’s Tan notes that the steady growth in this sector has “stalled”, with uneven demand growth for various products within those segments.
Looking ahead, DBS’s Ling has an optimistic 2HFY2024 outlook supported by various programmes.
Furthermore, while Frencken’s capacity utilisation rate has not been optimised yet, it has adequate capacity to cater to increasing demand, given its expansion plans in Malaysia, in particular.
RHB’s Alfie Yeo remains positive on the outlook as Frencken is opening a larger facility in the US to support semiconductor customers in 1QFY2025. In the analytical and life sciences division, sales are supported by new product introductions and steady orders to a key customer in Europe.
“Both Gartner and SEMI have also forecasted firm growth in 2025 for revenue and the 300mm fab equipment market in the semiconductor sector,” Yeo adds.
Maybank’s Seet expects Frencken to remain a key beneficiary of the semiconductor industry recovery, with net profit after tax (NPAT) poised to grow strongly in the next few years.
Maybank’s Seet reduces his FY2024/FY2025 patmi by 12% and 7%, respectively.
Similarly, DBS’s Ling trims her earnings projections for FY2024 and FY2025 by 16% and 17%, respectively, on a “slower-than-expected” recovery. — Cherlyn Yeoh
Singapore Technologies Engineering
Price targets:
Citi Research ‘buy’ $5.12
Morningstar ‘four stars’ $5.25
RHB Bank Singapore ‘buy’ $5.32
Maybank Securities ‘hold’ $4.70
Mixed operating trends
Analysts are mixed on Singapore Technologies Engineering S63 (ST Engineering) prospects after the group posted its business update for the 3QFY2024 and 9MFY2024 ended Sept 30.
ST Engineering’s revenue for the 9MFY2024 rose by 14% y-o-y to $8.3 billion, while 3QFY2024 revenue also grew by 14% y-o-y to $2.8 billion.
While analysts from Citi Research, Morningstar and RHB Bank Singapore remain upbeat in their assessment, Maybank Securities analyst Krishna Guha has downgraded his call to “hold” with a lower target price of $4.70 from $4.80.
“While ST Engineering continues to execute well, order book growth has slowed down. Unless reversed, this will weigh on ebit margins,” says Guha. “Further, the turnaround in the urban solutions business is taking time.”
In his Nov 19 report, the analyst notes a “mixed operating trend” for the group, with defence and public security anchoring top-line growth and offset by slowing momentum from commercial aerospace and urban solutions.
The group also reported a 3.6% q-o-q dip in its order book of $26.9 billion, which was mostly due to weakness in the US dollar (USD). During the 3QFY2024, ST Engineering saw a total of $2.2 billion in new order wins. Its commercial aerospace business saw order wins in engine and airframe maintenance, repair and overhaul (MRO). In contrast, order wins in the group’s defence and public security business were “well spread” across digital cyber security and ammunitions. Order wins from urban solutions were on smart transportation and back office solutions.
“Following a 14% year-to-date rise, yields have compressed, and risks are to the downside for earnings growth as the order book tapers off,” says Guha.
Meanwhile, Morningstar’s Lorraine Tan has maintained her “four star” rating with a higher fair value estimate of $5.25 from $4.72.
In her view, ST Engineering’s 3QFY2024 update reflected “continued strong growth in its defence and public security business”, which drove the group’s overall revenue up by 14% y-o-y.
The company sees a slower growth outlook for passenger-to-freight conversions, says Tan.
Even though the markets may have reacted to the news that passenger-to-freight (PTF) conversion demand may see slower growth from fewer conversions of older aircraft, with airlines hanging on to their planes for longer due to aircraft delivery delays, Tan believes that the slower growth from commercial aerospace activities will be offset by stronger defence and public security segment revenue. A rise in airlines’ heavy maintenance demand is also expected to help offset slower PTF demand, she says.
“Our fair value prices ST Engineering at 20 times FY2025 P/E, which is well within its historical range,” says Tan.
“We view slower growth in PTF activities as temporary and push back growth assumptions to FY2026–FY2027,” she adds. “With stronger near-term maintenance demand, average earnings growth over our 10-year projected period for the commercial aerospace segment is little changed at 7%.”
As the analyst sees lower interest expenses amid easing rates going ahead, Tan estimates ST Engineering’s FY2023–FY2028 earnings per share (EPS) compound annual growth rate to be a “healthy” 14.4%. “We think ST Engineering is reasonably attractive at the current price level,” she writes.
Citi analyst Luis Hilado has also maintained his “buy” call with an unchanged target price of $5.12. To him, ST Engineering’s 9MFY2024 revenue was somewhat in line with the estimates of Bloomberg consensus at 74% of full-year estimates by consensus.
Like Maybank’s Guha, Hilado notes the slowing order win momentum in 3QFY2024 for ST Engineering’s commercial aerospace, defence, and public security segments on a y-o-y and q-o-q basis, even though management attributed it to the impact of foreign exchange (forex).
Hilado also highlighted underlying long-term order book drivers, such as a 30% hangar capacity expansion by FY2026 under the group’s commercial aerospace segment and leap engine capability and capacity upgrades.
However, he also sees that PTF feedstock constraints are providing a challenge in FY2025 that management is seeking to replace with more MRO contract work.
With this, Hilado has maintained his forecasts for the group as he sees healthy demand across its main divisions continuing to drive order book growth.
“A high base of revenue growth this FY2024 is likely to lead to relatively slower FY2025 revenue growth, but in the longer-term hangar expansion and potential new order book wins could provide for a new growth wave in FY2026,” he writes.
RHB analyst Shekhar Jaiswal has kept his “buy” call, as ST Engineering’s 3QFY2024 revenue accounted for 52% of his 2HFY2024 estimates. Jaiswal’s unchanged target price of $5.32 is the highest among the analysts.
The group’s softened contract win momentum also stood in line with the analyst’s expectations.
That said, Jaiswal remains upbeat on the group’s revenue and profit momentum. He expects ST Engineering to deliver a profit compound annual growth rate (CAGR) of 15% and steady dividends in FY2023–FY2026. — Felicia Tan
United Overseas Bank
Price target:
RHB Bank Singapore ‘buy’ $40.20
Positive outlook for 2025
RHB Bank Singapore has upgraded United Overseas Bank U11 (UOB) to “buy” because it believes it is time for the bank to “shine”.
The Singapore research team has also increased its target price to $40.20 from $35.60. The new target price represents a 10% upside from UOB’s Nov 20 share price of $36.40 and a 5% FY2025 yield.
“UOB has lagged peers for a large part of the past 23 months, but we think this trend is set to reverse,” says the team, citing four factors. These are the bank’s defensive, Asean-centric portfolio; multi-year investments in platforms and synergies from UOB’s Citi acquisition; better FY2025 earnings growth prospects compared to the sector average; and more aggressive capital returns, thanks to an improved capital position.
UOB’s Asean-centric portfolio will provide investors with a defensive shelter to ride through the market volatility that is likely to happen following the outcome of the US presidential election this year.
“RHB Global Economics and Market Strategy (RHB GEMS) generally expects Asean economies under coverage to post stable-to-stronger economic growth in 2025 — on sustained strength in trade and manufacturing, tourism activities and policies to support consumption, among others,” says the team. “Trade exposure to the US is relatively low but RHB GEMS does have a caveat that the indirect impact via China could be substantial.”
UOB’s investments in its regional platforms and its acquisition of Citi’s consumer banking businesses in four Asean markets — Malaysia, Thailand, Indonesia and Vietnam — seem to bear fruit already.
The benefits from the bank’s investments include positioning its wholesale banking business to better capture connectivity and foreign domestic investment (FDI) flows into the region and capturing the rise in retail wealth in the Asean region.
“We believe some of these benefits were evident in the recent 3QFY2024 ended Sept 30 results — its loan and current account savings account (casa) growth of +5% y-o-y and +17% y-o-y outpaced that of [its] peers,” says RHB.
All of these factors are leading to a positive outlook in FY2025, with UOB guiding to see higher total income from high single-digit loan growth and double-digit fee growth. The bank has also guided its cost-to-income ratio (CIR) to be at 41% to 42% next year, with a stable credit cost of 25 basis points (bps) to 30 bps.
Given the brighter outlook and the tapering off of the costs of integration with Citi, the RHB team expects UOB’s reported earnings for FY2025 to grow by 6% year over year, which is better than the flat earnings projected for the sector.
On a core basis, RHB still forecasts UOB’s FY2025 patmi to increase by 3% y-o-y due to prospects from its non-interest income segment.
“The rise in patmi and higher dividend payouts assumed supports our +9% distribution per share (DPS) growth for FY2025,” the team writes.
The team also sees further upside potential for shareholder returns, with UOB indicating that it may embark on capital management initiatives next year.
“While we assume that its dividend payout ratio will rise to 52.5% in FY2025 from 51% in FY2024, there could be further upside to capital returns in the form of higher dividends and, or share buybacks, now that UOB has a better line of sight on excess capital, with Basel III reforms having gone live,” says RHB. “Also, its 14% mid-term return on equity (ROE) target excludes capital management activities.”
Even though the team kept its earnings forecasts unchanged, its higher target price stems from a lower cost of equity (COE) assumption of 100 bps.
“We think [the higher target price] is deserved as confidence around UOB’s 14% ROE target rises,” says the team.
The new target price implies a P/B of 1.31 times from 1.16 times previously, which is at the higher end of levels after the Global Financial Crisis (GFC). — Felicia Tan
Keppel DC REIT
Price targets:
Citi Research ‘buy’ $2.34
Morningstar ‘three stars’ $2.34
Bulking up portfolio
Citi Research analyst Brandon Lee has maintained his “buy” call on Keppel DC REIT (KDC REIT), with an unchanged target price of $2.29, after the REIT announced that it would be acquiring two data centres from Keppel. Morningstar equity analyst Xavier Lee also kept his “three star” rating with a higher target price of $2.34 from $2.10.
In its release on Nov 19, KDC REIT announced the acquisition of two completed and fully contracted colocation next-generation data centres, which are ready for artificial intelligence (AI), at 82 Genting Lane, KDC Singapore 7 and KDC Singapore 8, for $1.38 billion.
This consists of $1.03 billion for the existing land tenure of approximately 15.5 years and an additional $350 million for a 10-year land tenure extension.
This is at a slight discount compared to two independent valuations of $1.4 billion and $1.38 billion.
Keppel DC Singapore 7 (KDC SGP 7) is a seven-storey data centre fully leased to four clients with a weighted average lease expiry (WALE) of 3.9 years. It covers a net lettable area (NLA) of approximately 72,900 sq ft and was completed in March 2023.
Keppel DC Singapore 8 (KDC SGP 8) is a six-storey data centre completed in August. It is fully leased to three clients with a five-year WALE and covers an NLA of about 77,500 sq ft.
KDC SGP 8 is partially fitted and occupied, with the remaining data halls undergoing fit-out. It is expected to be fully occupied by 3Q2025, with the nine-month gap supported by an income support of $8.7 million.
Lee notes that earnings growth could come from positive rent reversion, given that contracted rents are 15% to 20% below market rents, and conversion of the 1.5 unutilised floors at KDC Singapore 8 into data halls in the mid-to-long term.
After the acquisition, KDC REIT’s assets under management (AUM) will increase 36% to $5.2 billion, of which Singapore accounts for 65.5%. In comparison, the proportion of rental income from hyperscalers will increase by 12.7 percentage points (ppts) to 64.2%.
“We like that these are artificial intelligence-ready hyperscale data centres, which continue to ride on strong secular demand driven by increasing digitalisation, higher cloud adoption, and artificial intelligence,” says Morningstar’s Lee in his Nov 19 report. “Singapore, where the data centres are located, remains power-constrained, and management said the colocation vacancy rate was around 1% as of the end of June,” he adds.
According to KDC REIT, the acquisition will result in an 8.1% accretion in pro-forma distribution per unit (DPU), an 11.7% accretion in net asset value (NAV) per share, and a 37.9% gearing in 1HFY2024.
KDC REIT states that the acquisition will happen in three stages. First, the REIT will acquire an initial 40% and 9% interest in Memphis 1, a private company that directly holds the title to the data centres, from Cuscaden Peak Investments and its sponsor, Keppel’s connectivity division, respectively. KDC REIT will also subscribe to two new classes of securities and, or notes for up to $1.03 billion, which entitles the REIT to 99.49% of the data centres’ economic interest. This is expected to be completed in December.
Second, KDC REIT will be granted a call option, which it expects to exercise in 2H2025 to acquire the remaining 51% interest in Memphis 1 from Keppel.
Lastly, KDC REIT will pay an additional $350 million in 2H2025 to Memphis 1’s shareholders, Alpha DC Fund and co-investors, given that the 10-year land tenure lease extension is approved by the relevant authorities. — Cherlyn Yeoh
