Centurion Corporation
Price target:
Lim & Tan Securities ‘accumulate’ 66 cents
Company is ‘off to a good start’
Lim & Tan Securities analyst Chan En Jie has kept his “accumulate” call on Centurion Corporation OU8 with a higher target price of 66 cents from 62 cents previously.
In his report dated June 26, Chan notes that the company is “off to a good start”, referring to its business update for the 1QFY2024 ended March 31.
During the quarter, Centurion reported a 30% y-o-y increase in its group revenue of $61.1 million, outperforming the analyst’s estimates at 27.5% of his full-year forecasts.
The revenue increase was mainly attributed to the continued positive rental rate revisions and higher occupancies in Centurion’s purpose-built workers accommodation (PBWA) and purpose-built student accommodation (PBSA) global portfolios.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Other positives, in Chan’s view, include the “healthy pipeline” of 2,570 dormitory beds in Singapore and Malaysia this year.
The recent off-market purchase by David Loh, Centurion’s executive director and joint chairman, also seems to suggest “continued confidence” in the company’s prospects. Loh purchased a total of some 20 million shares at an average price of 54 cents apiece on June 11. Before that, Loh bought 215,400 shares from the market at 53 cents each on June 3.
Another positive is the demand for foreign workers, which should remain high over the short- to mid-term, notes Chan. This is as the Building and Construction Authority (BCA) increased its forecast for Singapore’s construction demand for 2024 to 2028.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
In Chan’s view, Centurion’s valuations are “attractive” as it is trading at just 6.3 times its core FY2024 P/E and 0.6 times P/B.
In addition to his higher target price, the analyst has increased his FY2024 and FY2025 earnings estimates by 7%. — Felicia Tan
City Developments
Price target:
Citi Research ‘buy’ $9.51
Top developer pick amid supply reduction
Citi Research analyst Brandon Lee has named City Developments (CDL) as his top pick among the Singapore-listed developers due to its valuations.
Lee’s flash note, dated June 26, comes after the government reduced the total supply of private housing in the 2H2024 government land sales (GLS) programme by 9% to 8,140 units across 19 sites.
This is the first semi-annual decrease after four consecutive increases in supply since 2H2022, notes Lee.
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Of the 8,140 units, 5,050 units are on 10 sites on the confirmed list while the remaining 3,090 units are across nine sites on the reserve list. The confirmed list refers to sites that are launched for sale at pre-determined dates and most land parcels are sold through tenders. The reserve list refers to sites that are not released for tender immediately. These are, instead, made available for application. A site on the reserve list will be put up for tender when a developer has submitted a minimum price which is accepted by the government.
The non-residential supply under the 2H2024 GLS programme, which comprises 113,650 sqm of commercial space and 530 hotel rooms, is relatively unchanged from 1H2024.
The programme released three sites at Punggol Walk, Woodlands Ave 2 and River Valley Road, as well as an additional white site at Marina Gardens Crescent, which was added to the reserve list. The Marina Gardens Crescent site was previously on the confirmed list of the 1H2023 GLS programme, but was not awarded as the sole bid of $770.5 million or $984 psf in January by a Guocoland-led consortium was deemed to be too low.
To Lee, the reduction in housing supply from the latest GLS programme came as no surprise given the softening land prices and muted demand of an average of three bids for eight sites tendered from the start of the year to date.
That said, the total supply in 2024, which remains at a 10-year high, should lead to subdued demand for most sites except for those at Bayshore Road, Chencharu Close and Holland Link due to the scarcity factor, says the analyst. A total of 17,050 units were introduced so far this year.
Meanwhile, the injection of new sites at Lentor, River Valley and Media Circle may exert “greater downside pressure” by tenders and existing or soon-to-launch projects with unsold units, notes Lee.
However, he adds that there may be limited impact on property prices given Singapore’s low unemployment rate, healthy growth in wages and peaking mortgage rates.
Furthermore, he points out that land supply alone has shown historically that it does not result in a decline in prices.
Lee has kept his “buy” call on CDL with an unchanged target price of $9.51, which is set at a 40% discount to his revalued net asset value (RNAV) of $15.85. “[This is] near where it traded at during the past few residential downcycles triggered by cooling measures,” Lee writes. CDL has put its RNAV at $19.46 which includes the revaluation surpluses of its investment properties and hotels.
“Our key assumptions include: residential: 2%/2%/2% rise in Singapore prices in FY2024/FY2025/FY2026; office: flat cap rate changes and –5/–3/+5% in Singapore Grade A rents in FY2024/FY2025/FY2026; hospitality: flat cap rate changes and 3%/4%/5% rise in FY2024/FY2025/FY2026 revenue per available room (RevPAR); and retail: flat cap rate changes and 0.5%–2% rise in Singapore rents,” he ends. — Felicia Tan
Civmec
Price target:
UOB KayHian ‘buy’ $1.23
Shifting to Australia a positive move
Engineering firm Civmec P9D ’s application to shift its domicile from Singapore to Australia, where it operates, will help increase opportunities to win new contracts with stringent “local content” requirements.
By doing so, Civmec can also tap capital willing to help fund local manufacturing activities, according to UOB KayHian analysts John Cheong and Heidi Mo in their June 21 note.
Even as its order book reaches A$821 million ($738 million), the analysts note that Civmec is still expanding both its service offerings and client base.
Meanwhile, they have kept their “buy” call and $1.23 target price on this stock, which is pegged to 11 times FY2024 earnings, which is at 0.5 s.d. (standard deviations) below its long-term historical mean.
“We think its current valuation of 7 times FY2024 earnings is attractive, given its strong order book. The stock is trading at a deep 55% discount to its regional peers that are trading at an average of 16 times FY2024 earnings,” state Cheong and Mo.
According to the analysts, tendering activities across Civmec’s operations are at historically high levels, with current priced opportunities approaching A$10 billion.
Civmec, the analysts say, is working with a range of clients on approved expansion, sustaining and maintenance opportunities as well as on a budgetary level for projects under studies.
The company has a strong pipeline of tendering opportunities in all the sectors it operates in, ranging from resources, energy and infrastructure, marine and defence.
Civmec is winning over a bigger share of maintenance-related contracts, with clients such as old major Chevron. It provides construction services too to mining giant Rio Tinto, according to Cheong and Mo.
Separately, the Australian government recently halved the number of offshore patrol vessels it had wanted to order from 12 to six. Civmec was earlier seen to tap on this series of contracts.
Nonetheless, Civmec has already completed its scope of work for the six vessels and has shifted its resources towards other contracts.
“This is therefore not expected to impact FY2024’s financial performance, demonstrating Civmec’s effective diversification of contracts across sectors,” state Cheong and Mo.
Even so, given the Australian government’s stance to beef up its defence spending over the longer term, Civmec remains a “strong contender” for future contracts given its long-standing ties with the Department of Defence. — The Edge Singapore
Venture Corp
Price target:
CGS International ‘add’ $15.93
Better 2HFY2024
CGS International analyst William Tng is keeping his “add” call and target price of $15.93 unchanged for Venture Corporation V03 as the company guided for its 2QFY2024 ended June revenue to improve q-o-q and 2HFY2024 revenue to improve h-o-h.
Tng writes in his June 20 report: “Venture also commented in its 1QFY2024 business update that it is onboarding new customers in electronics manufacturing service (EMS++), precision engineering and ventech group businesses, including customers in the medtech and lifestyle sectors, as well as promising technology domains.”
Additionally, Tng notes that based on customers’ feedback, the company also sees demand strengthening in several technology domains for the rest of FY2024.
He continues: “In its 1QFY2024 business update meeting, Venture also commented that its new Batu Kawan facility could add an additional 10% to the group’s total floor area and that the company is exploring with customers to gradually commence production at this new factory.”
Meanwhile, customer concentration risk has increased for Venture, as Tng points out that Venture has two major customers each accounting for more than 10% of revenue in FY2023 versus one such customer in FY2022.
The analyst adds that the rise of artificial intelligence (AI) data centres will lead to a demand for networking-related components and modules used in data centres, which “could benefit” Venture, as the company supplies such components to American semicon players Broadcom, Marvell Technology and Lumentum Holdings.
Overall, Tng expects to see a resumption in earnings per share (EPS) growth from FY2024 to FY2026 as orders increase. The analyst also sees share price support from its 5.4% dividend yield over the same period.
Tng’s unchanged target price is still based on 14.6 times Venture’s expected FY2025 P/E, or at its 15-year average.
Re-rating catalysts noted by him include new product launches by customers and better-than-expected revenue opportunities from FY2024 to FY2026 as further business opportunities arise from companies keen to diversify their production orders from China to Malaysia.
Conversely, key downside risks include potential supply chain disruptions affecting the availability of parts and components, labour shortages potentially lowering its production output and a worsening global economic outlook potentially further reducing orders from customers. — Douglas Toh
BRC Asia
Price target:
UOB Kay Hian ‘buy’ $2.42
Bullish medium-term outlook
UOB KayHian (UOBKH) analysts Llelleythan Tan and Heidi Mo are keeping their “buy” call and target price of $2.42 unchanged on steel supplier BRC Asia BEC after the company reported a robust set of earnings for the 1HFY2024 ended March.
For the period, BRC saw a 47% y-o-y growth to $38.5 million in its earnings and a 5.8% y-o-y improvement in revenue to $758.3 million, driven by higher contributions from the higher-margin steel fabrication segment and lower raw material costs.
The results formed 43.4% and 43.8% respectively of Tan and Mo’s full-year estimates, in line with their expectations, especially considering that the period is “historically a seasonally weaker half.”
The analysts write in their June 12 note: “1HFY2024 revenue was driven by higher construction demand while margins expanded on the back of increased contributions from the higher-margin steel fabrication segment coupled with lower raw material costs. As a result, 1HFY2024 gross and net margins rose 2.4 percentage points (ppts) y-o-y and 1.4 ppts y-o-y respectively.”
Tan and Mo add: “We expect further margin expansion from lower steel prices and a robust order book.”
In 2QFY2024, BRC’s revenue was softer 4.4% y-o-y and 10% q-o-q, which the analysts attribute to lower contributions from the company’s lower-margin international trading segment.
On the other hand, gross profit in the quarter surged 33.9% y-o-y and 10.7% q-o-q, as did net profit, with 45.7% y-o-y and 24.7% q-o-q growth, thanks to higher deliveries.
In 1HFY2024, BRC declared an interim dividend of 6 cents per share, translating to a dividend payout ratio of 43%.
“As a recap, the group does not have a formal dividend policy but we opine that the group would be able to sustain its historical average payout ratio of 60% in FY2024, backed by its strong operating cash flows. Based on our estimates, this implies an attractive FY2024 dividend yield of around 8.7%,” note Tan and Mo.
In the medium term, the analysts see a favourable outlook for BRC as strong demand from an expected large number of HDB projects in Singapore are being planned, and upcoming infrastructure projects such as the Changi Airport Terminal 5 and Integrated Resort expansion look to help support delivery volumes.
Although Singapore’s construction sector grew slower at 4.3% y-o-y in 1QFY2024 due to near-term challenges such as a market shortage of consulting engineering and architectural services, Tan and Mo note that the Building and Construction Authority expects 2024 total construction demand of $32 billion to $38 billion.
The analysts expect BRC to deliver half its robust as at end-2QFY2024 $1.3 billion order book in the next three to four quarters as volumes recover.
They write: “BRC remains a strong proxy to Singapore’s construction sector, given its commanding market share domestically. In our view, BRC’s attractive 8.7% dividend yield and growing earnings would help support share prices’ performance moving forward,” concludes Tan and Mo.
Share price catalysts noted by the pair include the faster-than-expected recovery in construction activities, a complete relaxation of foreign labour restrictions and more public housing projects awarded to BRC. — Douglas Toh
ISOTeam
Price target:
SAC Capital ‘buy’ 7.3 cents
Improving demand
SAC Capital analysts Daniel Ng Ming Ci and Matthias Chan have initiated a “buy” on ISOTeam with a target price of 7.3 cents.
The company’s growth drivers include the improvement in Singapore’s construction demand — set to be between $31 billion and $38 billion from 2025 to 2028 — with the public sector contributing about 60% of total demand.
Ng and Chan note that the Housing and Development Board (HDB) upgrading cycles and neighbourhood renewal programmes provide a steady income stream for companies like ISOTeam.
“Additionally, the backlog of projects from disruptions caused by the Covid-19 pandemic and the expected increase in infrastructure upgrades ahead of the upcoming Singapore general elections present further opportunities,” they point out.
The analysts also highlight that ISOTeam is currently at the forefront of technological advancement in its sector and is expected to gain more market share and improve its margins.
A pioneer in technological advancements, ISOTeam has started deploying drones to conduct suitable facade work, Ng and Chan note. This approach reduces setup time and costs associated with erecting gondolas and other heavy equipment, speeding up project delivery and enhancing worker safety.
Building on the success of the facade inspection drones, ISOTeam is in the late stages of developing AI autonomous painting drones, which has shown promising progress, say Ng and Chan.
They point out that in August 2023, ISOTeam was awarded the Enterprise Development Grant, which supports part of the qualifying expenses for the development. The following month, the company received the operator permit from the Civil Aviation Authority of Singapore, enabling the painting drone to take flight.
SAC Capital’s target price of 7.3 cents is based on ISOTeam’s forward earnings per share against the average P/E ratio of 6.3 times of its peers, resulting in a 24.5% upside from current levels. — Khairani Afifi Noordin
OUE REIT
Price target:
PhillipCapital “buy” 33 cents
‘50% discounted investment-grade REIT’
PhillipCapital has initiated coverage on OUE LJ3 REIT, calling it a “50% discounted investment-grade REIT” with upside potential from asset enhancements.
In a June 24 note, research head Paul Chew and analyst Liu Miaomiao note that OUE REIT has “the largest discount” to net asset value (NAV) among S-REITs rated “investment grade”, at 0.43 times P/NAV. OUE REIT also boasts an “attractive” yield of 7.8%, they add.
Starting OUE REIT at “buy” with a target price of 33 cents, 27% above its last close price of 26 cents, Chew and Liu say the NAV discount is “not warranted”. “Around 92% of the portfolio is in Singapore with resilient occupancy rates and rental growth.”
OUE REIT is one of Singapore’s largest diversified REITs, say the analysts, with assets totalling $6.3 billion as of December 2023. Its assets are OUE Bayfront, One Raffles Place, OUE Downtown Office, Mandarin Gallery, Hilton Singapore Orchard, Crowne Plaza Changi Airport and Lippo Plaza in downtown Shanghai.
Chew and Liu see upside potential from asset enhancement initiatives (AEI) and repositioning, with the downside protected by the master lease.
Hilton had its full contribution in FY2023 after repositioning from Mandarin Orchard, focusing more on business travellers with a target on US customers, thereby increasing revenue per available room (RevPAR) by 27% after rebranding.
“We forecast RevPAR to grow by 11% for Hilton in FY2024, given the continued recovery of visitor arrivals and limited new supply,” they note. “Meanwhile, Crowne Plaza also completed its AEI in October 2023. The master lease agreement ensures a minimum rent of $67.5 million, supporting a group yield of about 6%.”
Hilton is leased to OUE under a master lease agreement with an initial term of 15 years starting from July 2013, and an option to renew for an additional 15 years. Crowne Plaza is also leased to OUE Airport Hotel under a master lease agreement until May 2028, with an option to renew for two consecutive five-year terms.
The master lease agreements consist of both a fixed rent component and a variable rent component. Variable rent for Hilton comprises a sum of 33% of gross operating revenue (GOR) and 27.5% of gross operating profit (GOP), subject to a minimum rent of $45 million.
For Crowne Plaza, variable rent comprises the sum of 4% of hotel F&B revenues, 33% of hotel rooms and other revenues not related to F&B, 30% of hotel GOP and 80% of gross rental income from leased space, subject to a minimum rent of $22.5 million.
OUE REIT has been enjoying downside protection since Covid-19 and the variable component just surpassed the minimum level in 2023, reaching $91.6 million. Thus, Chew and Liu “believe the two hotels will continue performing going forward”.
Chew and Liu expect high rental reversion to be sustained in FY2024 ending December. OUE REIT managed to secure high rental reversions of 12% for office and 13.7% for retail in FY2023. This momentum is expected to continue in FY2024 at 10%, say the analysts.
“We believe the new office supply will not place significant rental pressure, as asking rents are higher than the office properties owned by OUE REIT. While rental reversion for Lippo Shanghai may still be negative, given its small revenue exposure of 7.7%, we believe the effect on the overall portfolio will be marginal.”
OUE REIT obtained an “investment grade” rating by S&P in 2023. Compared to the nine other S-REITs with investment ratings, OUE REIT has a relatively healthy gearing of 38.8%, the largest discount of 0.43 times P/NAV, and an attractive yield of 7.8%, say Chew and Liu.
Early in June, the manager of OUE REIT announced it had priced $250 million of green notes under its $2 billion multicurrency debt issuance programme. Chew and Liu note that this green bond issuance is at a “more favourable” rate of 4.1%, lower than the current all-in cost of debt, which was 4.5% in 1QFY2024. “We do expect another year of interest rate headwinds, causing DPU to decline further in FY2024 with a recovery in FY2025.”
OUE REIT follows a distribution policy of at least 90% of its taxable income. Since its listing in 2012, it has been distributing above 92%. In FY2023, the payout ratio was 93.5%. The REIT has consistently paid out quarterly dividends.
Chew and Liu expect a DPU of 2 cents for FY2024 and 2.9 cents for FY2025, translating into yields of 7.8% and 11.4% respectively. — Jovi Ho
Thai Beverage
Price targets:
UOB Kay Hian ‘buy’ 57 cents
DBS Group Research ‘buy’ 69 cents
CGS International ‘hold’ 50 cents
Long awaited BeerCo IPO still on
Analysts at UOB KayHian (UOBKH) and DBS Group Research are keeping “buy” on Thai Beverage Y92 (ThaiBev) following the company’s recently held Annual Information Meeting and analyst meeting.
In their June 23 report, DBS analysts highlight that the long-awaited BeerCo IPO remains part of ThaiBev’s strategic value-unlocking agenda, as the company actively explores multiple options to maximise value for shareholders.
In terms of partnership, ThaiBev is looking out for strategic fit, valuation and culture fit, the analysts say. They note that the company is aiming for early to mid-2025 when market conditions are expected to improve on lower interest rates and US presidential election uncertainty is resolved.
As such, DBS believes that the BeerCo IPO is a key share price re-rating catalyst, adding that an equity partnership with a global brewer will be key to its valuation.
The frontrunner is likely to be Budweiser APAC, with its significant investment capacity. The analysts believe that Budweiser’s APAC’s global premium portfolio would complement ThaiBev’s existing mainstream-focused portfolio.
“Nonetheless, we believe Asahi should not be discounted as it has sufficient investment capacity to come in as a minority shareholder, which is preferred by ThaiBev’s management. In addition, it owns the second largest Japanese whisky company, Nikka, which has a global distribution network that ThaiBev could leverage to grow its international premium spirits portfolio on a global scale,” the analysts point out.
Meanwhile, UOBKH analysts Llelleythan Tan and Heidi Mo point out ThaiBev’s possible divestments, as its stake in Frasers Property TQ5 has been earmarked as a non-core asset and may potentially be divested. However, they believe this is unlikely given Frasers Property’s share price is at an all-time low.
“On the other hand, ThaiBev’s stake in Fraser and Neave (F&N) is considered a strategic investment given the operating synergies and collaborations with ThaiBev’s nonalcoholic beverages segment. However, management did mention that if the valuation was acceptable, the group would consider divesting its F&N stake,” they add.
In response to future growth drivers for the spirits segment, ThaiBev mentioned that the group has implemented a premiumisation strategy to attract a different customer profile and improve its international spirits portfolio.
UOBKH analysts note that this was driven by the recent acquisitions of Larsen cognac and Cardrona Distillery in FY2023, which boast higher margins compared with its domestic spirits. Despite political tension in Myanmar, ThaiBev expects Grand Royal to continue its strong performance in FY2024.
The Vietnam Ministry of Finance recently announced plans to hike special consumption tax on beer from 65% currently to 80% by 2026 and gradually to 100% by 2030. CGS International analysts Ong Khang Chuen and Kenneth Tan notes that ThaiBev believes the higher excise taxes to be imposed across all alcohol categories are fair. The company also believes the proposed implementation timeline allows sufficient time for it to strategise and prepare for the upcoming price adjustments.
CGS is reiterating “hold” on ThaiBev with an unchanged target price of 50 cents as the analysts see risks from soft spirit sales volume in Thailand as well as weaker associate earnings.
UOBKH has a lower target price on ThaiBev at 57 cents compared to 70 cents previously due to the re-rating of the company’s peer EV/Ebitda multiples since its last update, while DBS keeps its target price at 69 cents. — Khairani Afifi Noordin
