Dyna-Mac Holdings
Price target:
Maybank Securities ‘buy’ 51 cents
Recent correction ‘overdone’
Maybank Securities’ Jarick Seet believes Dyna-Mac’s share price has over-corrected and is now an attractive buying opportunity, given the company’s healthy prospects.
Over the past two months, Singapore-listed oil & gas stocks have dropped by between 30% and 50% from their highs. Dyna-Mac, which specialises in building topside modules for oil rigs, was down 40%.
Seet, citing his channel checks, says there will be even more projects up for grabs next year, especially in 1H2024. He expects the company to secure another $200 million to $350 million worth of contracts by 1HFY2024 after tapping on expanded capacity, adding to the total contracts of $631 million as of October. This will provide revenue visibility in FY2025 and FY2026.
Seet sees the coming FY2023 earnings report as a positive catalyst for the stock, expecting “spectacular” earnings growth of 54% over FY2022’s $21 million.
Dyna-Mac has reiterated its ambition to acquire other companies, especially those that can help beef up its recurring income stream to cut down its reliance on project-based work.
Meanwhile, the company holds a net cash of some $128.5 million, equivalent to half its current market cap. “We expect management to reward shareholders with more dividends if there is no M&A activity,” says Seet, who has kept his “buy” call and 52 cents target price on the stock. — The Edge Singapore
Centurion Corp
Price targets:
RHB Bank Singapore ‘buy’ 62 cents
KGI Securities ‘buy’ 56 cents
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Asset-light move
RHB Bank Singapore’s Alfie Yeo has kept his “buy” call and 62 cents target price for Centurion Corp on optimism that the dorm operator’s asset-light strategy is taking shape.
On Dec 4, Centurion announced that it had signed a sale and leaseback agreement with Malaysia’s public sector pension fund Kwap for two dorms for RM27 million ($7.73 million). Under the terms of the deal, Kwap will enjoy a rental yield of 6.5%–7% from Centurion, which will continue to be the operator of the dorms.
In his Dec 8 note, Yeo expects Centurion to divest more properties over the mid to longer term. “Special dividends could also be on the cards, provided there is no use of sales proceeds for reinvestment,” he says.
Yeo is reiterating his positive stance on Centurion, with growth going forward driven by better capacity, occupancy and rental rates.
The stock now trades “attractively” at –1.5 s.d. (standard deviations) from its mean P/E. His target price of 62 cents is based on 7.5x FY2024 earnings, which is below its seven-year historical mean.
Separately, KGI Securities is upbeat on this sale and leaseback move and reiterated its “buy” call and 56 cents target price. “This strategic move aligns with Centurion’s portfolio rationalisation and asset-light growth strategy, allowing the company to recycle and deploy capital for further expansion,” says KGI on Dec 8.
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Meanwhile, KGI notes that Centurion remains an asset-heavy model for now. As such, the peak rate and ensuing rate cut cycle is the largest tailwind for the company.
“Besides, the overall portfolio is healthy along with recovering cash flows as worker and student dormitories are in demand in the post-Covid period. Furthermore, the potential lower refinancing rate and interest burden will help improve profitability,” adds KGI. — The Edge Singapore
Sembcorp Industries
Price target:
OCBC Investment Research ‘buy’ $6.83
Further greening in progress
OCBC Investment Research has maintained its “buy” call for Sembcorp Industries U96 , given its well-received and ongoing strategy of focusing more on renewable energy assets. However, following some fine-tuning of its valuation, OCBC has trimmed its target price from $7.11 to $6.83.
In its Dec 6 note, OCBC says that Sembcorp’s key financial metrics such as ROE have turned for the better, a trend supported by higher electricity prices. It has also divested non-core assets to unlock value and grow its renewables portfolio. “Successful execution of its renewables strategy provides further scope for re-rating, though good assets may not come cheap currently,” says OCBC.
Sembcorp has been actively acquiring renewable assets. The recent ones include the proposal to buy 245MW of operational renewable wind, solar and hydropower assets in Vietnam, bringing total capacity to over 450MW.
Sembcorp also has two separate agreements to acquire 428MW of wind assets in China and India, including 100% of Qinzhou Yuanneng Wind Power for $130 million and two special purpose vehicles for $70 million. Upon completion of these deals, Sembcorp’s total gross renewable capacity will reach 12.6GW.
As part of its “brown” to “green” move, Sembcorp recently raised its renewables capacity target to 25GW by 2028, more than double its earlier 10GW target by 2025. In the meantime, it will tap into its existing gas business as a “transition fuel” to fund its renewables growth.
From the perspective of OCBC, the company’s capital recycling efforts, involving potential partial stake sales and listing of assets in yield vehicles, are also of interest.
According to OCBC, Sembcorp has indicated plans to invest $14 billion over 2024–2028 by funding half of this growth via operating cash flow, a fifth by capital recycling and partnerships, and a third by balance sheet leverage. “The success of this strategy has implications on whether the company may need to turn to capital raising to fund its continued transformation and next stage of growth,” says OCBC. — The Edge Singapore
DFI Retail Group
Price target:
RHB Bank Singapore ‘buy’ US$2.92
Recovery play
RHB Bank Singapore’s Alfie Yeo has kept his “buy” call and US$2.92 on DFI Retail Group D01 with a view that this consumer stock is a “recovery play” with an attractive yield of around 6%.
“We anticipate a recovery in FY2024 driven by an expected pickup in demand in the various markets and improving domestic consumption,” says Yeo in his Dec 12 note.
In addition, in line with parent company Jardine Matheson’s practice of uplifting dividends back to the group level, subsidiaries like DFI are seen to continue paying dividends at an attractive level that ought to benefit other shareholders too. The stock currently trades at an attractive 13x FY2024 P/E vs Yeo’s implied target P/E of 17x.
Yeo is projecting earnings to grow at a CAGR of 18% between FY2023 and FY2025, driven by “sturdy domestic consumption and a pick-up in tourism in Hong Kong, on top of the continued economic recovery in Asean and China”.
In its most recent 3QFY2023 interim management statement, the company reported that underlying profit was up 80% y-o-y, thanks to its health & beauty and convenience divisions. On the other hand, grocery retail and IKEA weighed down the overall numbers.
DFI’s China supermarket unit Yonghui and other grocery businesses across Asean will be keenly watched for signs of an upside.
Meanwhile, downside risks include a slower-than-expected recovery in consumer spending and higher-than-expected costs, which should ultimately lead to lower margins and earnings. — The Edge Singapore
CapitaLand China Trust
Price target:
DBS Group Research ‘buy’ $1.20
Deep value among retail REITs
DBS Group Research has kept its “buy” call and $1.20 target price on CapitaLand China Trust AU8U (CLCT), following plans to divest Shuangjing mall in Beijing at a price 37% above valuation, which will give it a gain of $143.2 million.
In its Dec 8 note, DBS says that CLCT continues to deliver ahead of expectations to divest another non-core retail asset within its portfolio.
“The transaction deal bears a close resemblance to some of the older deals executed by the managers, where the divestment of structurally weaker malls was executed at above portfolio valuations,” says DBS.
Earlier examples included Erqi mall, which was sold at 21% above valuation, and Minzhongleyuan mall, which was sold at 4% above valuation.
According to DBS, Shuangjing mall, part of CLCT’s original portfolio at the time of IPO, is one of the older assets and has been in operation for more than 19 years.
It has a shorter land lease tenure remaining of 19 years as compared to newer retail malls injected into the portfolio at 29 years.
From the perspective of DBS, by selling away this mall, CLCT has mitigated tenant default risk on an asset level.
A tenant, which contributed around 2% of CLCT’s FY2022 gross rental income, has fallen into arrears, as disclosed by the REIT in the latest 3Q operational update.
“The sale of the asset will mean the exit of the master lease tenants within the asset, and de-risk retail tenant profile within the portfolio,” adds DBS.
Upon completion of the deal, proceeds will be recycled into either repayment of higher-costing debt within the portfolio which is from a high 4% to 5%.
Proceeds could also be used for share buyback, given how CLCT is now trading at just 0.6x book value and with a forward yield at 9%, says DBS, describing CLCT as one of the retail S-REITs with “deep value”.
“We see an opportunity window for re-entry before the start of share buybacks for investors who are taking a longer-term recovery view for China to ride on the upside from share buybacks,” adds DBS. — The Edge Singapore
LHN
Price target:
Maybank Securities ‘buy’ 45 cents
Undemanding valuation
LHN’s lower-than-expected core patmi has prompted Maybank Securities analysts to cut their target price from 54 cents to 45 cents.
Nonetheless, given the “undemanding” valuation now, analysts Li Jialin and Eric Ong have maintained their “buy” call.
The company’s FY2023 core patmi of $19 million, which excludes fair value loss and disposal gain, came in below market expectations due to higher financing costs and lower contributions from joint ventures, state Li and Ong in their Dec 6 note.
The company plans to pay out a final dividend of one cent, plus a special dividend of another cent.
The key performing segment was LHN’s co-living business, which reported revenue of $28.3 million for the year, lifted by higher rental rates although occupancy dipped because of a larger capacity.
“We factor in a stable occupancy rate and rental rates, but expect co-living to continue to underpin growth, as LHN aims to add 800 keys each year, as it goes after new tenders,” say Li and Ong.
Meanwhile, LHN is expanding its other income sources too. This includes industrial leasing, which grew by 33% y-o-y. Contributions from commercial leasing declined 22% y-o-y due to lumpy revenue recognition.
In addition, LHN is expanding elsewhere such as renewable energy and facilities management including car parks and cleaning services.
“We remain positive on LHN’s growth strategy but lower our FY2024-2025 core profit forecasts by 14%–16% to account for a higher-for-longer interest-rate scenario,” says the duo.
The new target price of 45 cents, based on 8x FY2024 earnings, is deemed undemanding, given how it is now trading at just 6x forward earnings and 0.6x book value while giving a yield of 6%. — The Edge Singapore
Japan Foods
Price target:
RHB Bank Singapore ‘neutral’ 30 cents
Higher costs seen
RHB Bank Singapore’s Shekhar Jaiswal has downgraded Japan Foods Holdings to “neutral” from “buy” after it reported lower-than-expected earnings for 1HFY2024 ended Sept 30 on higher costs.
Along with the downgrade, Jaiswal, in his Dec 8 note, cut his target price for the company, led by chairman and CEO Takahashi Kenichi, to 30 cents from 45 cents.
Nonetheless, the company, which is actively expanding its number of outlets, might just “yield an upside surprise”.
In his Dec 8 note, Jaiswal points out that the company’s lower earnings for 1HFY2024 were due to the delayed impact of inflation that started earlier in the year.
In 1HFY2024, Japan Foods generated a 13% y-o-y increase in revenue to $43 million. However, higher-than-expected costs sent earnings down 60% y-o-y to $872,000, missing Jaiswal’s projection of $3 million.
In line with the lower earnings, the company cut its interim dividend to 0.3 cents from 1 cent paid out this time last year.
Jaiswal expects cost pressures to persist. Besides the delayed impact of the inflation, the company is incurring costs with its active expansion as well, from 72 outlets at the end of 1HFY2024 to between 77 and 78 by the end of FY2024.
“This, in addition to the manpower constraints, will keep operating costs high in the near term. The addition of new stores would also lead to higher-than-normal capex and elevated depreciation expenses,” warns Jaiswal.
Nonetheless, there are some “bright spots”. For example, Japan Foods has a thriving business selling halal food, with the number of outlets catering to this segment doubling in 1HFY2024.
Two of the halal concept outlets were the ones generating the most revenue growth in 1HFY2024.
Given the promising results, Japan Foods plans to continue focusing its expansion plans on halal-concept restaurants, which it aims to account for more than half of its total revenue by the end of FY2024.
While Jaiswal expects the expansion of its halal restaurants, moderation in inflation and improvement in Singapore’s economic growth to boost earnings, confirmation of this trend will only be visible in FY2025. “Therefore, we prefer to reassess our views post-FY2024 results,” he says.
Taking a conservative stance, he cut his FY2024 and FY2025 profit estimates by 63% and 38% respectively. — The Edge Singapore
