Food Empire Holdings
Price target:
Maybank Securities ‘buy’ $1.30
Target price cut on higher coffee bean costs
Maybank Securities analyst Jarick Seet has lowered his target price on Food Empire to $1.30 from $1.68 as he expects the higher coffee bean prices to impact the company’s margins in the short term.
Prices for coffee beans have risen in the past two months to a high of US$240 ($324.99) per pound, which is up 30%. Seet’s report dated May 7 says coffee bean prices have slowed to a growth of about 10%.
Despite the short-term headwinds, Seet expects Food Empire’s management to gradually raise its product prices, although this will impact its financial performance around six months later.
As a result, Seet has also lowered his patmi estimates for FY2024 ending December 2024 and FY2025 by 15%. His new target price is pegged to a lower FY2024 P/E of 10 times from 11 times before.
However, the analyst has kept his “buy” call on Food Empire as he sees its revenue growth to be intact, especially in Vietnam where the company has refocused a lot of its marketing efforts, especially in FY2023.
“Going forward, its non-dairy creamer expansion should add about US$20 million–US$50 million of revenues in the next one to two years after it ramps up,” adds Seet.
On the whole, the analyst likes Food Empire’s business model, which has proven to be “resilient”. The analyst also remains confident in its management’s ability to execute its strategies.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
“We still believe Food Empire is undervalued at 8.6 times FY2024 P/E and that the company’s share buyback will likely continue. Management will likely also continue to reward shareholders with attractive dividends,” he says. — Felicia Tan
Boustead Singapore
Price target:
OCBC Investment Research ‘buy’ $1.20
Favourable growth profile
OCBC Investment Research analyst Ada Lim has kept her “buy” call and target price of $1.20 ahead of Boustead Singapore F9D ’s results for the FY2024 ended March 31.
“We look favourably upon Boustead’s growth profile given its deep engineering expertise and exposure to multiple long-term secular trends, such as climate action and sustainability, smart cities and the Internet of Things (IoT), and the silver tsunami in Asia Pacific,” says Lim.
The analyst notes that FY2024 has been an “eventful” year for Boustead with its energy engineering and geospatial divisions experiencing steadfast and consistent contract wins. Boustead’s geospatial division secured a “landmark” contract with the Australian Federal Government valued at around $42 million.
These contract wins contributed to Boustead’s robust order backlog valued at $433 million, of which $152 million and $281 million were booked under the energy engineering division and real estate division respectively, as at Sept 30, 2023.
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To the analyst, these developments have provided Boustead Singapore with a “strong” foundation for its 2HFY2024 performance.
Lim also notes that the company was focused on privatising Boustead Projects (BPL), which was delisted on Feb 9.
BPL was delisted for three reasons. To simplify and improve the group’s operating structure, to give Boustead more control and flexibility to manage resources efficiently and to reduce costs related to meeting listing and regulatory requirements.
“We expect the consolidation of BPL to be accretive to Boustead in the long run,” adds Lim.
The analyst adds that BPL announced a partnership with Hankyu Hanshin Properties Corp and Mitsui and Co to redevelop an industrial property at 36 Tuas Road, via a joint investment in the Boustead Real Estate Fund, as at December last year.
The analyst also notes that BPL’s joint venture, KTG & Boustead Industrial Logistics Joint Stock Company (KBIL) entered into a sale and purchase agreement for the acquisition of Minh Quang Industrial Development JSC, which had previously signed an in-principle land lease agreement for a land lot of approximately 136,450 sq m. KBIL plans to develop the land into leaseable industrial facilities.
The analyst notes the potential of future opportunities to strengthen efficiency, reduce emissions and increase solutions provided by Boustead’s energy engineering division to boost energy majors amidst the transition towards cleaner energy.
Despite governments being the main users of Esri’s ArcGIS technology, Boustead notes that the technology is being utilised for other purposes such as mining and utilities in Indonesia.
The analyst adds that Boustead’s valuations remain undemanding, despite the increase of an estimated 10.6% of its share price since its last close price of 94 cents as at May 6.
Boustead currently trades at a forward 12-month P/E ratio of 8.5 times, representing slightly less than one standard deviation (s.d.) below the five-year historical average of 10.7 times, while its forward 12-month dividend yield is currently around its five-year historical average level at 4.3%.
Potential catalysts identified by Lim include a strong contract and, or order win momentum, accretive acquisitions to grow the scale of the business, as well as a spin-off of its real estate assets into a REIT.
On the flip side, cost overruns that may impact Boustead’s profit margins, widening losses from its healthcare segment and macroeconomic weakness that may weigh on the company’s fiscal and corporate spending are downside risks. — Ashley Lo
Venture Corp
Price targets:
DBS Group Research ‘buy’ $16.40
Maybank Securities ‘buy’ $15.80
UOB Kay Hian ‘buy’ $16.37
CGS International ‘add’ $15.93
Citi Research ‘buy’ $15.70
RHB Bank Singapore ‘neutral’ $14.20
Weak 1Q but 2H pick-up seen
Venture Corp’s 1QFY2024 ended March earnings came in softer than expected. However, with better clarity and an improved outlook, analysts are keeping their bullish views on this stock.
In 1QFY2024, Venture’s revenue dropped 18.9% y-o-y to $667 million and earnings were down 18.3% y-o-y as demand remains soft.
Despite the lower top and bottom lines, Venture could hold on to its net margins at 9% for the quarter, versus 9.1% in the preceding 4QFY2023.
“With inventory destocking coming to an end, coupled with improving demand for most of the domains, the group expects a better 2HFY2024 versus 1HFY2024 and a stronger 2Q24 as compared to 1Q24,” writes DBS Group Research’s Lim Lee Keng in her May 6 report.
Citing customers’ feedback, Venture, according to Ling, is starting to see demand strengthening in several technology domains for the rest of 2024.
“This observation is in line with our view of a more significant recovery for the downstream players in the second half of the year to the end of 2024,” says Ling, who has maintained her “buy” call.
Meantime, given the weaker-than-expected 1QFY2024 earnings, Ling has trimmed her FY2024 and FY2025 earnings forecast by 6.1% and 6.4% respectively, with lower margins assumptions.
This has led to a reduced target price of $16.40, from $16.90 previously, which is based on the same valuation multiple of 16x blended FY2024 and FY2025 earnings.
In his May 5 note, Jarick Seet of Maybank Securities has kept his “buy” call and $15.80 target price, as he expects the company to enjoy a gradual recovery from FY2023 despite the weak start this year.
“With a yield of 5.3%, a strong balance sheet and an active share-buyback programme, we believe that Venture will likely be a safe haven for investors,” he says.
In their May 6 note, UOB Kay Hian’s John Cheong and Heidi Mo have similarly kept their “buy” call.
They note that Venture is growing with its customers and bringing on board new ones, including those in precision engineering.
Their target price of $16.37 is pegged to 0.5 standard deviations (s.d.) above its long-term mean P/E of 17 times FY2024 earnings, “to capture the potential earnings recovery in 2024 and upcycle beyond that.”
Citi Research analyst Luis Hilado, citing the management, notes that business headwinds have been tapering off and is confident of a q-o-q revenue pick up from 2QFY2024 onwards with positive demand from consumer lifestyle and data centre segments.
In addition, the company noted that its precision engineering group has seen orders picking up from 2QFY2024 and has started onboarding new customers.
“Management remains optimistic with 2H being stronger vs 1H revenue levels,” says Hilado.
“While 1Q may have been soft, we believe this is widely expected and the company’s signal of sequential revenue improvement should help support the share price. The downside risk is also likely mitigated with the company’s ongoing share buyback programme,” says Hilado, who has kept his “buy” call and $15.70 target price.
William Tng of CGS International shares broadly the same view as other analysts. Despite the lower-than-expected 1QFY2024 numbers, he is leaving this FY2024 forecast unchanged for now, as he expects the earnings to catch up in the subsequent quarters.
Tng is keeping his “add” call and $15.93 target price, based on 14.6 times FY2025 earnings. He likes how Venture has earnings growth potential and is also well supported by its 5.28% dividend yield.
Tng sees potential re-rating catalysts from new product launches by customers and better-than-expected revenue opportunities over the coming two years from customers diversifying their production orders from China to Malaysia.
Alfie Yeo of RHB Bank Singapore, meanwhile, says that Venture’s 1Q numbers were within his expectations. His current estimates have already taken into account recovery only after the current 1HFY2024.
While he has kept his “neutral” call, Yeo has raised his target price slightly from $13.90 to $14.20 as he is tweaking his valuation multiple from 14 times FY2024 earnings to blended FY2024 and FY2025 earnings.
“We believe the stock is still pricing in its immediate term prospects despite earnings improvement in 2HFY2024. We look to a more pronounced earnings recovery before turning positive,” says Yeo. — The Edge Singapore
Japfa
Price target:
CGS International ‘add’ 37 cents
Improved market dynamics
Tay Wee Kuang of CGS International has maintained his “add” call along with a higher target price of 37 cents from 26 cents for Japfa UD2 , following much-improved earnings for its 1QFY2024 ended March.
Revenue for 1QFY2024 increased by 11.6% y-o-y to US$1.1 billion ($1.49 billion) on better selling prices. From a loss of US$37.9 million, Japfa reported a core net profit of US$13.4 million, thanks to lower costs.
According to Tay in his May 6 note, apart from better selling prices, prices of key feed ingredients, such as soybean meal and corn have eased to their lowest levels since Jan 2022, when the war between Russia and Ukraine broke out.
Even in Indonesia, where feed millers have to source the supply of corn locally, domestic corn prices decreased to IDR4,500/kg as of April 26, notes Tay. “As such, we believe that Japfa’s margin profile could improve in subsequent quarters,” he adds.
Tay, citing the management, notes that the company has “recalibrated” its growth plans in Vietnam last year where it farms pigs, because of the weak consumer sentiment.
Now, with sustainable selling prices observed in 1QFY2024, Tay sees the company beefing up its production volume in this segment.
With overall improved market dynamics, Tay has raised his FY2024, FY2025 and FY2026 earnings estimates by 94.9%, 34.3% and 30.8% respectively. In his previous forecast, Tay was expecting losses.
His higher target price of 37 cents is pegged to 0.7 times FY2025 P/B, which is 0.5 s.d. above the 10-year mean. The earlier price target of 26 cents was based on 0.5 times FY2025 P/B, which is 0.5 s.d. below the 10-year mean.
“We view the improvement in ASPs and lower raw material prices as tailwinds supporting sustainable profitability in the upcoming quarters that should re-rate the stock,” says Tay. — The Edge Singapore
Far East Hospitality Trust
Price targets:
Maybank Securities ‘buy’ 80 cents
UOB Kay Hian ‘buy’ 82 cents
PhillipCapital ‘buy’ 79 cents
Leisure sector recovery
Maybank Securities’ Krishna Guha, UOB Kay Hian’s Jonathan Koh and PhillipCapital’s Liu Miao Miao have maintained their “buy” calls on Far East Hospitality Trust Q5T (FEHT) with unchanged target prices of 80 cents, 82 cents and 79 cents respectively. These positive outlooks follow FEHT’s results for the 1QFY2024 ended March 31.
On April 30, FEHT reported gross revenue of $27.1 million for the quarter, 7.5% higher y-o-y, while net property income (NPI) rose by 6% y-o-y to $25.1 million. The better performance comes after the recent recovery in the leisure sector and strong room rates.
“Mega concerts drove the recovery in leisure. Supported by a series of mega concerts such as Taylor Swift’s Eras Tour and Coldplay in 1QFY2024, ADR (average daily rate) increased by 8.8% y-o-y, reaching $179,” notes Liu.
Despite the boost from concerts and meetings, incentives, conferences and exhibitions (Mice) events, occupancy for hotels and serviced residences dropped by 1.5 percentage points (ppt) y-o-y to 80.4% due to Oasia Hotel Novena and Village Hotel Albert Court exiting government contracts at the end of FY2023.
Cushioned by flat-to-higher room rates, revenue per available room (RevPAR) for hotels increased by 6.7% y-o-y to $144 in 1QFY2024, recovering to 5% above pre-pandemic levels.
However, RevPAR for serviced residences experienced a 1.5% decrease in RevPAR, notes Maybank Securities’ Guha.
UOB Kay Hian’s Koh also notes rising contributions from the REIT’s commercial premises at its hotels and serviced residences. Due to higher occupancies and rental rates for its office and retail space, revenue increased 10% y-o-y in 1QFY2024.
Positive outlooks for FEHT also stem from the continued recovery of the hospitality sector in Singapore.
“The outlook is positive due to an active event calendar with FHA-Food & Beverage, Asia Tech x, Rotary International Convention, World Congress of Anaesthesiologists and Women’s World Golf Championship in 2QFY2024,” says Koh. — Ashley Lo
Seatrium
Price target:
OCBC Investment Research ‘buy’ $2.73
Steady order wins amid share consolidation
Ada Lim of OCBC Investment Research has in her May 7 report kept her “buy” call and indicated a fair value of $2.73 to account for the 20-to-1 share consolidation undertaken by Seatrium.
The way Lim sees it, the 20-to-1 share consolidation will help the company shed its “penny stock” status and thereby reduce volatility and also garner more interest from institutional players, given that there is a lack of comparables in Singapore.
In another positive sign, just days earlier on April 29, Seatrium announced a $100 million share buyback programme, which allows the company to buy back up to 2% of its issued shares from the open market. According to Lim, this could take up to a year to complete. “A company typically buys back shares when management sees them as undervalued, and is also a way for the company to reward shareholders,” says Lim.
Separately, Lim notes that Seatrium has redeemed $500 million worth of floating-rate bonds earlier than scheduled, as part of its active capital management.
“We see Seatrium’s recent corporate actions as sending a positive signal to the market at a time when the long-term fundamentals for the oil and gas industry remain sound, underpinned by an increasing demand for energy and greater investments in offshore exploration and production,” says Lim.
To this point, Seatium announced maintenance contracts worth $350 million earlier last month and more recently on May 6, announced it has secured a topside integration contract from a longtime client Modec.
Her $2.73 fair value is pegged to a forward P/B multiple of 1.3 times, which is around a quarter of a standard deviation above its 10-year historical average of 1.2 times. — The Edge Singapore
CDL Hospitality Trusts
Price targets:
RHB Bank Singapore ‘buy’ $1.20
Citi Research ‘sell’ 85 cents
Mixed views following FY2024
Analysts have mixed perspectives on CDL Hospitality Trusts J85 (CDLHT) after the REIT’s results for the 4QFY2023 ended December 2023 and 1QFY2024 ended March. RHB Bank Singapore’s Vijay Natarajan has maintained his “buy” call while Citi Research’s Brandon Lee has kept his “sell” call on CDLHT.
Both have kept their target prices unchanged with RHB’s target price remaining at $1.20 and Citi’s at 85 cents.
To RHB’s Natarajan, CDLHT’s operational and financial updates for the 1QFY2024 stood in line with his expectations. The REIT’s revenue per available room (RevPAR) rose across all of its markets on a y-o-y basis, a trend which looks set to continue for the rest of this year.
In Singapore, RevPAR was up by 16.6% y-o-y to $205, supported by an upward trend in hotel occupancy which increased by 14.2 percentage points (ppt) to 82%.
“This was due to the volume strategy adopted by the REIT manager by targeting tour groups. This strategy is consistent with guidance earlier this year that the focus will be on increasing occupancy while holding room rates,” says Natarajan.
Following the mutual visa exemption agreement between China and Singapore which commenced on Feb 9, overall visitor arrivals to Singapore have improved to 93% of pre-pandemic levels.
The analyst anticipates tourist arrivals to reach 16 million to 18 million in number, or at 85%–95% of pre-pandemic levels this year, superseding the Singapore Tourism Board’s expectations of 15 to 16 million tourists.
In light of these factors, the analyst forecasts a mid-to-high single-digit growth in 2024 for CDLHT’s hotel RevPAR, driven by higher overall occupancy rates.
Additionally, the analyst notes the development of the REIT’s build-to-rent (BTR) asset in Manchester is reported to be “on track” for completion by mid-2024.
With 90% of the total project commitment sum of GBP73.4 million ($125.06 million) being funded and the “favourable dynamics” for the BTR asset, the analyst expects the project to exceed its initial net property income (NPI) yield estimate of 5%.
Natarajan also notes that despite cost pressures negatively affecting NPI contributions from Australia, New Zealand, the UK and Germany, RevPAR growth of the REIT’s overseas portfolio has remained “intact”.
“Among overseas markets, Japan, Italy and the Maldives saw healthy double-digit RevPAR growth — this was driven by a healthy influx of visitors resulting in better occupancy levels,” notes Natarajan.
Overall, the REIT’s 1QFY2024 NPI increased by 7% y-o-y to $34.9 million, which was at 23% of its FY2024 estimates. Financing costs in 1QFY2024 increased by 10 basis points q-o-q to 4.3 %, while hedged debt proportioned remained relatively low at 51%.
While the analyst has kept his target price unchanged he has lowered his distribution per unit (DPU) estimates for FY2024 to FY2025 by 0%–1% after tweaking interest costs.
Citi’s Lee may remain negative in his overall outlook for CDLHT but he still likes the REIT’s Singapore portfolio as it continues to surpass his expectations.
“CDLHT’s 1QFY2024 operational update showed the ongoing recovery (albeit at [the] tail-end in our view) of Singapore’s hospitality sector, evidenced by [the] strong RevPAR growth of 16.6% y-o-y with RevPAR now around 26% above [its] pre-Covid-19 levels,” he says. The Singapore portfolio marked an improvement compared to its RevPAR decline of some 11% y-o-y and 12% above its pre-Covid-19 levels in the 4QFY2023.
“Further, management appears optimistic about Singapore for the rest of the year (i.e. overall FY2024 should outperform FY2023) as it is comfortable with what it saw in 1QFY2024 and 2QFY2024, though 3QFY2023 was strong, with 4QFY2023 weak (hence should outperform in 4QFY2024),” he adds.
The positives were offset by the slower pace of growth on a q-o-q basis in New Zealand, Australia, Japan and the UK, which comprised 1%, 6% 33% and 1% of CDLHT’s overall NPI respectively. This was down from 13%, 18%, 58% and 2% of the REIT’s total NPI in the 4QFY2023.
Furthermore, rising operating expenses (opex) in New Zealand, Australia, the UK and Maldives, which form 28% of NPI collectively, could “weigh on” the REIT’s future NPI.
Additionally, Lee does not anticipate any potential portfolio reconstitution plans following the absence of distressed sales in the current environment and the difficulty in acquiring its sponsor’s Purpose-Built Student Accommodation (PBSA).
Following its results, Lee is expecting to see a “slight positive” impact on CDLHT’s share price due to the REIT’s strong Singapore RevPAR. — Ashley Lo
Winking Studios
Price target:
KGI Securities ‘outperform’ 34 cents
Promising growth
KGI Securities has initiated coverage on art outsourcing company Winking Studios, which was recently listed in November 2023. KGI has an “outperform” call and 34 cents target price.
Since its listing, Acer-backed Winking Studios has implemented an inorganic growth strategy that has significantly bolstered its sales volume. This strategy reached a milestone with the full acquisition of On Point Creative (OPC) on April 1. OPC, a Taipei-based company, offers a wide range of art production services, from 2D design and animation to 3D production and advertising promotion.
“Aligned with the company’s expansion objectives, this strategic move not only secures two additional global game publishers as clients but also promises to amplify its top-line growth trajectory,” says analyst Alyssa Tee.
On April 8, Winking Studios announced its plans to acquire assets and services from Pixelline Production, a Malaysian art and animation outsourcing company.
Winking Studios is dedicated to maintaining organic growth while pursuing acquisitions. To achieve this, the company has strengthened its internal business development team, focusing on securing sales from key markets like Japan and the US. This move enhances its geographic diversity and market presence.
Winking Studios has consistently expanded its workforce, at an annual double-digit growth rate. This strategic increase in manpower positions the company to confidently tackle larger and more extensive projects from various publishers.
Meanwhile, the company has exceeded expectations with its FY2023 ended Dec 31, 2023, growth performance. It achieved an overall revenue growth of 19.5% y-o-y, driven primarily by heightened contributions from its art outsourcing and game development segments.
The 9.5% y-o-y increase in art outsourcing revenue stemmed from securing new contracts from customers in key markets such as the US and South Korea.
The game development segment of Winking Studios has witnessed a remarkable 124.3% y-o-y surge, a testament to the company’s ability to expand its business with existing clients and acquire projects from new customers.
“As the company progresses with its expansion plans and experiences enhanced revenue growth driven by the expansion of its art outsourcing segment and increased sales from its business development team, we anticipate this positive trend to persist and reflect in the FY2024 revenue figure,” adds Tee. — Samantha Chiew
AEM Holdings
Price targets:
CGS International ‘reduce’ $1.84
UOB Kay Hian ‘sell’ $1.67
Slower than expected recovery
Analysts from CGS International and UOB Kay Hian have downgraded their calls on AEM Holdings AWX to “reduce” and “sell” respectively.
The analysts’ reports come after the company reported earnings of $2.4 million for the 1QFY2024 ended March 31, 85% lower y-o-y, coming in 5.4% of the Street’s full-year expectations.
In its business update, AEM attributed the drop to a slower-than-expected recovery from its key customer, as well as a build-up of inventory in the life science and industrial sectors which affected its contract manufacturing revenue for the quarter.
AEM’s first quarter’s net profit also disappointed CGSI analyst William Tng’s expectations, as it made up just 7.1% of his full-year estimates.
In addition to his downgrade, Tng has reduced his earnings per share (EPS) estimates for the FY2024, FY2025 and FY2026 by 32.8%, 20.9% and 39.3% respectively. This comes after a cut in Tng’s gross profit margin (GPM) assumptions, which are now lowered by 3.0 to 3.5 percentage points.
“Although 1QFY2024 revenue [of $94.2 million] was in line with our forecast, net profit margin erosion to just 2.5% suggests that the cost base may still be too high versus the current limited visibility,” Tng explains in his May 8 report.
“As operating cost data was not disclosed but revenue was in line with our expectation, we assume that gross profit margins were under pressure,” he adds.
With visibility still limited for the 2HFY2024, Tng’s target price is also lowered to $1.84 from $2.32 previously. His new target price is still based on 9.6 times its FY2025 P/E, which is AEM’s average P/E multiple over its FY2017 to FY2022 net profit upcycle.
“We think investors will only relook at this stock in 4QFY2024 when FY2025 prospects are clearer,” Tng continues.
UOB Kay Hian’s John Cheong has also lowered his target price to $1.67 from $1.94 following his downgrade.
AEM’s earnings for the 1QFY2024 only made up 7% of his full-year estimates as well.
“[AEM’s] near-term outlook has worsened as visibility in 2HFY2024 remains limited, and any uptick in growth is expected to occur only in FY2025,” he writes in his May 9 report.
As such, the analyst has reduced his FY2024 earnings estimates by 42%. This comes after lowering his GPM estimate by four percentage points to 23% and his net profit margin estimates by 3.3 percentage points to 4.5% respectively.
“This is to account for the weaker-than-expected 1QFY2024 margins which we believe are due to a change in product mix with a lower proportion of test & automation equipment as well as weaker operating leverage from the significant revenue decline,” says Cheong.
His new target price is based on 12 times AEM’s FY2025 P/E based on its historical mean.
“We have rolled over our valuation base year to FY2025 to better capture the earnings recovery from AEM’s new customers ramping up their production. Previously, we were valuing AEM based on 17 times FY2024 P/E, based on 2 standard deviations (s.d.) above AEM’s historical mean,” the analyst explains.
“We have reduced our P/E valuation multiple to 12 times from 17 times as we believe that our FY2025 earnings estimate and the expected 111% y-o-y growth have captured the earnings recovery of AEM. Hence, AEM’s P/E multiple peg for FY2025 should normalise back to its mean level,” he adds. — Felicia Tan
Elite Commercial REIT
Price target:
PhillipCapital ‘buy’ GBP0.32
Valuation upside from expanded investment mandate
Elite Commercial REIT’s expanded investment mandate may increase the valuation of its stock. Two vacant assets are on track to be redeveloped into student accommodation and a data centre, which will unlock their value by uplifting rental and valuation by some 30% to 40%.
For now, however, PhillipCapital Research analyst Liu Miaomiao has lowered her target price to GBP0.32 (54.29 cents) from GBP0.34 previously, while staying “buy” on the REIT.
Liu’s May 6 note comes after Elite Commercial REIT reported a distribution per unit (DPU) of GBP0.067 ($1.14) for the 1QFY2024 ended March, 21.2% lower y-o-y due to an enlarged equity base from the preferential offering completed on Jan 18.
Distributable income fell by 3.5% y-o-y to GBP4.4 million. Revenue for the 1QFY2024 inched up by 0.8% y-o-y to GBP9.2 million with the growth in rent escalations offset by non-income generating vacant assets and vacancy holding costs. The increase in vacancy holding costs was due to timing, says the REIT manager.
In 1QFY2024, distributions were impacted by the increase in vacancy holding expenses, such as manpower and electricity due to prolonged vacancy periods, notes Liu. “There are seven vacant assets remaining, two of which will be redeveloped, and the others will either be re-let or divested.”
Dilapidation settlements would partially offset the earnings shortfall, with four more buildings expected to be received by the end of FY2024. According to Liu, net property income (NPI) is expected to be on par with FY2022 levels. 1QFY2024 NPI fell by 3.7% y-o-y to GBP8.3 million.
As at March 31, portfolio occupancy stood at 92.3%. The REIT’s weighted average lease expiry (WALE) stood at 4.0 years.
Net gearing ratio stood at 41.5%, down from 47.5% as at Dec 31, 2023. The interest coverage ratio (ICR) stood unchanged at 3.1 times.
On April 15, Elite Commercial REIT announced the expansion of its investment mandate into the living sector, such as student housing, senior living and even data centres.
The manager says this will let the REIT ride on the influx of international students and artificial intelligence (AI) demand respectively.
Lindsay House in Dundee, Scotland, is slated to be converted into a 40- to 200-bed student housing facility upon approval from authorities. Typical values are around GBP130,000 per bed with yields of 5.5%.
The annual income for the building would soar by 280% to some GBP1.4 million from GBP360,000 in FY2022, and the valuation will double to GBP38 million upon successful redevelopment.
With the power shortage in the UK, data centres will provide a growth engine for the booming AI demand, says Liu.
Elite Commercial REIT is actively working on securing sufficient power to meet tenants’ requirements, and we expect the process to take roughly 1.5 years to complete construction.
Liu points to the counter-cyclical nature of Elite Commercial REIT, since its largest tenant, the UK’s Department for Work and Pensions (DWP), tends to expand during economic slowdowns as more people claim unemployment benefits and seek help for career consultation.
Hence, Elite Commercial REIT is well-positioned to benefit from an economic downturn in the UK.
“Despite the possible valuation uplift through expanding its mandate, we believe the effect won’t be salient in the short term given the long legal and construction duration and relatively small scale (two assets vs 150 assets in total),” notes Liu.
As government support tends to lag during economic downturns, Liu does not expect any major expansion in footprint from DWP in the short term. She projects FY2024–FY2025 DPUs of GBP0.0376 to GBP0.0442. — Jovi Ho
Keppel
Price target:
PhillipCapital ‘accumulate’ $7.98
Higher fund management fee income
PhillipCapital analyst Peggy Mak is keeping her “accumulate” call on Keppel after the group’s business update for the 1QFY2024 ended March 31. Little financial details were revealed, though the group reported a quarterly revenue for continuing operations of $1.5 billion, 6.25% lower y-o-y.
In her report dated April 26, Mak notes that the pace of asset monetisation slowed in the 1QFY2024 as well, with only $169.9 million achieved. The number includes the divestment of the landbank in Wuxi, China, for $161 million. For FY2023, Keppel achieved total asset monetisation of $947.4 million.
Looking ahead, Mak expects Keppel to see improvement in its earnings for FY2024, which is likely to be derived from higher fund management fee income.
“With 60% of its energy-generating capacity locked in on contracts of more than three years, energy sales would provide a stable and recurring earnings base. The 600MW Keppel Sakra Cogen plant is 51% completed and expected to contribute from early FY2026,” she writes.
“The acquisition of a 50%-stake in Aermont Capital is expected to be completed by end-April 2024, bringing total funds under management to $79 billion. Aermont will be a launchpad for Keppel to access the sovereign wealth and pension funds in Europe,” she adds. Mak’s target price remains unchanged at $7.98. — Felicia Tan
UMS Holdings
Price target:
CGS International ‘add’ $1.68
Some downside risks
CGS International analyst William Tng has kept his “add” call on UMS Holdings 558 ahead of its results for the 1QFY2024 ended March 31.
For the quarter, UMS’s net profit is likely to have declined by 19.4% y-o-y and 10.7% q-o-q to $14.0 million, says Tng, who expects the group to report its results on May 10.
Following the “weak” quarterly performance, UMS’s share price is likely to bottom out as well, Tng adds.
For FY2024, Tng also sees “some downside risk” to his net profit estimate of $79.0 million as well as the $77.9 million forecasted by the Bloomberg consensus.
“In its 4QFY2023 results briefing, UMS Holdings’ management had highlighted that the semiconductor sector could still see some near-term softness due to surplus inventory issues. We note that UMS’s key customer (Applied Materials or AMAT) had earlier brought forward some orders planned for 1QFY2024 to 4QFY2023, while AMAT guided for its 2QFY2024 (1QFY2024 for UMS) revenue for its semi-systems business to decline 2.2% q-o-q and 3.6% y-o-y,” says Tng in his May 1 report.
As such, he has reduced his revenue forecasts for FY2024 to FY2026 by 4.5% as the group’s pace of recovery and progress with its new customer may be slower than expected.
For FY2024, Tng’s earnings per share (EPS) estimates have also been cut by 11.2%; his EPS estimates for FY2025 and FY2026 have each been cut by 4.2%.
That said, Tng still sees some positivity for the 9MFY2024 to the FY2026.
In its annual report for FY2023, UMS’s management remained optimistic about the outlook of its business after the group’s new 300,000 sq ft production facility at Penang Science Park North was completed. The facility is focused on medium and large-format products, special processes and modular assembly of products for UMS’s new customer.
“The plant has commenced volume production from March 2024 for this new customer, and UMS still expects an uptick in order flow in the coming months,” says Tng. “Our analysis suggests that UMS’s customers’ inventories (though still high) are being depleted.”
Despite the cut in his EPS estimates, Tng sees the possibility of UMS’s EPS growing to an average of 12.0% over FY2024 to FY2026 with the recovery of the semiconductor industry and after traction from its new customer.
As such, the analyst has kept his valuation of a P/E multiple of 14.2 times on his reduced FY2025 EPS forecast. This is 2 standard deviations (s.d.) above UMS’s 10-year average from FY2014 to FY2023.
Accordingly, Tng’s target price has been reduced to $1.68 from $1.76 previously.
To him, re-rating catalysts can come in the form of securing more new customers and further orders from new customers for its new Penang plant as well as the return of orders for aircraft components. On the other hand, the negative impact of UMS’s key customer’s loss of sales in China and a slower-than-expected progress in its business with its new customer are downside risks. — Felicia Tan
