Hongkong Land
Price targets:
CGS International ‘hold’ US$3.60
DBS Group Research ‘buy’ US$3.98
Strong embedded value
CGS International analysts Raymond Cheng, Will Chu and Steven Mak have kept their “hold” call and US$3.60 ($4.80) target price on Hongkong Land Holdings H78 , even after the developer reported a loss of US$582.3 million for FY2023 ended Dec 31, 2023, from earnings of US$202.7 million in the year earlier.
The red ink was largely due to a write-down of its portfolio of its Hong Kong office investment properties. Underlying profit, a more accurate indication of the operations, was down 5% to US$734 million in FY2023 over FY2022, 12% above what the CGS team was projecting.
While Hongkong Land’s portfolio of Hong Kong office properties suffered from lower rent, it was offset by better performance of the retail and Singapore office portfolio.
At the end of its previous share buyback programme, Hongkong Land spent a total of US$627 million to buy back 5.5% of its outstanding shares. It had earlier earmarked up to US$1 billion for this exercise.
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According to the CGS analysts, management expects share buybacks, if any, to be conducted on an opportunistic basis and will prioritise it along with new investments and dividend growth.
The CGS analysts, following a revision of development properties’ sales booking schedule and growth assumptions of investment properties, have raised their FY2024 and FY2025 earnings per share projection by 8%–10% and NAV by 1% to US$10.30. Their unchanged target price of US$3.60 is pegged to a 65% discount to the NAV.
“We think a near-term share price re-rating is unlikely unless there is a turnaround in gross profit margins for its development property sales and rental reversion in its Hong Kong investment properties,” the analysts state, as they maintain their “hold” call.
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For them, key downside risks include higher interest expense and higher Hong Kong office vacancy whereas upside risks are higher-than-expected sales and rental reversion for its projects and properties.
Jeff Yau, Percy Leung and Cherie Wong of DBS Group Research are more optimistic. They are keeping their “buy” call on this counter as they see Hongkong Land, a major office landlord in core Central, benefitting from continued “flight to quality” and that the company has “strong embedded value”.
They point out that the improvement in contributions from its luxury retail and Singapore office portfolios has more than offset the shortfall from its Central office portfolio which has been dragged by negative rental reversion and higher vacancy rates.
Yau, Leung and Wong agree that the prolonged office sector headwinds in Hong Kong continue to weigh on sentiment towards the stock. However, they believe that Hongkong Land’s low valuation, at 72% discount to their appraised NAV, which is below its ten-year average of 48%, should support its share price.
Their target price of US$3.98 is based on a target discount of 65% to their Dec-2024 NAV estimate of US$11.20. Furthermore, Hongkong Land has maintained FY2023 dividend at a total of 22 US cents, translating into a yield of 7%. — The Edge Singapore
ComfortDelGro
Price target:
DBS Group Research ‘buy’ $1.80
The ride is not over
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ComfortDelGro’s share price has gained more than a third since its 20-year low of $1.01 last June but analysts Chee Zheng Feng and Andy Sim of DBS Group Research remain upbeat on this counter. “We believe the ride is still not over,” write Chee and Sim in their March 11 note.
They see three positive factors driving a re-rating of the land transport operator, as they raised their target price for ComfortDelGro C52 from $1.67 to $1.80.
First, the local so-called point-to-point market is seeing ongoing shifts compared to how it used to operate, and which the company is tapping to generate growth.
Such shifts, according to DBS, include changes in booking commission, integration with the Gojek platform, the introduction of an auction-based model and levelling of the P2P peer-to-peer playing field in Singapore, among others.
Next, the company’s various public transport segments should see continued improvement in operating profit this current FY2024, driven by a turnaround in its UK business, and higher fares in Singapore rail.
Last but not least, the company is tapping its cash-rich balance sheet to make a series of bolt-on acquisitions to drive further growth, including transport operators in markets such as Australia and the UK, and it remains on the lookout for more deals ranging from $100 million to $200 million.
“It has also stated its willingness to go into a net debt position if required. We believe this is a great sign that the company is actively managing capital by sourcing for attractive deals to drive continued growth of the company,” the analysts state.
According to the management, its acquisition criteria are reasonable valuations; being earnings accretive and within its domain and geographical expertise.
The DBS analysts believe that two of these recent deals can add 3.1% pro-rata to ComfortDelGro’s FY2024 earnings and 5.4% to FY2025 earnings.
The analysts expect the company to report earnings of $224 million for FY2024, 7.7% above the consensus of $208 million.
The revised target price of $1.80 is based on a combination of a 1.3 times P/BV multiple and a higher 5.5 times forward EV/Ebitda multiple given its expected growth of more than 20% going into FY2024.
“We anticipate further re-rating of the company’s valuation given our confidence in its ability to deliver, and even exceed, our earnings growth expectations,” say Chee and Sim. — The Edge Singapore
City Developments
Price targets:
OCBC Investment Research ‘buy’ $7.02
PhillipCapital ‘buy’ $6.87
RHB Bank Singapore ‘buy’ $8
DBS Group Research ‘buy’ $10.50
Citi Research ‘buy’ $9.51
CGS International ‘add’ $8.97
Good long-term buy
Analysts are all keeping their “buy” calls on City Developments (CDL) after it reported earnings of $317.3 million for the FY2023 ended Dec 31, 2023, down 75.3% from FY2022, led by higher financing costs and absence of divestment gains.
One-off items aside, the OCBC Investment Research (OIR) team is positive about the stock, given how core patmi of $188.6 million was 98% of its forecast, taken as a clear indication of recovery from the pandemic.
In addition, CDL is actively reconstituting its portfolio to unlock value for shareholders by divesting assets at a premium to their book values and redeveloping some of its older commercial properties in Singapore.
It pushed out its target of achieving US$5 billion ($6.66 billion) in assets under management (AUM) from FY2023 to FY2024 but that was due largely to lacklustre capital market conditions, the team writes in its March 1 report. That said, OIR is wary of global conditions, which might dampen CDL’s prospects in markets such as the UK.
Following CDL’s announcement of targeting $1 billion in divestments in FY2024 to reduce its net gearing ratio, the OIR team has cut its core patmi forecast for FY2024 by 12%. As a result, its target price has been lowered to $7.02 from $7.20.
PhillipCapital analyst Darren Chan has also lowered his target price to $6.87 from $8.22 after FY2023 missed his expectations. That said, he has upped his FY2024 patmi estimate by 15% after including higher contributions from CDL’s hotel operations.
“We view CDL as a proxy for the Singapore residential market and hospitality recovery. Asset monetisation, unlocking value through asset enhancement initiatives (AEIs) and redevelopments, establishing a fund management franchise and the continuous recovery in the hospitality portfolio are potential catalysts for CDL, which could help narrow the discount between CDL’s share price and revalued net asset value (RNAV),” Chan writes on March 5.
Similarly, RHB Bank Singapore analyst Vijay Natarajan has lowered his target price to $8 from $8.20, as he cut his patmi estimates for FY2024 and FY2025. “[CDL’s] share price has under-performed, but more divestments and recycling to fund platforms could act as re-rating catalysts,” writes the analyst in his Feb 29 note. “Singapore remains a bright spot — both on the residential and investment property fronts — while the hospitality portfolio recovery momentum is set to continue at a moderate pace,” he adds.
DBS Group Research analysts Rachel Tan and Derek Tan are the most bullish with an unchanged target price of $10.50. “We believe that the hospitality segment will continue to grow (albeit with some moderation in growth rates) as Singapore continues to benefit from international concerts and Mice events,” they write in their Feb 29 report.
They point out that CDL’s shares were trading at just around 0.6 times P/NAV (book value at cost) and below the low that was last seen during the Global Financial Crisis (GFC). As such, they see CDL as a “good long-term buy” due to its proactive efforts to unlock more value. The latter is a “measure the market has yet to appreciate, in our view”. “Moreover, potential activation of share buyback will limit any downside risks,” they add.
Their $10.50 target price is based on a 35% discount-to-RNAV which implies a 1 times P/NAV, slightly above –0.5 standard deviations (s.d.) of its historical range. “Our target price upsides are mainly from a potential re-rating from the realisation of its RNAV with the completion of development assets and potential asset recycling,” they write.
On March 8, following a five-year hiatus, CDL bought back 954,000 shares at $5.75 each. On March 11, it paid $5.84 each for another 304,400 shares and on March 12, bought 948,000 shares at $5.98 each.
Citi Research says the share buyback sends five important messages. First, it gives a clear signal that management views the current share price as undemanding. Second, it shows management’s confidence in the company’s own fundamentals and growth potential. Third, the buyback signals CDL’s commitment to strengthen its alignment with shareholders. Fourth, at $5.75 and $5.85, the buyback represents potential NAV and EPS accretion. Finally, the willingness to buy back its shares could mitigate the potential impact from short sellers. — Felicia Tan
DFI Retail Group
Price targets:
Citi Research ‘buy’ US$3.13
DBS Group Research ‘buy’ US$2.70
RHB Bank Singapore ‘buy’ US$2.80
End of recovery story not in sight
DIF Retail Group has reversed back into the black for FY2023 ended Dec 31, 2023, but analysts, citing ongoing uncertainties at some key portions of its businesses, have cut their target prices. Citi Research now rates the company US$3.13 ($4.17) from US$3.28, DBS Group Research has trimmed its target price from US$3.13 to US$2.70 and RHB Bank Singapore’s new target price is US$2.80, from US$2.92.
For the full year, DFI reported earnings of US$32 million, compared to a loss of US$115 million in FY2022. The analysts from both brokerage houses have therefore kept their “buy” call on DFI on the back of cheap valuation and continued strong recovery momentum going into 2024.
Citi’s Bryan Cho, Tiffany Feng and Wei Xiaopo note that DFI’s core net profit soared by 437% y-o-y due to margin improvement, improvement in restaurant joint ventures and narrowing loss from its subsidiary Yonghui.
The analysts broke down the performance of DFI’s segments: Sales for food declined 15%, while operating profit dropped 50% due to lack of pantry-stocking demand during the fifth wave of Covid-19 in Hong Kong in 2023, divestment of the Malaysia business, and weak consumer sentiment due to cost inflation in Southeast Asia.
The second half of the year improved as compared to the first half, on strong margin and cost control on Wellcome.
DFI’s convenience store saw sales growth of 8% while operating profit climbed 74% driven by strong like-for-like (LFL) sales growth in all markets, strong ready-to-eat offerings and operating profit margin (OPM) improvement from a favourable sales mix shift. Second-half sales were “flattish in Hong Kong”, affected by outbound travel during weekends.
DFI’s health and beauty sales and operating profit grew 21%/127% driven by strong sales in Hong Kong and underpinned by an outperforming healthcare category. However, the momentum slowed down in the second half due to a weaker Southeast Asia market.
The group’s home furnishings segment saw sales decline by 5% while operating profit dropped 59% due to changing consumer behaviour. Finally, its restaurant joint venture Maxim saw sales/operating profit grow 23%/49%. Yonghui’s losses narrowed despite weaker sales underpinned by gross profit margin expansion and cost optimisation.
Citi analysts say that the “flattish revenue” was in line with their expectations, with the better-than-expected convenience store segment offsetting weaker-than-expected food and home furnishings segments in 2HFY2023.
Meanwhile, DFI’s OPM expansion of 0.9 percentage points (ppts) y-o-y to 3.2% was better than the analysts’ expectation, driven by the health and beauty segment. Cho, Feng and Wei highlight that DFI’s management expects flat sales growth in 2024 and a core net profit of US$180 million–US$220 million (or +16%-42% y-o-y).
The analysts cut their FY2024/FY2025 core net profit estimates by 2%–3% to reflect lower-than-expected associate results partly offset by improved OPM.
“We lowered our sum of the parts-based target price to US$3.13 from US$3.28, including US$2.66 for business exclusion,” they add.
DBS analysts Chee Zheng Feng and Andy Sim like DFI for its strong recovery and how it is giving guidance for the first time, projecting a core net profit of between US$180 to US$220 million for the current FY2024. However, citing expectations of continued weakness at Yonghui, they are assuming this unit will suffer losses of another US$36 million in the current FY2024. Their target price of US$2.70 is pegged to –1.5 s.d. (standard deviations) of its 10-year historical P/E valuation (pre-Covid) of 17.4 times FY2024 earnings. — Nicole Lim
LHN
Price targets:
PhillipCapital ‘buy’ 39 cents
Maybank Securities ‘buy’ 45 cents
Better earnings visibility
LHN recently announced its 1QFY2024 ending December 2024 update, which saw a portfolio occupancy of over 90% for its assets (industrial, commercial and co-living). The two major projects — 55 Tuas South and GSM Building — are also proceeding as scheduled.
During the first quarter, the group successfully secured the master lease renewal for an industrial property at 34 Boon Leat Terrace. Coliwoo also launched its 15th co-living property, the Coliwoo Hotel Pasir Panjang, a four-storey establishment at 404 Pasir Panjang Road. It also managed a total of 2,153 keys across its local Coliwoo co-living projects and overseas 85 Soho projects.
On Jan 25, LHN secured two sites from the Ministry of Health (MOH) to provide accommodation for 700 public sector healthcare professionals. Operations will start in 2H2024.
PhillipCapital, which has kept its “buy” call and 39 cents target price, believes that LHN’s advantage in securing this project is its operational experience in the co-living sector.
“Earnings visibility has improved as planned projects are underway and occupancy rates remain vibrant. We view the healthcare accommodation project as a new growth driver. Margins are unclear, but the project is capital-light as the authorities provide the premises. Eleven more potential sites may be tendered out,” says analyst Paul Chew.
Maybank Securities has similar views, as it also kept its “buy” call and 45 cents target price.
Analysts Li Jialin and Eric Ong say: “Overall, we note that operational performance remains positive on the back of a buoyant Singapore hospitality market. We expect momentum to pick up with more Coliwoo openings in 2H2024.”
The analysts note that the group’s total number of keys grew by 89 to 2,153 in 1QFY2024, while the two MOH contract wins in January will add at least 350 rooms to its portfolio.
In its overseas operations, LHN intends to rebrand its existing 85 Soho assets in Cambodia and China to the Coliwoo brand, while looking to expand to Jakarta, Indonesia. Management is confident of meeting its 800-key target per year.
“We also see an incremental increase from the carpark service segment, with two projects (over 800 lots) added to its Hong Kong business. Additionally, LHN secured 24 new facility management contracts,” say Li and Ong.
Management also sees stable performance for the industrial and commercial segments. Building on its renewable energy portfolio, its energy subsidiary recently won seven new solar energy contracts with 1.7MW combined capacity.
LHN is on track to open its three Coliwoo assets located at Arab St, River Valley, and Rangoon Rd in 2H2024.
“With GSM’s order for the sale obtained from the High Court, we expect LHN to complete the acquisition in May,” say the analysts, expecting the six-month renovation process to start end-FY2024.
Management is also on the lookout for new projects to expand its portfolio. Li and Ong expect more capital capital recycling in FY2025. A potential sale of assets from the industrial segment includes the food processing factory at 55 Tuas South and the B1 light industrial Four Star Building. — Samantha Chiew
Centurion Corp
Price targets:
CGS International ‘add’ 63 cents
UOB Kay Hian ‘buy’ 57 cents
RHB Bank Singapore ‘buy’ 64 cents
Robust FY2023 earnings
Analysts at CGS International, UOB Kay Hian and RHB Bank Singapore are all keeping their “buy” calls on Centurion Corp at respective raised target prices of 63 cents from 60 cents previously, 57 cents from 50 cents previously, and 64 cents from 62 cents previously following the company’s FY2023 ended Dec 31, 2023, results.
CGS analyst Ong Khang Chuen writes: “We deem the results as slightly above expectations, with FY2023 core profit after tax and minority interests (patmi) of $69 million, or 21% higher y-o-y, coming in at 102% of our estimates and 103% of Bloomberg consensus estimates.”
With its stronger earnings, the company has declared a final dividend per share (DPS) of 1.55 cents, taking the total FY2023 DPS to 2.5 cents, translating to a 5.9% dividend yield.
Ong notes that Centurion’s revenue outlook for FY2024 remains positive, thanks to strong rental reversions for Singapore due to the current continued sizable gap between spot and average rents.
“We believe Singapore worker dorm rents will stay at high levels in the medium term, as supply remains constrained through 2030 with dorm operators having to carry out retrofitting works in response to the Ministry of Manpower’s (MOM) plan to de-densify dorms to improve worker living conditions. Overseas, Centurion said it expects occupancies for Australia to remain healthy for the academic year commencing February,” he adds.
As of the end of FY2023, assets under the company’s management hit $2 billion, with multiple asset enhancement initiatives (AEIs) planned across its operating geographies.
Centurion also actively explores capital recycling and merger and acquisition (M&A) opportunities.
On the company’s December 2023 sale and leaseback agreement of two properties with Kumpulan Wang Persaraan (KWAP) in Malaysia, Ong notes: “We think more could be recycled upon asset maturity for Centurion to shift towards an asset-light model in Malaysia for capital to be deployed towards higher yielding markets and assets.”
“Its valuation at FY2025F price-to-earnings ratio (P/E) of 4.6 times, 1.5 standard deviations (s.d.) below the 10-year mean, or 0.4 times price-to-book value ratio (P/BV), is undemanding in our view,” concludes the analyst.
Re-rating catalysts noted by Ong include continued strong rental reversion and successful execution of its capital recycling strategy, while downside risks include a steeper increase in financing costs and lower bed capacity utilisation on increased supply.
Meanwhile, UOB analyst Adrian Loh is similarly pleased with Centurion’s results, writing that even without the company’s valuation gain of $79 million on its investment properties, its operational results were strong, with revenue rising by 15% y-o-y and core net profit rising 20% y-o-y to $84 million.
For Loh, Centurion’s gross profit margin was 9% higher than his estimates, up nearly 4 percentage points (ppts) to 72.4% on the back of strong occupancy rates and improved rental rates across all of the company’s asset classes.
He also notes that the company’s purpose-built workers’ accommodation (PBWA) continues to be its “pillar”, while its purpose-built students’ accommodation (PBSA) continues to see growth thanks to demand. Occupancy for Centurion’s PBSA assets in the UK was up 3ppts to 93% and in Australia up 15ppts to 88%.
“Both countries remain strong magnets for international students with the company commenting that it has experienced strong pre-bookings for academic year 2024/2025 for its UK assets, while occupancies are likely to continue to edge upwards in Australia,” says Loh, who has raised his FY2024 and FY2025 earnings estimates by 10% and 12% respectively. “We highlight that there is upside potential to our earnings as we have yet to include some of the company’s growth projects in our estimates at present,” he adds.
Loh adds that Centurion’s share price has risen 26.5% in the past 12 months, easily outperforming the Straits Times Index’s (STI) 3.9% fall in the same period, concluding: “We remain confident that the stock can maintain its absolute and relative outperformance in FY2024.”
Share price catalysts noted by him include the company’s successful capital recycling efforts or capacity expansions involving joint ventures (JVs) which could result in a more asset-light business model that thus requires less capital intensity, as well as a higher-than-expected dividend payout across FY2024.
Lastly, like his fellow analysts, RHB’s Alfie Yeo is optimistic about the company. “We remain positive on Centurion Corp and continue to see growth driven by higher bed capacity, occupancy, and rental rates. Following FY2023 results, we lift our earnings by a marginal 4% to 6% on a higher FY2023 earnings base, which results in a slightly higher target price.”
Yeo also understands that following the sale and leaseback of the company’s Westlite Bukit Minyak and Westlite Tampoito Malaysia’s public sector pension fund Retirement Fund Inc (KWAP), more of its properties could be unlocked over the mid to longer term. “Special dividends could also be on the cards, provided there is no use of the sales proceeds for reinvestment,” adds Yeo.
The RHB analyst concludes: “Our earnings forecasts are premised on better occupancies at the company’s PBSA assets and bed rates. Failure to achieve these revenue drivers pose downside risks to our estimates.” — Douglas Toh
Parkway Life REIT
Price target:
DBS Group Research ‘buy’ $4.50
A ‘rare jewel’ among S-REITs
DBS Group Research’s Rachel Tan and Derek Tan have maintained their ‘buy’ call on Parkway Life REIT (PLife REIT), calling the owner of hospitals and nursing homes a “rare jewel” among its peers offering “highly visible, stable and sustainable earnings” and “downside protection”.
In contrast to many other REITs that reported lower DPU mainly because of higher financing costs, PLife REIT bucked the trend.
For its most recent 2HFY2023 ended December 2023, the REIT reported a DPU of 7.48 cents, up 2.1% y-o-y. This brings full-year distribution to 14.77 cents per unit, up 2.7%.
This was largely led by full-year contributions from five nursing homes acquired in September 2022, two nursing homes acquired in October 2023, and higher rents from Singapore hospitals. However, the weaker yen somewhat weighed down the bottom line reported in Singdollar.
The DBS analysts point out that PLife REIT’s all-in cost of debt has been reduced marginally q-o-q to 1.27% vs 1.32% in 3QFY2023, although still more costly versus 1.04% back in FY2022. Nonetheless, its interest cost remains among the lowest among S-REITs.
“We continue to like PLife REIT for its strong earnings visibility, which is a positive attribute, especially in the current volatile and uncertain market outlook,” state the analysts.
However, they’ve trimmed their target price from $4.80 to $4.50 to factor in higher capex for asset enhancement initiatives. They’ve also raised their risk-free rate assumption to 2.5% and factored in a higher cost of debt, as well as a marginally lower DPU forecast to take into account recent acquisitions.
“Further upside to our forecasts stems from the rollout of more asset-recycling exercise in Japan, and acquisitions of earnings-accretive hospital assets in Singapore or overseas,” the DBS analysts say. — The Edge Singapore
Singapore Telecommunications
Price targets:
DBS Group Research ‘buy’ $3.27
RHB Bank Singapore ‘buy’ $3.15
UOB Kay Hian ‘buy’ $2.99
Citi Research ‘buy’ $2.88
Highly undervalued
Singapore Telecommunications (Singtel) has denied a March 13 report by the Australian Financial Review that it is selling subsidiary Optus for A$16 ($14 billion) while The Australian separately reported JP Morgan has been hired to handle a minority stake sale.
The recent chatter shows how Singtel is “highly undervalued” and that its asset recycling exercise to unlock value deserves more attention from investors, says analysts who have kept their “buy” calls. “We believe this news helped illuminate value of its underlying asset as Singtel’s current market capitalisation reflects little value of its Singapore consumer business and Optus asset,” say analysts Chong Lee Len and Llelleythan Tan of UOB Kay Hian.
DBS Group Research figures Singtel’s associates alone are worth $2.51 per share, implying a negative valuation for its Singapore and Australia units. While Singtel has refuted claims of a full divestment, DBS notes that this cannot be ruled out in the medium term.
Citi Research’s Arthur Pineda and Luis Hilado have assumed an enterprise value (EV) of about A$6.9 billion for Optus which conservatively translates to just about three times FY2024 EV/Ebitda. A transaction EV of near A$16 billion implies seven times FY2024 EV/Ebitda for Optus.
“A stake sale would allow for the market a better appreciation on Optus’ underlying valuations,” say the analysts, who has a 49 cents per share accretion on the potential deal based on a A$16 billion valuation.
If a transaction is executed at 4.5 times ebitda (in line with telco sector averages), the analysts estimate an implied EV of about A$10.2 billion which translates to an incremental 17 cents per share value accretion. — Samantha Chiew
