HRnetGroup
Price target:
PhillipCapital ‘buy’ $1.18
Reopening drives demand for more jobs
As Singapore sees a robust recovery in jobs with employment growth seen across all sectors in 1Q2022, PhillipCapital analyst Paul Chew is expecting to see a record year of earnings for HRnetGroup.
The tight labour market and difficulty in finding candidates have invariably led to a higher reliance on recruitment agencies, as most hiring managers have no desire to spend hours interviewing and assessing candidates.
In addition, HRnetGroup is set to expand its business regionally as it adds several new co-owners in Indonesia, Taiwan, Malaysia, Hong Kong and China.
“Co-owners are an important incentive tool to grow the regional franchise with local management. Co-owners get a stake in the company’s earnings, and are entitled to dividends and a pre-agreed exit path,” writes Chew in his June 20 report.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
HRnetGroup’s scale, with its network of over 700 recruiters across 14 Asian cities, is also a positive factor, in Chew’s view.
“While the barrier to entry in the recruitment industry may be low, we believe the barriers to scale are immense… These barriers allow HRnet to maintain an asset-light model with minimal fixed assets of $1.5 million. The reported return on equity is 16% but arguably much higher,” he says.
With a total attributable equity of $370 million, which is almost equivalent to the company’s net cash of $327 million, HRnet could return a large chunk of capital to its shareholders and still sustain profitability, the analyst notes.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
In his report, Chew has kept his “buy” call on the company, with an unchanged target price of $1.18.
“Our valuation is benchmarked to the mid-range of the historical five-year range, 12x P/E FY2022 (ending December) ex-cash,” he writes. “HRnetGroup’s dividend yield is 5% based on its guided payout of 50% of a recurrent net profit.”
To him, the company’s drivers for growth will come from higher volumes, higher salaries and a widening footprint in the region.
“Demand for flexible hiring is expected to move away from Covid-19-related work to manufacturing and tourism,” he says.
Also working in HRnetGroup’s favour is its strategic 14.47% investment in Staffline Group, which returned to profitability in FY2021. — Felicia Tan
ComfortDelGro
Price target:
RHB Group Research ‘buy’ $1.77
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Support for taxi drivers
RHB Group Research analyst Shekhar Jaiswal is keeping his “buy” recommendation on ComfortDelGro (CDG) as he sees the transport operator being “well-placed” to maintain its earnings recovery over the next few quarters.
The earnings recovery comes as CDG’s Singapore units gradually return to normalcy following the negative impact of the Covid-19 pandemic.
In addition, the Singapore government on June 21 announced that it has set aside some $1.5 billion for an inflation support package to help households and businesses tackle economic challenges resulting from high inflation. Taxi and private-hire drivers will get $150 each in August under the oneoff government support package to offset higher fuel prices.
This, coupled with the support measures from CDG itself, such as the temporary fuel-related increase in taxi fares in April and 15% rental rebates for taxi hirers until September, should enable the group to sustain a gradual recovery in taxi earnings, as it should strengthen the sustainability of taxi hirers’ earnings, the analyst says.
“This government measure and initiatives already announced by CDG should strengthen the sustainability of taxi hirers’ earnings. This, in turn, should help ensure the gradual recovery of CDG’s segmental net profit from its taxi business,” says Jaiswal.
Jaiswal is also positive on CDG’s prospects after DHL announced on June 21 that its Singapore unit will lease 80 electric vehicles (EVs) from CDG by October.
“DHL also plans to add 25 more EVs over the next 12 months and install 105 charging points across its service centres. CDG’s car rental and leasing (CRL) business, which operated 1,205 vehicles as at end-2021, will lease the EVs to DHL,” says Jaiswal.
“While the number of EVs offered under the lease is small compared to the overall fleet size of CDG’s CRL business, these would be the first EV additions to its fleet. CDG’s automotive engineering business will provide maintenance and servicing services for these leased EVs,” he adds.
In his report, Jaiswal has kept his target price of $1.77, which implies an FY2023 (ending December) P/E of 17.2x.
“While this is a tad higher than CDG’s 10-year average of 16x, it seems reasonable, in view of its ongoing earnings recovery,” says the analyst.
“Our target price includes a 12% ESG [environmental, social and governance] premium over the $1.58 fair value based on our proprietary in-house methodology,” he adds.
So far, the transport operator’s share price has outperformed the benchmark Straits Times Index (STI) by 5% in the last three months despite growing macroeconomic risks and amid a more resilient earnings outlook, Jaiswal notes.
Investors should, however, look out for key downside risks which include the continuing decline in CDG’s taxi fleet size, increased competition from ride-hailing players, as well as lower-than-estimated margins for its key businesses. The reinstatement of strict Covid-19 measures and the UK’s sharp decline in its economic growth are other downside risks. — Felicia Tan
UnUsUaL
Price target:
KGI Research ‘outperform’ 19.2 cents
RHB Group Research ‘neutral’ 14 cents
Return to profitability in FY2023
KGI Research analyst Simeon Ang is starting UnUsUaL at “outperform” with a target price of 19.2 cents.
In his report dated June 20, Ang expects the live entertainment producer and promoter to return to the black in FY2023 ending March 2023, with projected revenue of $45.6 million and patmi of $5.2 million.
UnUsUaL, which had seen two years of forced hibernation due to the Covid-19 pandemic, is now “on the cusp of a recovery” from a demand and supply perspective, says Ang.
Furthermore, according to trade publication for the concert and live music industry Pollstar, ticket sales in the first quarter of 2022 have recovered to US$1.09 billion ($1.51 billion) from US$30 million in the corresponding period a year ago.
“Nonetheless, there is [a] US$0.9 billion to US$1.3 billion gap from pre-pandemic levels, which is presumably left for Asia to fill as the region has only recently started to lift pandemic curbs,” Ang notes.
On the supply side, artistes are also revving up tours across cities to reach out to their fanbase and “remain relevant”.
“In terms of pipeline, UnUsUaL has already announced a bevy of tours in [its] home market, Singapore. Based on announcements as well as UnUsUaL’s track record, we believe that UnUsUaL has essentially secured 27.3% of our FY2023 ticket sales forecasts,” says Ang. “This gives us confidence that as more markets open, UnUsUaL would be able to potentially better our conservative numbers.”
Before the pandemic, the company had produced and promoted more than 20 shows across over 10 cities annually. Ang expects the group to return to such levels in the near term and advocates investors to build long positions in this recovery trade.
To this end, Ang believes that UnUsUaL is the “best-in-class play” on the Singapore Exchange (SGX) in terms of live entertainment.
He believes that the counter’s implied FY2024 P/E of 18.4x is inexpensive and “premised on recovering fundamentals as well as track record in bringing in artistes with a wide and established fanbase”.
RHB Group Research analyst Jarick Seet, on the other hand, is keeping a “neutral” call on UnUsUaL with an unchanged target price of 14 cents.
With the resumption of the group’s business following a long hiatus due to the pandemic, Seet believes that the worst is over for UnUsUal. He says: “We expect the group to return to profitability in FY2023 and see stronger growth in the years ahead. However, as its valuation remains rich at this point, we maintain our call, for now.”
Seet expects Singapore’s relaxation of social distancing measures to benefit the group, since mass entertainment events comprises its core business, and Singapore remains one of its core markets.
Some of the group’s concerts in the pipeline include artists like Eric Chou and, potentially, JJ-Lin, following the A-Lin concert on May 28.
“We expect the group to organise more concerts in its pipeline, including the possibility of securing JJ Lin, which will be a huge boost for its profitability due to the larger scale of his concerts which are likely to be held at the Singapore National Stadium,” writes the analyst, while expecting the group to also start hosting concerts overseas again.
Overall, while profitability is expected in the near term, the analyst sees the stock’s valuation as expensive, but expects this situation to better improve in FY2024 to FY2025, provided it secures more concerts locally and overseas.
As such, Seet prefers to wait for more significant catalysts before revisiting his valuation. — Felicia Tan & Chloe Lim
Sembcorp Industries
Price target:
CGS-CIMB Research ‘add’ $3.66
Revenue boost from energy price boost
CGS-CIMB Research analysts Lim Siew Khee and Izabella Tan have maintained their “add” call and sharply increased their target price on Sembcorp Industries from $2.96 to $3.66.
In a June 20 note, the analysts say they have raised their profit expectations for Sembcorp’s conventional energy segment, given six months of strong visibility of merchant market power prices in India and Singapore.
They note that tariffs for power on the Indian Energy Exchange (IEX) rose to a new yearly average peak of 6.68 rupees ($0.12) per kilowatt hour (kWh) year to date, about 29% above the previous peak of 5.19 rupees per kWh in 2014.
This is due to an earlier-than-expected and much hotter summer compared to other years, as well as higher coal prices.
“With the allocation of local coal, which is about 200% cheaper than international coal as of April 2022, we expect Sembcorp to benefit from the strong e-auction prices,” Lim and Tan say
The analysts also highlight that 85% of Sembcorp’s India Plant 1 and Plant 2 output are underpinned by long-term and mid-term contracts, of which 81% of Plant 1 is backed by purchase power agreements (PPAs) till 2040, and 81% of Plant 2 is backed by PPAs till 2033/2034.
As such, high tariff prices and a stable plant load factor (PLF) of above 70% since February 2022 for Plant 2 may see it turn profitable in FY2022, assuming the PLF remains at this level for the rest of 2022.
In Singapore, the Uniform Singapore Energy Price (USEP) also reached new highs, with prices climbing to an average of $327 per megawatt hour (MWh) in January–June 2022. The increasing gas prices are also expected to persist amid the ongoing Russia-Ukraine war and seasonal increase in energy demand. “We expect spark spread (difference between the wholesale market price of electricity and its cost of production using natural gas) for Sembcorp’s Singapore power to surge on the back of [these factors],” writes the analysts.
They expect “a full-year contribution of strong profits” from Sembcorp Cogen, Sembcorp’s power arm in FY2022 ending December, noting that Sembcorp Cogen posted a turnaround in FY2021 with a profit of $31.3 million, compared to a $167 million loss in FY2020. — Lim Hui Jie
Keppel DC REIT
Price target:
CGS-CIMB Research ‘add’ $2.63
Bright outlook on new acquisitions
CGS-CIMB Research analyst Lock Mun Yee has maintained her “add” recommendation on Keppel DC REIT (KDC REIT) with a slightly higher target price estimate of $2.63, from $2.62 previously, after the REIT announced that it will be acquiring two data centres in China on June 20.
The data centres will be purchased at a consideration of RMB1.38 billion ($297.1 million) or at a 0.6% discount to independent valuations.
Following the purchase, Lock has raised her distribution per unit (DPU) estimates by 0.7% for FY2022 ending December, 1.57% for FY2023, and 3.21% for FY2024 as she factors in the contributions from the new acquisitions. She also assumes a 55/45 debt/equity funding structure.
Despite KDC REIT’s recent share price decline, Lock remains positive on the REIT’s prospects. “We believe the longer-term demand for data centres remains intact and will underpin KDC REIT’s income resilience in the longer term,” she says.
At its current share price, the REIT is trading at an FY2022 dividend yield of 5.3%, according to the analyst’s estimates.
A faster pace of acquisitions is a potential re-rating catalyst for the REIT while a larger-than-expected impact from higher electricity costs is a downside risk. — Felicia Tan
