ComfortDelGro
Price target:
CGS International ‘add’ $1.70
UK’s Labour win ‘multi-year tailwind’
With expectations of higher earnings, CGS International analyst Ong Khang Chuen has kept his “add” call on ComfortDelGro C52 (CDG) with an unchanged target price of $1.70.
His target price is based on 16.2 times FY2025 price-to-equity ratio (P/E), at 0.5 standard deviations (s.d.) above CDG’s five-year historical average.
“We think the Labour Party’s win in the UK General Election reaffirms our view that there will be ample new bus tender opportunities in the UK over the next five years,” says Ong in his July 5 report.
According to CGSI’s UK transport analyst Gerald Khoo, the Labour Party has “long hinted” at its preference for re-regulating local bus services outside London. The party’s manifesto included plans to devolve transport responsibilities to mayors to create unified and integrated transport systems and empower them to franchise bus services.
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“Greater Manchester pioneered the switch to a bus franchising model in FY2023, and we estimate ComfortDelGro’s UK-subsidiary Metroline won around 30% of tendered bus routes despite no prior presence in the city,” writes Ong.
“We see more tender opportunities worth GBP1.2 billion to GBP1.4 billion ($2.1 billion to $2.4 billion) per annum (p.a.) from regions including Liverpool and West Yorkshire over the next five years. We estimate each contract win of GBP100 million p.a. could lift our earnings per share (EPS) forecasts by 3% to 5%,” he adds.
Ong forecasts CDG UK’s ebit to rise by at least $15 million per year over FY2024/FY2025 from more London contract renewals at higher margins and its Manchester contribution starting in January FY2025.
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“We forecast CDG to post a profit after tax and minority interest (patmi) of $52 million in 2QFY2024, at 29% higher q-o-q and 14% more y-o-y,” writes the analyst.
He sees CDG’s overall earnings growth driven by positive contributions from more London bus contracts renewed at higher margins, improvements in Singapore rail ridership, and higher taxi segment margins.
Ong adds: “We anticipate further patmi growth in the seasonally stronger 3QFY2024, especially as more than half of the annual profits from CMAC (which CDG acquired in early FY2024) are typically generated during the summer travel season in the UK.”
While the company has had “a slower start” to the year, Ong believes CDG remains on track to meet his FY2024 forecasts, as its earnings ride on UK tailwinds, while providing a decent dividend yield of 5.7% in FY2024.
“We also observed that CDG has been conducting share buybacks at $1.33 levels over the past month,” concludes Ong. — Douglas Toh
Mapletree Pan Asia Commercial Trust
Price target:
CGS International ‘add’ $1.58
Festival Walk’s recovery slower than expected
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CGS International analysts Natalie Ong and Lock Mun Yee have maintained their “add” call on Mapletree Pan Asia Commercial Trust N2IU (MPACT) while lowering their target price by one cent from $1.59 to $1.58 following a slower-than-expected recovery of Festival Walk mall in Hong Kong.
The analysts note that, according to Hong Kong’s Census and Statistics Department, Hong Kong’s sales value dropped 6.1% y-o-y as of May. Sectors such as F&B, supermarkets, clothes, and footwear decreased 5%, 1.5%, and 9.2% over the same period.
CGSI’s Hong Kong analysts have revised their FY2024 Hong Kong retail growth forecast from a 3% y-o-y increase to a 6% y-o-y decrease. In their note on non-deal roadshows (NDR), the Hong Kong analysts note that Link REIT’s management experienced a decline in retail sales from Hong Kong to Shenzhen after the reopening of its borders due to Hong Kong residents crossing into Shenzhen on the weekends.
Ong and Lock note that Link REIT’s management has also guided for flattish reversions for its Hong Kong retail portfolio in FY2025 ending March 31, following potential rent reductions and downsizing in certain trades, such as traditional Cantonese restaurants and supermarkets.
“Located in the affluent neighbourhood of Kowloon Tong, with tourists forming a lower proportion of footfall, we are cautious that Festival Walk may experience similar shifts in local consumer spending but with less upside from the recovery in tourist arrivals,” say the analysts.
This has subsequently led to weaker-than-forecast reversions in FY2024 ended March 31.
That said, 83 leases accounting for 31.7% of MPACT’s gross rental income (GRI) at Festival Walk are up for renewal in 1QFY2025, according to the REIT’s FY2023/FY2024 annual report.
The analysts also estimate that MPACT’s supermarket tenant, TaSTe, whose lease expired in June, accounts for around 27% of FY2025 expiries ending March 31, 2025.
“During MPACT’s 1QFY2024 analyst briefing, management said that it does not see the need to downsize the space occupied by the supermarket tenant,” add Ong and Lock.
With occupancy at Festival Walk remaining high at 99.7% at the end of March 2024, the analysts view this positively supporting MPACT’s renewal negotiations and rents.
Despite MPACT’s achievement of positive reversions on renewals on leases signed post-Covid in 2019, 6% to 8% of Festival Walk’s leases by GRI are still at higher pre-Covid rent levels, which could draw negative reversions on renewal in FY2025 ending March, they add.
The analysts are reducing their target price to $1.58 as they have lowered their FY2025 to FY2027 estimates by 0.4% to 0.8%, factoring in Festival Walk’s lower reversion rates and net property income (NPI).
“We believe that the slower-than-expected recovery of Festival Walk has been priced in; its share price has fallen 20% year-to-date,” say Ong and Lock.
They add that MPACT’s FY2024 distribution per unit (DPU) yield remains “attractive” at 7.1%, 2.1 standard deviations above its historical yield.
Potential re-rating catalysts identified by the analysts include tenant remixing at Festival Walk, capital recycling and re-investments.
On the flip side, unfavourable forex movements eroding earnings growth, devaluation of overseas assets and longer-than-expected downtime from backfilling of vacancies are downside risks. — Khairani Afifi Noordin
First REIT
Price target:
PhillipCapital ‘buy’ 30 cents
Ready to benefit from restructuring
PhillipCapital analyst Darren Chan has initiated coverage on First REIT with a “buy” call and target price of 30 cents.
Chan’s dividend discount model (DDM) derived target is based on a cost of equity (COE) of 10.5% and a terminal growth rate of 2%.
In his report dated July 5, the analyst has forecast a DPU of 2.36 cents and 2.51 cents for FY2024 and FY2025, reflecting a forward yield of 9.6% and 10.3%, respectively. At the REIT’s last closing price of 25 cents, Chan says it is trading at an “attractive” 20% discount to NAV and a forward FY2024 distribution yield of 9.6%.
The REIT is Singapore’s first healthcare REIT focused on investing in income-producing real estate assets primarily used for healthcare-related purposes. Its portfolio consists of 32 properties, including 15 in Indonesia, 14 in Japan, and three in Singapore, representing 74.5%, 22.7%, and 2.8% of the REIT’s assets under management (AUM) respectively.
In Chan’s note dated July 5, the analyst highlighted several key positives, including First REIT’s new master lease agreement (MLA) and long portfolio weighted average lease expiry (WALE) of 11.3 years, which ensures long-term cash visibility.
“The new MLA includes a minimum annual rental escalation of 4.5% or a performance-based rent of 8% of the hospital’s gross operating revenue (GOR) from the preceding financial year, denominated in Indonesian rupiah, for the Indonesian hospitals,” says the analyst.
Three out of the 14 hospitals are paying performance-based rent, and more are starting to contribute as their operational performance improves.
Additionally, with the introduction of PT Siloam International Hospitals Tbk and subsidiaries — one of the REIT’s largest tenants — to the new MLAs, the exposure to PT Lippo Karawaci and subsidiaries (LPKR) is set to decrease from around 88% before the restructuring to 18.7%.
Chan adds that LPKR, another of the REIT’s largest tenants, has been experiencing “tight” cash flow since FY2019.
The analyst also notes First REIT’s plans to divest some of its non-core and mature assets to fund its expansion plans.
The REIT has identified Imperial Aryaduta Hotel and Country Club (IAHCC) as a non-core asset and is being marketed for divestment.
Chan adds that management is exploring divesting some of the older nursing homes in Japan to recycle the proceeds to buy newer, better nursing homes.
Following the REIT’s expansion into Japan in FY2022, the analyst notes its plans to further diversify into developed markets, with a target AUM of over 50% in developed markets by FY2027.
Japan and Australia have been identified as potential developed markets for further acquisitions.
“This will help reduce exposure to Indonesia and the depreciating Indonesian rupiah against the strong Singapore dollar,” adds Chan. — Ashley Lo
Thai Beverage
Price target:
DBS Group Research ‘buy’ 69 cents
Valuation for subsidiary tender offer ‘on the high side’
The team at DBS Group Research has maintained its “buy” call on Thai Beverage Y92 (ThaiBev) and target price of 69 cents as the group took another step toward restructuring its food and non-alcoholic beverage (NAB) businesses.
ThaiBev announced on July 3 that it will make a tender offer of THB63 ($2.33) per share for all 93.9 million shares that it does not already own in Sermsuk Public Company following approval from the group’s board of directors. Upon the successful closure of the offer, the group intends to delist Sermsuk from the Stock Exchange of Thailand (SET).
The offer price, representing a 28% premium to Sermsuk’s last trading price as of July 3, values the company at THB16.8 billion, or 68 times its FY2023 net profit of THB248 million.
As of Dec 6, 2023, the latest record date for Sermsuk’s shareholders, ThaiBev’s indirect wholly owned subsidiary, So Water, holds 171.95 million shares in Sermsuk, or a 64.67% stake.
“The transaction is expected to cost THB5.9 billion, [which is a] relatively small amount compared to its cash and cash equivalent of THB46.2 billion as of March 31,” notes the DBS team. The amount is expected to be funded via internally generated or externally sourced funds.
Compared to the privatisation of Oishi, another ThaiBev subsidiary, a year ago, which cost the group some THB4.5 billion, the valuation for the Sermsuk transaction is “on the high side” as the offer price is pegged to the latter’s current share price.
“Post-acquisition, we estimate that [ThaiBev’s] net debt to ebitda would increase slightly from 3.2 times as of March 31 to around 3.3 times, which remains manageable,” the team writes in its July 4 update.
Based on the timeline of Oishi’s privatisation, Sermsuk’s privatisation is expected to take around five to six months to complete.
Following the privatisation, the DBS team does not foresee any major changes to Sermsuk’s operations, given ThaiBev’s current majority stake in the former.
Sermsuk is a leading NAB company in Thailand with a portfolio of carbonated and non-carbonated drinks, including the country’s Est Cola, Crystal drinking water, and Oishi ready-to-drink green tea. In 2012, Thai Beverage Logistics acquired all 265.9 million of its shares for THB15.4 billion or THB58 per share, making it part of the ThaiBev group.
On Dec 28, 2015, Thai Beverage Logistics sold the company’s 171.9 million common shares to So Water Company, an indirect subsidiary of one of the group companies of ThaiBev.
“With the recent slide in share price, [ThaiBev’s] valuation is attractive with a yield of [over] 5%,” says the team. — Felicia Tan
APAC Realty
Price target:
RHB Bank Singapore ‘neutral’ 42 cents
Drop in new launches expected to ‘hit bottom line’
RHB Bank Singapore analyst Vijay Natarajan has maintained his “neutral” call on APAC Realty CLN while lowering his target price from 44 cents to 42 cents following weaker transaction volumes due to a slowdown in new launches in 2024.
With new home sales forming the company’s high-margin segment and being the key contributor to earnings, Natarajan notes that a drop in new launches “is expected to hit APAC Realty’s bottom line”.
The analyst adds that with the Singapore government’s efforts to ramp up land supply, new launches can be expected in the next two years.
The stock also remains supported by its overall net cash position and its relatively “healthy” yield of around 5%.
For FY2024, the analyst has cut his net profit estimate by 28% to $9 million, representing a 24% y-o-y decrease. The cut follows his forecast of home sales volumes in 2024 dropping 5% to 15% lower due to the deferment of new launches.
As of 1H2024, an estimated 2,000 units have been launched, with sales from the start of the year to end of May decreasing 48% y-o-y to 1,697 units.
“This comes on the back of a delay in getting planning and launch approvals, as well as weaker sentiment in the high-end segment, resulting in the postponement of certain projects by developers,” says Natarajan.
The analyst notes that new home sales contribute around 25% to 40% of revenue. The sales account for 40% to 60% of the company’s bottom line due to APAC Realty’s standing at more than double that of the resale and rental market segment at 13% to 17%.
“However, with the continued ramp-up in government land supply over the last few years and developers’ requirements to sell the project within five years, we believe there will be significantly more new launches in the next two years,” adds Natarajan. The analyst has raised his net profit forecasts from FY2025 to FY2026 by around 5%.
Following the lack of new launches and growing price gap, he notes a buyer shift towards private resale and Housing Development Board (HDB) resale flats, raising expectations for the segment’s overall volumes.
In addition, the analyst believes the impact on agencies will be minimal even though buyers and sellers are directly engaging in transactions through the new HDB flat portal,
The analyst also notes that APAC Realty’s overall Singapore agent count increased 6% y-o-y to 8,891 in 2023. The company aims to increase its Singapore agent count to 10,000 by the end of 2024.
APAC Realty’s environmental, social and governance (ESG) score sits in line with the country median score at 3.1 out of 4. — Ashley Lo
Marco Polo Marine
Price target:
Maybank Securities ‘buy’ 9 cents
‘Golden opportunity’ to accumulate
Maybank Securities analyst Jarick Seet sees a “golden opportunity” to accumulate shares in Marco Polo Marine 5LY amid the counter’s recent share price weakness. Since April, shares in the counter have fallen by some 20% and closed at 6 cents on July 4. Seet has kept his “buy” call and target price at 9 cents.
“Marco Polo Marine’s recent share price weakness does not appear to be related to its fundamentals,” says Seet. “The outlook for Marco Polo Marine has improved as chartering rates continue to rise.”
In his report dated July 5, Seet outlines several positives, including Marco Polo Marine’s crew transfer vessel (CTV) agreement with Siemens Gamesa for the latter’s projects in Taiwan and South Korea.
The agreement, announced on March 21, was signed with the company’s Taiwanese subsidiary PKR Offshore.
Its first CTV was delivered to South Korea this week and is already operational.
“We expect Marco Polo Marine to start supplying two CTVs by end-2024 and eventually grow to a sizeable fleet of 10–15 CTVs within four to five years,” says Seet.
“Each CTV is likely to cost about US$5 million ($6.8 million) and generate up to US$1.7 million per annum (p.a.) at an average 80% utilisation rate,” he adds.
The analyst expects Marco Polo Marine to report a gross profit of around US$1.1 million to US$1.3 million per annum per vessel, which would be “significant” if the fleet grows.
Marco Polo Marine’s commissioning service operations vessel (CSOV) is expected to be operational in October. The CSOV is under construction at its shipyard in Batam and is scheduled for delivery in September. It will be deployed in Taiwan for a Vestas project in early October.
“Management said utilisation is likely to reach [over] 85% in the first two years and it has already been pre-booked by Vestas and other customers at average rates higher than we initially forecast,” says Seet.
“We believe Marco Polo Marine has strengthened its strategic relationship with Vestas, especially in Taiwan, and Vestas should remain a core charter partner,” he adds.
At its current share price, Marco Polo Marine is trading at just 7.7 times its FY2024 P/E, which Seet deems as “undervalued” compared to its global and regional peers, which are trading at 15 times and 25 times respectively on average. — Felicia Tan
