Broker's Digest: Pan-United Corp, CICT, CDG, Shangri-La Asia, Q&M Dental, SPH

An expected recovery in the construction industry for 2021 has prompted PhillipCapital analyst Tan Jie Hui to initiate a “buy” on building materials supplier Pan-United Corporation, with a target price of 40 cents.

On the back of a disruption in the industry, which caused demand to drop 36% y-o-y in 2020 to $21.3 billion, the Building and Construction Authority (BCA) predicts that demand in 2021 will recover to between $23 billion and $28 billion.

“Ready-mixed concrete (RMC) volumes rebounded from almost 100% below their 10- year average at the start of 2020 to 14% below as at December 2020. The recovery was spearheaded by public residential and civil engineering projects,” writes Tan in a March 29 report, who expects Pan-United to benefit, as it is the market leader with a 40% share in the past five to six years.

The group’s vertical integration through cement silos via United Cement and Raffles Cement provides supply-chain resilience, while limited silo facilities in Singapore and costly batching plants ensure high barriers to entry. This means the group, apart from the existing dominant players in the market, will face less competition.

See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents

As Pan-United owns or manages virtually all the components and processes across the RMC value chain — from innovation to production, to delivery to customers, it means the group is able to deliver large volumes of RMC efficiently and on time. This is done with the aid of its business innovations, AiR and goTruck!.

AiR is a RMC management platform while goTruck! is a truck-hailing platform for the construction industry.

“We believe continued innovations and digitalisation will sustain its competitive edge over peers,” writes Tan.

See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC

On this, Tan sees that AiR has the potential to gain traction in the RMC industry in the longer term, which is currently technologically disconnected.

In December 2019, South Korea’s largest RMC company, Eugene Corporation, signed an MOU with Pan-United to assess its AiR platform for the potential digitalisation of its own end-to-end operations.

The platform uses AI, data analytics, algorithms and sensor technologies to optimise vertical operations along the entire value chain.

“We are looking at a timeline of one year for Eugene to reach a decision on adoption,” writes Tan. “Pan-United is also in talks with other regional players for AiR’s prospective commercialisation.”

Pan-United is the largest provider of RMC in Singapore, with a growing footprint in Vietnam, Malaysia and Indonesia. The group was listed on the Mainboard of the Singapore Exchange in 1993.

The group has two main business lines: concrete and cement, which contributed 95% of revenue in FY2020, and trading and shipping, which contributed 5% to its FY2020 revenue. Pan-United’s target price, says Tan, is based on the group’s historical 10-year average of 7.8 times FY2021 EV/ebitda, excluding outliers in FY2012 and FY2017.

“Pan-United is trading at –1 standard deviation of its 10-year mean of 8.26 times. Our target price implies a total potential return of 38.6%, inclusive of dividend yields of 3.0%,” she says. — Felicia Tan

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CapitaLand Integrated Commercial Trust
Price target:
UOB Kay Hian “buy” $2.42

Diversified exposure to domestic economy recovery

UOB Kay Hian Research (UOB KH) analyst Jonathan Koh has upgraded CapitaLand Integrated Commercial Trust (CICT) to “buy” with a higher target price of $2.42 from $2.32 previously.

The upgrade is underpinned by Koh’s view that CICT provides diversified exposure to the retail and office sectors, making it an ideal pure play on recovery in the domestic economy.

His higher dividend target price comes on the back of a higher distribution per unit (DPU) forecast by 1% for FY2022 ending December due to contributions from 21 Collyer Quay, which will be tenanted by WeWork, starting 4QFY2021.

“CICT provides a 2022 distribution yield of 5.5%, which is attractive given its scale and diversification,” he adds.

Koh is bullish on the recovery of retail spending, pointing out that CICT’s portfolio of malls already saw retail sales recover 13.1% q-o-q in 4QFY2020, driven by the Phase 3 re-opening and rollout of vaccinations.

CICT’s 4QFY2020 saw suburban malls perform better, with tenant sales increasing 1.3% yoy while downtown malls fell 16.3% y-o-y. However, Koh sees the recovery broadening to downtown malls as restrictions further ease and more employees return to offices.

In addition, the potential travel bubbles with Hong Kong and Australia mark an impending return of tourists, though the gradual recovery could last three to five years before the volume of visitor arrivals returns to pre-pandemic levels.

Looking ahead, Koh expects CICT to focus on enhancements for retail malls, such as Plaza Singapura, IMM, Raffles City Singapore and Clark Quay in the medium term.

For CICT’s office portfolio, Koh highlights that demand is trickling back, driven by asset management companies, family offices and Chinese technology companies. However, rental reversion is expected to be slightly negative in 2021, in tandem with rents for grade A office space in the core CBD which have corrected 10% to $10.40 psf in 2020.

He also notes that notwithstanding the proposed restructuring of CapitaLand, the fundamentals of CICT remain unchanged as it still owns the same assets and its aggregate leverage remains unchanged.

In addition, while there may be selling pressure on CICT in the near term due to concerns that CapitaLand shareholders will sell the CICT units they receive as part of the restructuring, Koh doesn’t believe investors will switch from CICT to CapitaLand Investment Management (CLIM) over the longer term.

“We don’t think so because CLIM is a growth company that focuses on expansion of funds under management. CICT provides higher yield and is more suitable for insurers and income funds,” he says. — Atiqah Mokhtar

ComfortDelGro
Price target:
RHB “Buy” $1.90

Ease in restrictions should boost ridership and taxi demand

The easing of Covid-19 restrictions should further boost public transport ridership and translate to higher demand for taxis in Singapore, says RHB Group Research analyst Shekhar Jaiswal.

Jaiswal has maintained his “buy” call for ComfortDelGro Corp (CDG) with an unchanged target price of $1.90 after the government announced that from April 5 onwards, working from home will not be the default option, with up to 75% of employees allowed at the workplace at any one time, compared to 50% previously.

Jaiswal believes rerating catalysts are at play, which will improve CGD’s operations q-o-y for the rest of 2021. Besides the boost in public transport ridership and taxi demand, he views that the earlier than expected opening of international borders, accelerated vaccination drives abroad in Australia and UK (where CDG has operations in), and changes to the Downtown Line’s (DTL) financing framework offer “material upside risks” for his earnings estimates.

To that end, he expects strong earnings growth for CDG in FY2021 ending December and forecasts over 200% y-o-y in profit growth. “Based on current forecasts, we estimate that a full recovery in earnings to pre-Covid-19 levels could take more than two years,” he adds. His DCF-derived target price of $1.90 implies 19 times FY2021 P/E. While higher than CDG’s 10-year average P/E, Jaiswal views this as reasonable in view of the expected strong recovery in CDG’s earnings.— Atiqah Mokhtar

Shangri-La Asia
Price target:
OCBC “buy” HK$9.74

Anticipated recovery led by China

Hotel operator Shangri-La Asia’s FY2020 ended December 2020 results came in below expectations of OCBC’s analyst Chu Peng, due to higher operating expenses and a weak operating environment.

However, with the expectations of recovery from the pandemic-hit year, Chu has maintained her “buy” call on the stock but with a higher fair value of HK$9.74 ($1.69), from HK$7.02 previously.

“We saw some recovery in 2HFY2020, mainly driven by Mainland China. As vaccination drive kicks in, we expect a gradual recovery ahead, but near-term challenges remain as it will take time for countries to achieve herd immunity,” writes Chu in her March 29 report.

“We expect countries with large domestic markets such as China, Australia, Japan to lead the recovery. Countries with relatively stable infection rates and faster vaccine rollout rates such as Singapore could benefit from travel bubbles and a gradual opening of borders,” she adds.

For FY2020, the hotel operator announced losses of US$460.2 million ($620.5 million) on the back of 57.5% y-o-y drop in revenue to just over US$1 billion. The company reported earnings of US$152.5 million for the preceding FY2019.

To conserve cash, no dividend has been declared for FY2020, versus 8 HK cents for the preceding FY2019. — The Edge Singapore

Q&M Dental Group
Price target:
Maybank Kim Eng “buy” 87 cents

New clinics and Covid-19 testing business to drive growth

Maybank Kim Eng’s Eric Ong has initiated coverage on dental chain operator Q&M Dental Group with a “buy” call and 87 cents target price.

The target price, according to Ong in his March 29 note, is pegged to 22 times FY2021 estimate earnings, which is a 15% discount off the sector average of 26 times.

Ong expects Q&M to record a faster compounded annual growth rate of around 30% for FY2021– FY2023, versus 14% managed in FY2019– FY2020, with growth driven by more clinics.

New growth is likely from its Covid-19 tests business, specifically, from its 51%-owned Acumen’s Covid-19 diagnostic segment.

Ong notes that throughout the pandemic, dental revenue has proven to be resilient. To maintain its competitive edge, the Q&M has also made inroads into the development of advanced technology in healthcare with the establishment of EM2AI (formerly known as Q&M Dental AI) in 2018.

The company plans to launch the ethical AI-enhanced guided dental treatment plan in Singapore this year, which should help to cater to the rising customer demand for higher value specialist dental healthcare services.

Going forward, Q&M aims for a bigger market share with a target of opening up to 30 outlets a year from 2021 onwards in Singapore and Malaysia for the next 10 years. Ong notes that new growth targeted by the company will be more organic in nature, from its core dental business, rather than from one-off gains or from associate companies. — The Edge Singapore

Singapore Press Holdings
Price target:
CGS-CIMB “add” $2.09
UOB Kay Hian “buy” $1.85

Recovery seen, strategic review underway

Analysts from CGS-CIMB and UOB Kay Hian are positive on Singapore Press Holdings (SPH) after the company reported better than expected numbers for 1HFY2021 ended February. The company’s view that it is now “undervalued” and thereby undergoing a “strategic review” to unlock value is another point for investors to note.

CGS-CIMB analyst Eing Kar Mei has upgraded the stock from “hold” to “add’ with a higher target price of $2.09 from $1.31 previously.

She notes that the better than expected 1HFY2021 core net profit of $85 million was mainly driven by lower operating costs, with a further boost from other income from investments and grants.

While media business continued to see a structural decline with media revenue dropping 24% yoy to $61 million, Eing says SPH’s property businesses have recovered well.

Retail and commercial revenue increased 4.4% y-o-y to $6.5 million while purpose-built student accommodation (PBSA) revenue was up 24% y-o-y to $6.9 million due to six months contribution from the acquisition of Westfield Marion and Student Castle portfolio respectively.

Eing’s higher target price is underpinned by raised net profit forecasts for FY2021 to FY2022 by 36% to 60%, mainly to factor in lower operating cost, higher revenue from retail malls, and investment income. She also increased the FY2021 to FY2023 dividend forecast as she sees less reason to conserve cash given the recovering property businesses.

For UOB Kay Hian’s Lucas Teng, a potential sale of SPH’s media segment could lift a key overhang on the counter. He notes that SPH’s carrying value of the media business is about $180 million.

He maintains his ‘buy’ rating for SPH, with a higher target price of $1.85 from $1.74 previously.

He has raised his FY2021–FY2023 earnings estimates by 11%–13% on better contribution from SPH REIT’s retail property as well as lower materials, production, and distribution costs.

His revised SOP-based target price also reflects management’s updated guidance on the breakdown of its digital business investments, including carrying values for SgCarMart of $50 million, its media fund portfolio (including Coupang) of $143 million, and its data centre portfolio of $22 million. — Atiqah Mokhtar