Brokers’ Digest: SGX, UOB, Marco Polo Marine, Pan-United Corp, Food Empire, PLife REIT, Wilmar

In its Jan 14 report, the UOBKH team says it expects SGX to report a strong set of numbers for 1HFY2025, driven by outperformance across most of its business segments. Total revenue for the six-month period is tipped to increase by 15% y-o-y to $675 million, while adjusted patmi is forecasted to come in at $290 million, 16% higher y-o-y.

The team noted that SGX’s total securities turnover value of $163 billion, which rose by 34.4% y-o-y, was in line with its expectations.

With the exchange’s average clearing fee expected to increase on a y-o-y basis, the team estimates SGX’s cash equities trading and clearing (T&C) revenue will increase by 36% y-o-y to $105 million.

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SGX’s total derivatives traded volume, which stood 21.4% higher y-o-y, also came within expectations thanks to strong broad-based volume growth across the board. Total equity derivatives volumes rose by 17.9% y-o-y in the 1HFY2025, mainly driven by the SGX’s FTSE China A50 Index Futures, NSE IFSC Nifty 50 Index Futures and MSCI Singapore Index Futures, which increased by 29.6% y-o-y, 16.3% y-o-y and 3.8% y-o-y respectively.

SGX’s fixed income, currencies and commodities (FICC) segment came above UOBKH’s expectations, with total foreign exchange (forex) volumes at record highs with a 43.3% y-o-y increase in 1HFY2025. The outperformance was driven by the three main currency pairs, the US dollar (USD)/Chinese yuan (CNH) futures, Korean won (KRW)/USD futures and Indian rupee (INR)/USD futures, which were up by 33% y-o-y, 103.7% y-o-y and 57.9% y-o-y respectively.

Following China’s stimulus announcement, SGX’s commodities segment rose by 14.5% y-o-y, mainly led by iron ore futures and SGX Sicom rubber futures, which were up by 14.7% y-o-y and 37.8% y-o-y, respectively.

See also: RHB expects SGX to post ‘strong’ earnings growth for 1HFY2025 with 17.5 cents interim DPS

Based on the strong volumes seen in 1HFY2025, UOBKH says it expects the FICC segment to continue its upward momentum and post a 26% y-o-y growth in revenue for the six-month period.

Ahead of SGX’s results on Feb 6, the UOBKH team expects its 1HFY2025 dividend payout ratio to be around 67% at 18 cents per share. The team also expects SGX’s FY2025 dividend per share to total 36.5 cents per share. The figure implies a 6% y-o-y increase in total dividends and a yield of 3%. The estimates come on the back of management stating that the group intends to increase its dividends per share in line with its underlying earnings growth and at a mid-single-digit CAGR target in the medium term.

In addition to its unchanged call and target price, the team has maintained its patmi forecasts for FY2025 to FY2027. — Felicia Tan

United Overseas Bank
Price target:
OCBC Investment Research ‘hold’ $37.50

Downgrade after share price’s new high

All three banks reported new highs in their share prices in January 2025, with DBS at $45.44, Oversea-Chinese Banking Corporation (OCBC) at $17.55 and UOB at $37.80, all on Jan 8.

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“Since our last report in November 2024 at the share price of $33.50 and with a ‘buy’ rating, the stock has touched our fair value estimate of $37.50,” Lee writes in her Jan 10 report, adding that UOB’s share price performance marked an “impressive gain” of 12.2% over a short period of about two months.

Despite the outperformance, the analyst is retaining her fair value estimate or target price of $37.50. UOB is also likely to do well in FY2025, with market expectations of fewer rate cuts this year.

“This could augur well for net interest margin (NIM). It could also mean that earnings have a good probability of surprising on the upside,” she says.

With the improved NIM outlook, UOB’s earnings could be revised up to mid-single-digit growth instead of current expectations of flat or “marginally positive” earnings.

Lee’s unchanged target price is also due to potential key policy changes in the coming weeks from the US and China. Should any changes take place, the analyst will reassess the impact of UOB’s earnings.

In 3QFY2024 ended Sept 30, 2024, UOB’s results did better than expected, with net profit up 10% q-o-q and 11% y-o-y to $1.6 billion. The bank’s core net profit was up by 3% y-o-y to $4.69 billion for the 9MFY2024. — Felicia Tan

Marco Polo Marine
Price target:
RHB Bank Singapore ‘buy’ 8 cents

Higher capacity to raise earnings

In his Jan 13 report, the analyst highlighted several positive factors, such as the deployment of Marco Polo Marine’s new commissioning service operation vessel (CSOV) in 2025 and the construction of offshore windfarms, which is also expected to drive the vessel’s strong utilisation and charter rate.

In addition, the analyst expects the company’s earnings to grow due to higher capacity from a larger fleet and higher shipyard capacity.

Marco Polo Marine is slated to add three new vessels from 2024 to 2026. The vessels include two crew transfer vessels (CTVs) for Siemens Gamesa’s offshore wind projects in Taiwan and South Korea.

The company’s CSOV is also scheduled to be deployed, be fully operational and contribute to revenue in the 1HFY2025 ending March 31.

“With CSOV vessels currently in short supply, both utilisation and rates are expected to be positive,” says Yeo.

The analyst adds that Marco Polo Marine’s fourth dry dock is also scheduled to be completed in the first half of 2025, adding more capacity for ship repairs.

Even though the company’s FY2024 earnings came below Yeo’s estimates, the analyst has raised his FY2026 earnings expectations by 6%.

“Despite the decrease in shipyard revenue missing expectations [in FY2024], we expect shipyard revenue to normalise when its CSOV, which occupied one dock, is deployed into service,” Yeo writes. “We raise FY2026 earnings by 6% to account for higher shipyard capacity and fleet size as they contribute progressively to revenue this year.”

During FY2024, Marco Polo Marine reported revenue of $124 million, 2.8% lower y-o-y, mainly due to lower capacity from its shipbuilding and repair segment; one of its three drydocks was used for constructing its CSOV. The segment declined by 16% y-o-y to $52 million.

Otherwise, ship chartering grew by 9% y-o-y to $72 million thanks to higher charter rates and an increase in re-chartering of third-party vessels. Marco Polo Marine’s FY2024 earnings, which rose by 4% y-o-y to $22 million, also stood below Yeo’s estimates.

Yeo notes that his forecasts and target price are premised on improved charter rates, stronger utilisation rates, and the successful deployment of MPM’s CSOV over the next two years.

“We believe any underperformance in these aspects represents downside risks to our earnings estimates and target price,” he says. There is no premium or discount to the company’s intrinsic value as the company’s environmental, social and governance (ESG) score is on par with the country median at 3.1 out of 4.

Yeo’s target price represents an upside of 48.1% from the company’s last closed price of 5.4 cents on Jan 13. It also represents a yield of 2% for the FY2025 ending Sept 30.  — Felicia Tan

Pan-United Corp
Price target:
CGS International ‘add’ 75 cents

Higher target price on brighter outlook

CGS International (CGSI) analyst Kenneth Tan has maintained his “add” call on Pan-United Corporation at a raised target price (TP) of 75 cents from 72 cents previously in anticipation of the company benefiting from an industry upcycle in FY2025.

“The latest statistics from the Building and Construction Authority (BCA) support our view that Singapore construction activities remain on an upcycle. Based on January to November 2024 figures, we believe full-year construction output and contract awards exceeded the upper end of BCA’s guidance by around 3% and around 13%, respectively,” writes Tan in his Jan 13 note.

He adds: “Similarly, we think full-year industry ready-mix concrete (RMC) demand outpaced BCA’s guidance by around 3%, given that January to November 2024 demand was up by a robust 10% y-o-y.”

Industry strength remains primarily driven by the public sector, which has large infrastructure projects, including Changi Airport Terminal 5 and the Cross Island Line. Meanwhile, public built-to-order (BTO) housing projects under construction are set to ramp up to 150 concurrent projects by the end of the year.

Given its large exposure to the public infrastructure and residential sectors, Tan sees Pan-United as well-positioned to capture healthy construction demand in the coming years.

“We expect FY2025 to F2026 earnings before interest taxes depreciation amortisation (ebitda) margin to remain high at around 9%, backed by operating leverage from improving industry volumes, favourable project mix as infrastructure projects tend to use a higher proportion of higher-margin specialised concrete, and elevated RMC average selling price (ASPs).”

If margins surprise on the upside, Tan calculates his FY2025 to FY2026 earnings per share (EPS) estimates to rise by around 3% for every increase by 20 basis points (bps) in ebitda margin.

He continues: “For the upcoming FY2024 results, we expect Pan-United to report profit after tax and minority interests (patmi) of $40 million, with a higher full-year dividend per share (DPS) of 2.9 cents.”

With the company’s end-FY2024 net cash remaining strong at about 20% of its current market cap, Tan notes that the stock’s current valuation of 2026 earnings to Enterprise Value/Ebitda of 3.6 times is undemanding and sees space for the discount to narrow further as Pan-United benefits from industry and environmental, social and governance (ESG) tailwinds.

Re-rating catalysts noted by the analyst include strong industry volume growth and sustained margin strength.

Conversely, downside risks include counterparty credit risks as well as an economic slowdown, triggering weak construction demand and negatively impacting RMC sales volumes. — Douglas Toh

Food Empire Holdings
Price target:
CGS International ‘add’ $1.43

Asean revenue to overtake Russia

That month, Food Empire had announced its plans to invest US$30 million ($41.1 million) to build a new coffee-mix production facility in Kazakhstan. The plant will occupy half of a 10ha plot, leaving room for expansion. The plant is targeted to be ready for production by the end of this year, Tng notes.

Food Empire also announced last September that it would invest US$80 million in Vietnam’s Binh Dinh province to construct its second freeze-dried soluble coffee manufacturing facility.

On Nov 1, 2024, the company completed its strategic partnership with private equity fund manager Ikhlas Capital to expand its businesses in Southeast Asia and South Asia. Food Empire issued US$40 million five-year redeemable exchangeable notes (REN) at 5.5% annual interest. The REN can be converted into Food Empire shares at $1.09 each after Nov 1, 2026.

In his Jan 6 report, the analyst says he continues to like the counter for its potential to grow its operations in Vietnam into a new major contributor to its revenue. He also likes the company because of its potential to grow its food ingredients business.

Referring to Food Empire’s results for the 9MFY2024 ended Sept 30, 2024, Tng notes that Southeast Asia and South Asia were the company’s fastest growing segments at 30.6% y-o-y and 28.3% y-o-y, respectively.

He adds that Southeast Asia’s revenue, which reached US$94.8 million in 9MFY2024, will likely exceed Russia’s contribution to the company’s total revenue from FY2025 to FY2026.

Despite his “add” call, Tng has lowered his target price to $1.43 from $1.73. The analyst has lowered his earnings per share (EPS) forecasts by 4.67%, 17.24% and 16.90% for FY2024, FY2025 and FY2026 as he raises his operating expense assumptions with Food Empire increasing its marketing expenditure in its growing Vietnam market. The lowered EPS forecasts also factor in US$2.2 million in additional interest expenses from the REN, says Tng.

His valuation basis remains unchanged at 11.2 times FY2025 P/E or one standard deviation (s.d.) above its five-year mean from FY2019 to FY2023. — Felicia Tan

Parkway Life REIT
Price target:
Maybank Securities ‘buy’ $4.10

Expensive but defensive

Maybank Securities analyst Krishna Guha has initiated a “buy” call on Parkway Life REIT, Asia’s largest healthcare REIT, as he sees several factors in its favour.

In his report dated Jan 8, Guha notes the REIT’s strong track record and earnings visibility, strategic growth plan and favourable cost of capital.

Guha also points out that since its initial public offering (IPO) in 2007, Parkway Life REIT’s distribution per unit (DPU) has grown 134%, while its net asset value (NAV) has also grown steadily.

In addition, the REIT has a visible revenue and distribution growth for the analyst’s forecast years from FY2024 to FY2026, with a renewed master lease for its Singapore hospitals in place. The REIT will also enjoy stable revenue due to adjustments to inflation.

The REIT also has a fairly diverse portfolio of properties in three markets: Singapore, Japan and France. The REIT announced its intention to enter the French market by acquiring 11 nationwide nursing homes from DomusVi Group — Europe’s third-largest aged care operator. The acquisition was completed on Dec 20, 2024.

“Parkway Life REIT is in the right sector with a strong and supportive sponsor. Demographics, income and supportive policies are fuelling the growth of the healthcare sector. [Its] sponsor, [IHH Healthcare], is a leading hospital operator and has granted right of first refusal (ROFR) for the Mount Elizabeth Novena hospital,” says Guha.

He adds that the REIT has historically grown while capping its gearing and currently has leverage of 37.5%. “With a favourable cost of capital (4% yield and cost of debt of 1.4%), it is well positioned to capture further growth opportunities.”

With this, Guha initiated a target price of $4.10, representing an upside of 12% to the REIT’s $3.79 unit price as in his report. The target price is based on a 7% cost of equity (COE) and a medium-term growth rate of 2%.

Based on his estimates, the REIT is trading at 1.55 times its P/B at historical mean and a tight yield spread at 130 basis points (bps) compared to its historical spread of 260 bps.

Despite the tight yield spread, the analyst sees that the REIT’s “attractive attributes and favourable sector” justifies its premium valuation.

Guha has also forecasted a DPU CAGR of 7.2% from FY2024 to FY2026, driven by in-built rent escalations in Singapore and the REIT’s acquisition in France. — Felicia Tan

Wilmar International
Price target:
Aletheia Capital ‘buy’ $3.54

Higher margins and earnings from Adani JV acquisition

Along with improving operating margins and an indicative dividend payout at a yield reaching a “historic high”, Tiruchelvam has in his Jan 10 note upgraded his call on Wilmar to “buy” from “sell” previously, along with a target price of $3.54, up from $2.10.

Tiruchelvam had earlier noted that Wilmar is vulnerable to the unwinding of the carry trade in previous reports and also got to bear with “excessive” leverage and poor returns.

“The stock has fallen by 30% since our initiation in August 2023. These risks seem to be priced in,” he says.

In a recent development on Dec 30, the company announced plans to raise its stake in Bombay-quoted Adani Wilmar from 44% to 75% as the partner Adani moves ahead to focus its sprawling businesses into other areas.

Adani Wilmar is a key supplier of cooking oil, flour and other food ingredients in India. Tiruchelvam has raised his ebitda forecasts for Wilmar by 9% for FY2025 and FY2026, as margins were held low in FY2023 and FY2024 because of overcapacity.

With inventory levels of soybean oil at the lowest since 1976, the analyst expects margins to widen as a result. “The improved prospects for the core soy processing business is the cause for optimism,” he adds.

Tiruchelvam also observes that Wilmar has maintained a dividend payout ratio of 40% to 55% in the last decade. The indicated dividend yield of 5.5% is at a record high.

Furthermore, controlling shareholder Kuok Khoon Hong has been known to accumulate additional shares at around $3 steadily, which is where Wilmar is trading now.

“The chances of insider buying are strong due to the falling interest rates. The dividend yields are even more attractive due to the possibility of rate cuts,” suggests Tiruchelvam. — The Edge Singapore