Singapore Airlines
Price targets:
CGS International ‘reduce’ $5.88
Citi Research ‘neutral’ $6.76
DBS Group Research ‘hold’ $6.50
Analysts bearish on SIA in near term; CGSI downgrades call
Analysts at DBS Group Research and Citi Research are keeping their respective “hold” and “neutral” calls at unchanged target prices of $6.50 and $6.76 respectively on Singapore Airlines C6L (SIA) following the company’s 1QFY2025 ended June results.
On the other hand, the analyst at CGS International has downgraded his call on the group to “reduce” from “hold” at a lowered target price of $5.88 from $6.78 previously.
In 1QFY2025, SIA posted a net profit of $452 million, a 38.4% y-o-y decrease from the 1QFY2024’s $734 million.
The DBS team notes that this represents 26% of their full-year core net profit estimate. “The group’s performance during the quarter was aligned with our expectations, given that we expect further deterioration in subsequent quarters.”
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SIA’s 9.7% y-o-y increase also met the team’s expectations but passenger yields for both the group’s full-service and low-cost carrier segments “fell short of expectations”, with SIA and Scoot experiencing around 6% declines versus the team’s anticipated 4.5% decrease.
They continue: “The cargo segment, however, showed promising sequential improvements in yields and load factors. Despite facing inflationary pressures, SIA managed costs effectively during the period, reducing ex-fuel unit costs by 3.5% y-o-y, better than our projected 1% reduction.”
On the 2.1% y-o-y overall rise in unit costs driven by the significant 8.1% increase in jet fuel prices, the team writes: “This combination of softer pricing and rising costs resulted in a sharp drop in operating margin to 10% in 1QFY2025, down from 11.8% in 4QFY2024 and 16.8% in 1QFY2024.”
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Overall, the team notes a “fairly bleak” outlook for the rest of the year, with further y-o-y declines in passenger yields due to intense competition, particularly in the Asia Pacific region despite air travel demand remaining resilient.
They add that European and North American airlines have seen a trend of prevalent fare discounting, which is “likely to impact” the Asia Pacific region due to softer consumer sentiment and stronger-than-anticipated capacity growth.
“Additionally, while the Red Sea attacks may boost air cargo demand, cargo yields are expected to continue their downward trend, albeit more gradually,” continues the team.
They expect unit costs from airport operators and service providers to increase rates, such as in Sats’s recent contract renewal.
The team at DBS concludes: “Given SIA’s strong relative share price performance in 2024 year-to-date, we could see a negative share price reaction as the market is likely expecting a better set of results from the group.”
Meanwhile, Citi analysts Kaseedit Choonnawat, Amy Han and Eric Lau note that SIA has been on a declining trajectory in passenger pricing. In June, it was 12% above pre-Covid levels, up from 14% in March and 20% before last December.
They also add that the group’s yield pressures are in line with recent commentaries from peer airlines such as Qantas and Lufthansa due to the weakness in Asia and the implications of forward pricing curves noted by the team.
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While Choonawat, Han and Lau note that the group’s cargo yields were smaller than those of North Asian China Airlines and Eva Airways, the analysts continue to see cross-border e-commerce shipments from Asia as a potential upside to both volume and pricing.
To this end, the analysts prefer Sats for the Asean aviation sector over SIA, and Cathay Pacific as well as Eva Airways among Asia Pacific airlines.
The Citi analysts believe investors could find SIA’s bull-case a challenge in the near term as unit passenger pricing declines against unit-cost inflation. The Air India-Vistara proposed merger could provide mid-term upside where regulatory approvals are still ongoing, they add.
Key risks noted by the team at Citi include a weak macroeconomic situation, disappointing.
Finally, CGSI’s Raymond Yap downgrade on SIA comes on the understanding that the group’s cum-dividend share price of $6.97 will be adjusted down to $6.59 following its dividend per share (DPS) payout of 38 cents on Aug 1.
He adds in his July 31 report: “SIA’s 1QFY2025 patmi of $452 million missed our preview of $490 million due to lower-than-expected passenger and cargo yields, partially offset by lower cost of available seat kilometre.”
Yap’s reduced target price represents a 6% total return downside after including his forecast FY2025 DPS of 30 cents, based on a 56% payout ratio against his core net profit forecast.
He points to multiple potential de-rating catalysts, such as the ongoing slide in passenger yields, the topping out and moderation of cargo yields this quarter following the easing of congestion in the Port of Singapore last month, engine troubles for Scoot’s A320neo fleet continuing to impact operating efficiency and profitability and finally, the expectation of no significant dividends until May FY2025 when 4QFY2025 results are announced. — Douglas Toh
Parkway Life REIT
Price targets:
CGS International ‘add’ $4.50
Citi Research ‘neutral ‘$3.61
DBS Group Research ‘buy’ $4.50
OCBC Investment Research ‘buy’ $4.29
DPU growth commendable, say analysts
Analysts are mostly positive about Parkway Life REIT (PLife REIT) after the REIT reported a 3.5% higher y-o-y distribution per unit (DPU) of 7.54 cents for the 1HFY2024 ended June 30.
CGS International (CGSI) analysts Lock Mun Yee and Natalie Ong noted that it was “business as usual” for the REIT, as its DPU was in line with expectations at 50% of their FY2024 forecast.
Gross revenue, however, fell by 2.7% y-o-y to $72.4 million due to the depreciation of the Japanese yen (JPY) against the Singapore dollar (SGD), which was offset by the contributions from the two new nursing homes added in October 2023.
Lock and Ong note in their July 29 report that the REIT’s distributable income rose by 3.5% y-o-y to $45.6 million. This was due to outstanding yen forward exchange contracts, which were partly moderated by higher interest expenses from funding capital expenditures (capex) and new acquisitions.
At the distribution income level, the REIT remains “well hedged”, say the analysts, referring to its realised foreign exchange (forex) gain of $4.7 million, which mitigated the impact of the weaker JPY.
“In addition to fully funding its yen acquisitions, it also extended its yen net income hedge until 1QFY2029, which provides income stability to unitholders, in our view,” they add.
As of end-June, PLife REIT’s gearing stood at 35.3% with an interest coverage ratio (ICR) of 10.6 times. The ICR is the highest among the Singapore REITs (S-REITs) in the same period. Its all-in interest cost averaged 1.35% in the 1HFY2024.
“PLife REIT indicated that 90% of its interest rate exposure is hedged into fixed rates. PLife REIT does not have any long-term debt refinancing needs until March FY2025,” the analysts point out.
With its strong balance sheet, the REIT can tap growth opportunities, they add. Lock and Ong have kept their “add” call with an unchanged target price of $4.50. “We like PLife REIT for its stability, backed by its defensive income structure with in-built rent escalation features,” they say.
DBS Group Research analyst Derek Tan also remains positive on PLife REIT, calling it “the one and only” and a “rare jewel” among S-REITs in a defensive industry.
He notes in his July 29 report that the REIT was one of the few to see growth in the middle of a high-interest-rate environment.
The REIT also offers earnings that are “highly visible, stable and sustainable” due to its “resilient” industry and long leases with downside risk protection, Tan adds.
Furthermore, he notes that the REIT owns three private hospitals in Singapore, which have captured the majority of the market.
Other pluses include forex risk, which has been hedged until 1QFY2029, offering income stability and conservative gearing that optimally positions the REIT for acquisitions.
The REIT’s renewal of the master lease for its Singapore hospitals also gives the REIT a “new lease of life” with rental upside for the next two decades. The master lease was renewed in 2021 and came with a 20-year extension of the lease tenure, a rent increment of some 40% and a 27% increase in net asset value (NAV).
“While the 40% rent increment kicks in from 2026, the lease guarantees 3% growth in rentals from FY2023 to FY2025 during the period of asset rejuvenation,” says Tan.
To him, the REIT’s next leg of acquisition growth will be the key re-rating catalyst. “The potential acquisition would entail exercising its right of first refusal (ROFR) on Mount Elizabeth Novena Hospital or expanding into a third pillar, although the timing of either is uncertain.”
Tan has kept his “buy” call on PLife REIT with an unchanged target price of $4.50.
“The stability offered by PLife REIT is a welcome trait in the midst of macro uncertainties and high interest rates, which have impacted returns for most S-REITs,” he says. However, PLife REIT’s financials continue to shine and remain resilient due to conservative capital and financial management strategies.
OCBC Investment Research analyst Ada Lim also likes PLife REIT’s prospects, calling it a “beacon in the fog” as the REIT defends its uninterrupted track record of recurring DPU growth. PLife’s DPU, which came in at 49.2% of Lim’s forecast, met her expectations.
“We like PLife REIT’s long-term lease structures as they provide a steady stream of rental income and thus downside protection during market downturns,” Lim writes in her July 29 report.
“At the same time, there is also growth potential through rental escalations and upside sharing with tenants,” she adds.
The analyst has kept her “buy” call on the REIT with an unchanged fair value estimate of $4.29.
“PLife REIT’s current forward 12-month distribution yield of 4.2% screens attractive, in our view, at slightly more than one standard deviation (s.d.) above its five-year historical average of 3.7%, and we think this presents an opportunity for income-seeking investors to gain exposure to PLife ahead of expected significant DPU growth once renewal capex works at Mount Elizabeth Hospital are completed in 2026,” she writes.
Citi Research analyst Brandon Lee also notes PLife REIT’s growth as well as stable and predictable income streams.
In his July 27 flash note, Lee writes: “PLife REIT’s 1HFY2024 results illustrated the growth effect of its master leases in Singapore, sound acquisitions in Japan, and prudent yen hedges, while the balance sheet remained healthy with a high ICR of 10.6 times, low debt cost of 1.35%, and relatively low 35.3% gearing.”
However, Lee is the only one to have a “neutral” call on PLife REIT due to valuations. Based on Lee’s estimates, PLife REIT has a P/B of 1.52 times and a yield of 4.1%.
Lee has also kept his target price unchanged at $3.61. “We see muted share price reaction on slight results beat,” he says. — Felicia Tan
Sheng Siong Group
Price targets:
CGS International ‘add’ $1.90
Citi Research ‘buy’ $1.68
DBS Group Research ‘hold’ $1.62
RHB Bank Singapore ‘buy’ $1.86
Analysts mixed about earnings but see robust outlook
Analysts have mixed perspectives on Sheng Siong following the release of the company’s 1HFY2024 results ended June 30.
CGS International, Citi Research and RHB Bank Singapore have maintained their “add” and “buy” calls, while DBS Group Research has maintained its “hold” call.
CGS International has lifted its target price estimate to $1.90 from $1.88 while RHB has lowered its target price to $1.86 from $1.96. Citi and DBS have kept their target price estimates at $1.68 and $1.62 respectively.
While all the analysts see a positive outlook for Sheng Siong, thanks to its robust store opening pipeline in FY2024, CGSI analysts Ong Khang Chuen and Kenneth Tan are the most optimistic about the group’s prospects.
Sheng Siong’s 2QFY2024 net profit of $34 million stood in line with their expectations as it continued to outperform the national supermarket industry growth rate, which fell in the same period, according to the Singapore Department of Statistics (SingStat).
Sheng Siong also further optimised its sales mix and successfully navigated business costs during the quarter, with its quarterly gross profit margin (GPM) reaching another record high of 30.9% in the 2QFY2024. The group’s operating profit margin also expanded by 0.4 percentage points (ppts) y-o-y to 11.5%.
In addition to their higher target price, Ong and Tan have raised their EPS assumptions for FY2023 to FY2025 by 0.7% to 1.4% on higher store opening assumptions. The analysts now expect Sheng Siong to open six new stores in 2024, up from four.
“Year to date, Sheng Siong has already opened four new stores and expanded the retail floor space of one of its existing stores, outpacing its store count expansion in the past three years. Sheng Siong sees a robust supply pipeline for new stores in 2024,” they write.
“It is still awaiting the results of three tender submissions and expects the Housing Development Board (HDB) to make available seven additional supermarket sites for tender in 2HFY2024. This includes some sites that will be up for re-tendering, as certain competitors look to consolidate their presence in Singapore,” they add. “Sheng Siong also sees opportunities to acquire commercial premises to support its store expansion plan, given its strong net cash position of $350 million as of end-June.”
The analysts believe that the supermarket operator remains focused on serving the heartland consumers in Singapore with its mass-market positioning. As such, it continues to push for margin expansion with a focus on cost efficiency balanced with price competitiveness.
Sheng Siong also remains profitable in China despite softer revenue in the 1HFY2024. It continues to explore different store formats to cater to the market, with its larger-format store “Sheng Siong Plus” as the newest addition.
“We continue to like Sheng Siong for its strong operational execution and expect [a] reacceleration of EPS growth riding on faster store openings in FY2024,” say Ong and Tan.
Meanwhile, RHB analyst Alfie Yeo also remains upbeat on Sheng Siong even though the group’s 1HFY2024 earnings stood slightly below his expectations due to staff costs. During the period, earnings were up by 6.5% y-o-y to $70 million.
Sheng Siong’s revenue, which rose by 3.3% y-o-y to $714 million in 1HFY2024, stood within Yeo’s expectations, with growth largely led by its Singapore business partly due to a longer run-up to the Lunar New Year this year. The holiday fell on Feb 10 this year, compared to January last year.
Additionally, the group’s gross margin in 1HFY2024 was “in line” at 30.1%, up 0.4 ppts from 29.7% last year, resulting from a better sales mix.
However, ebit fell below expectations at $81 million, up by 6.1% y-o-y due to higher-than-expected administrative costs led by elevated staff variable bonuses.
Sheng Siong has also met Yeo’s store opening target of three this year.
After imputing staff costs at the current run rate, Yeo has also lowered his FY2024 to FY2026 earnings estimates by 6% to 7%. However, he expects demand to remain “robust” supported by the Community Development Council (CDC) vouchers that were recently issued to Singaporean households.
To Yeo, Sheng Siong is trading at an attractive –1 standard deviation (s.d.) or around 17 times from its historical mean forward P/E of 19 times.
Citi Research analyst Chong Zhou remains positive on Sheng Siong. He expects the group’s 1HFY2024 margin to “hold up well.”
“[Sheng Siong’s] 1HFY2024 result has been overall consistent with our upgrade call [on July 22 as our key forecasted catalysts crystallise in 2QFY2024,” he says.
“While house brands remain at approximately 8% of total revenue, the significant sequential margin improvement is primarily driven by the increase in fresh (approximately high 40%) in 2QFY2024,” he adds.
The analyst also highlights that fresh and house brands experienced a 10%–15% higher margin than non-fresh and national brands respectively.
“While some may question the sustainability of gross profit margin improvement, we believe that our current gross profit margin estimation of 30.1% for FY2024 to be reasonable given that Sheng Siong’s annualised gross profit margin has always been on the rise y-o-y over the last 10 years,” says the analyst.
While Zhou’s current FY2024 estimate indicates that gross profit margin is likely to fall on a sequential basis in 3QFY2024, he believes this to be reasonable following the more-than-expected increase in the number of new stores.
DBS analysts Chee Zheng Feng and Andy Sim say they continue to like Sheng Siong’s “strong execution”, although they do not see any “material” near-term re-rating catalysts.
Sheng Siong’s 1HFY2024 revenue and earnings came in line with Chee and Sim’s expectations. The pair also noted that the group is gaining a share in a “declining industry”.
Moving forward, the team expects outbound travel headwinds to taper off towards 4QFY2024 with outbound travel volume almost back to pre-Covid-19 levels, which would help improve the overall growth trajectory of Sheng Siong. — Ashley Lo
Suntec REIT
Price targets:
CGS International ‘hold’ $1.22
DBS Group Research ‘hold’ $1.15
Maybank Securities ‘hold’ $1.10
OCBC Investment Research ‘hold’ $1.15
PhillipCapital ‘buy’ $1.41
RHB Bank Singapore ‘buy’ $1.35
Analysts mixed over 1HFY2024 results
CGS International (CGSI), DBS Group Research, Maybank Securities and OCBC Investment Research (OIR) have kept their “hold” calls on Suntec REIT after the release of the REIT’s 1HFY2024 results ended June 30.
CGSI, DBS and Maybank have left their target prices unchanged at $1.22, $1.15 and $1.10 respectively, while OIR has increased its target price to $1.15 from $1.06.
According to the OIR team, the REIT’s 1HFY2024 results were “slightly below” expectations.
While gross revenue saw a 1.2% y-o-y increase to $226.9 million, the REIT’s net property income (NPI) fell 1.5% y-o-y to $151 million as better operating performance in Singapore was offset by lower contributions from 55 Currie Street and 177 Pacific Highway in Australia and The Minster Building in the UK.
Although income from joint ventures rose 7.6% y-o-y to $49.7 million, the REIT’s DPU dipped 12.5% y-o-y to 3.042 cents.
Excluding capital distributions, the OIR team notes that Suntec REIT’s 1HFY2024 DPU from operations would have declined by only 1.2% y-o-y, accounting for 49.1% of its initial FY2024 forecast.
Suntec REIT’s rental reversions also remained solid, albeit at a “moderated pace” for its Singapore retail and office operations in the 2QFY2024, says the OIR team. During the period, the REIT reported yet another quarter of positive rental reversions for its Singapore office and retail portfolios, but at a more moderated 7.9% and 20.2%, down from 11.4% and 21.7% in the previous quarter.
Similarly, CGSI analysts Lock Mun Yee and Natalie Ong maintain a positive outlook on the REIT’s “robust” Singapore office portfolio.
They note that Singapore office assets saw a 9.7% increase in rental reversions in 1HFY2024 on 243,000 sq ft of space leased, while occupancy remained high at 99.3% following demand from smaller space requirements.
Additionally, committed office occupancy for Suntec REIT’s Australia portfolio inched up q-o-q to 89.1% in 2QFY2024 from 99.9% in 1QFY2024.
“Nonetheless, the office leasing environment in Melbourne and Adelaide remains challenging and Suntec REIT expects the lower revenue trend to continue due to leasing downtime and heightened tenant incentives,” they add.
DBS Group Research analysts Dale Lai and Derek Tan note that despite a strong turnaround in its underlying portfolio, the REIT will not be spared from higher interest costs. “Despite the fact that Suntec’s underlying portfolio, especially its Singapore assets, is seeing improved performance, the higher interest costs have been eroding its income, as its debt was only 55% hedged,” they write. “As management has yet to make a decision on any further capital distributions, we expect FY2024 DPU will likely decline without any capital distributions.”
However, any rate cuts will benefit Suntec, with 55% being one of the lowest hedged debt levels among its peers. “Management continues to prefer asset divestments over equity fundraising (EFR) should it need to take steps to recap its balance sheet and shared that the latter is an avenue of last resort,” add Lai and Tan.
Despite Suntec REIT’s 1HFY2024 DPU meeting the analyst’s expectations, Maybank analyst Li Jialin has kept her forecasts and rating unchanged while awaiting catalysts for the REIT.
She notes that the REIT’s backfilling at the Minster Building is expected to be completed in 2HFY2024, with meaningful rental contributions set to kick in from FY2025 onwards. Management is also aiming to bring occupancy at 55 Currie up to 60% in 2HFY2024, while occupancy at the REIT’s Southgate asset is expected to hover at approximately 87%.
“We think dividend hikes and improving [Suntec’s] Australian/UK portfolio performance will help shore up investor confidence,” adds the analyst.
RHB Bank Singapore analyst Vijay Natarajan has kept his “buy” call on Suntec REIT, viewing the REIT’s Singapore portfolio as a “bright spot”,
He notes that the REIT’s office segment continues to outperform market expectations, with its Suntec City office achieving 100% committed occupancy and a positive rent reversion of 7.9% in 2QFY2024.
Occupancy at the REIT’s Marina Bay office assets has also remained high, and the rent rate has grown similarly positively.
In the analyst’s view, supply remains manageable with active demand from diverse sectors, such as the energy, shipping, consulting and financial services sectors.
He adds that the REIT’s divestment target of strata units at Suntec office towers remains at $100 million for FY2024, with $31.5 million divested in 1HFY2024 at a 27% premium over book value.
“The REIT is also open to divesting 177 Pacific Highway and Southgate Complex in Australia, should a good offer arise,” says Natarajan.
Overall, the analyst has adjusted his FY2024–FY2025 DPU estimates down by 1%–2% by tweaking NPI margins while slightly raising his FY2026–FY2028 forecasts. The analyst’s target price remains unchanged at $1.35.
Similarly, Liu Miao Miao from PhillipCapital has kept her “buy” call on Suntec REIT with an unchanged target price of $1.41. The analyst highlights positive upsides in the REIT’s convention sector, with Suntec Convention benefitting from the influx of event-driven tourism. Although the sector only accounts for 2% of the REIT’s total income, Liu believes traffic can be redirected to other businesses, such as F&B in Suntec City.
Overall, the analyst expects rental reversion in Singapore to “hold well”, driven by stable occupancy costs in retail and high retention demand in the office sector. “Suntec REIT has adjusted its leasing strategy by dividing units into smaller spaces to lower the barrier of entry, which has been proving effective,” says Liu. The analyst has maintained her FY2024 DPU estimates at 6.2 cents–7.5 cents. — Ashley Lo
CapitaLand Ascott Trust
Price targets:
DBS Group Research ‘buy’ $1.15
OCBC Investment Research ‘buy’ 90 cents
Citi Research ‘buy’ $1.12
PhillipCapital ‘buy’ $1.04
CGS International ‘add’ $1.17
REIT’s assets in France may benefit from Paris Olympics
After CLAS’s results for the 1HFY2024 ended June 30, all the analysts kept their “add” and “buy” calls. CLAS reported a DPS of 2.55 cents for the period, 8% lower y-o-y.
DBS analysts Geraldine Wong and Derek Tan have lowered their target price on the REIT to $1.15 from $1.30 in anticipation of a reset in coupon rates for CLAS’s upcoming expiry of $150 million in perpetuals, from 3.88% per year to 5.35% per year.
They also point to the disruptions of operations at the Citadines Covent Garden Hotel in the year due to asset enhancement initiatives (AEIs), the divestment of Citadines Mount Sophia, and the 20 basis point (bps) increase in the cost of debt to 3.20% for FY2025 as other factors for the change in target price.
The analysts have also changed their FY2024 DPU forecast to 5.7 cents, which does not take into account capital gains or other one-off top-ups. These amounted to around $41 million or 1.1 cents per share compared to last year’s DPU of 6.57 cents.
“We see an upside to DPU following the phased completions of AEI and acquisitions during FY2024 to FY2026. Its Singapore portfolio will see a higher room count from the completion of Somerset Liang Court in 2026,” they add.
In the 4QFY2023, CLAS’s portfolio revenue per available unit (RevPAU) recovered to around 103% of normalised levels, with organic growth driven by the normalisation of occupancy, primarily within the Asia-Pacific region. This narrows the seven percentage points (ppts) occupancy gap across CLAS’s portfolio against its pre-Covid average of 85%.
Wong and Tan continue: “Within Singapore, the upside will stem from the relaunched The Robertson House, as revenue per available room (RevPAR) is expected to be around 30% higher, with full inventory released into the market from early 2QUFY2024. The Paris Olympics have also caused a nice uplift to CLAS’s Paris assets.”
The analysts expect CLAS to “stick to its strategy” of asset recycling to drive earnings and NAV upside, with a “healthy” gearing level of 38% and $2 billion in debt headroom supporting growth appetite.
Meanwhile, OCBC analyst Ada Lim has similarly lowered her fair value to 90 cents from $1.08 previously in light of CLAS’s upcoming expiry of perpetuals.
“Stronger operating performance and contribution from new properties more than offset the impact of divestments, AEIs, and foreign exchange (forex) headwinds. However, DPU fell 8% y-o-y to 2.55 cents — not due to any fundamental operational issues with the REIT, but mainly on the back of lower non-periodic items y-o-y,” writes Lim.
She adds: “This accounted for 44% of our initial forecast, which we deem to be in line with our expectations given that the second half of the year is seasonally stronger for lodging.”
In 2QFY2024, CLAS’s portfolio RevPAU was 4% higher y-o-y at $155 million, which Lim notes as “exceeding” 2QFY2019 pro forma levels by 2%.
She writes: “This was largely due to an increase in room rates as average occupancy of the portfolio remained stable YoY at 75%. In particular, the US and Japan markets performed well, with 2QFY2024 RevPAU increasing 3% and 29% y-o-y, respectively.”
While Lim also sees CLAS’s French properties benefitting from the Paris Olympics and concerts coming in the 2QFY2024, she notes that there was “some weakness in Australia and the UK” in the past quarter due to softer corporate demand and AEI impact, respectively.
In her view, CLAS’s gearing has remained healthy, coming down a further 50 bps q-o-q to 37.2% as at June 30, following the deployment of a part of the divestment proceeds to pare down higher interest rate debt.
On the other hand, Citi’s Lee has kept his target price of $1.12 unchanged, noting that the REIT expects its 2HFY2024 operating performance to outperform the first half. Its 3QFY2024 outlook also looks “positive” for the majority of its six core markets, barring Australia.
On this, he writes: “RevPAU in Australia fell 4% y-o-y (6% lower on a same-store basis; in-line with pre-Covid) reflecting moderation in travel demand and fewer events in 2QFY2024 relative to 1QFY2024, while weakness is expected to persist in 3QFY2024 given lighter events calendar and higher base in 3QFY2023 due to one-off Fifa Women’s World Cup.”
PhilipCapital’s Darren Chan has an unchanged target price of $1.04, as CLAS remains his “top pick” in the sector, owing to its mix of stable and growth income sources and geographical diversification, which “provides resilience” amidst global uncertainties.
He adds that over the past year, $408.1 million in assets were divested across 10 mature assets at premiums to book value, unlocking $44.6 million in gains and producing an average exit yield of around 3.8%.
“Four AEI projects were completed in 1HFY2024, with another four properties under AEI expected to be completed in phases from 2HFY2024 through FY2026. This should increase CLAS’s distributable income,” writes Chan.
In his outlook, Chan sees China as a catalyst for improving the REIT’s portfolio occupancy, which currently stands at 6% compared to 9% in the pre-Covid-19 period.
He adds: “CLAS still has around $300 million in divestment gains yet to be distributed, and we believe management may distribute some of these gains to offset the loss of income from properties undergoing AEIs.”
CGSI analysts Natalie Ong and Lock Mun Yee’s unchanged target price of $1.17 reflects the REIT’s “steady” adjusted DPU of 2.41 cents “despite $401 million in divestments and eight AEIs.”
They write: “CLAS is our top sector pick as we believe its diversified portfolio provides both stability and upside exposure to the global hospitality sector while offering portfolio reconstitution opportunities. — Douglas Toh
Raffles Medical Group
Price targets:
Maybank Securities ‘hold’ $1.10
DBS Group Research ‘hold’ 97 cents
Long-term positive outlook intact
Raffles Medical Group (RMG) on Jul 29 posted its 1HFY2024 ended June results, which saw patmi decline by 48.8% y-o-y to $30.6 million, while revenue was 1.4% down y-o-y to $365.7 million. This was primarily due to the cessation of Covid-19 activities, which discontinued progressively from 1HFY2023.
Following the expected lacklustre earnings, analysts are keeping a “hold” on RMG, as the group lack near-term growth prospects.
Maybank Securities has reiterated its “hold” call and dropped its target price to $1.10 from $1.15 as RMG lack near-term re-rating catalysts.
Analyst Eric Ong sees the group’s core hospital services as its “only bright spot”. Despite slow medical tourism recovery, hospital services posted revenue growth with PBT margin expanding by 3.1 percentage points (ppt) to 8.5% on higher average selling price (ASP), which helps to cover some of the inflationary costs such as wages and consumables.
The group will now focus on growing and consolidating its three existing hospitals in China. For 1HFY2024, China operations turnover grew 5.9% y-o-y to $30.5 million along with stronger patient loads. While still in the developmental phase, management believes that the Shanghai and Chongqing hospitals are on track to reduce gestational losses as utilisation rates continue to improve.
Not surprisingly, healthcare services recorded lower revenue and PBT due to the cessation of Covid-related activities. Earlier this year, the group added 176 beds to its capacity and started receiving patients in 1HFY2024 to support transitional care facilities (TCF) with the Ministry of Health (MOH).
Meanwhile, Insurance arm (RHI) topline rose 28.9% y-o-y to $86.2 million, while higher claims and a higher loss ratio were generally in line with industry trends. Consequently, the segment’s operating loss widened to $6.4 million compared to $1.3 million a year ago.
In Jun 2024, RFMD opened its second medical centre in Hakata, Fukuoka, to serve locals, expatriates and tourists in the precinct. “We understand this new centre is in addition to the group’s first medical centre in Osaka, which started operating in September 2015. Management remains on the lookout for new business opportunities in the region given its robust net cash position of $247 million,” says Ong.
On the other hand, DBS Group Research is also keeping its “hold” call and decreasing its target price on RMG to 97 cents from $1.00.
While the group recorded lower earnings, analysts Amanda Tan and Andy Sim remain upbeat that the group has benefitted from the strong recovery of local and foreign patients post-pandemic in Singapore. They expect FY2024 to see a full year of earnings normalisation post-pandemic. As such, this could cap the share price’s upward momentum.
“We continue to have a long-term positive outlook on Raffles Medical due to the healthcare industry’s long-term positive trajectory and the potential for its China hospitals to ramp up as they reach stabilisation and breakeven in the medium-term,” say the analysts. — Samantha Chiew
SIA Engineering Company
Price targets:
CGS International ‘add’ $2.65
OCBC Investment Research ‘buy’ $2.69
Analysts bullish after 1QFY2025 update
Analysts at CGS International and OCBC Investment Research are keeping their respective “add” and “buy” calls on SIA Engineering (SIAEC) following the company’s 1QFY2025 ended June results.
While CGSI analysts Kenneth Tan and Lim Siew have lowered their target price to $2.65 from $2.75, OCBC analyst Ada Lim has kept her fair value of $2.69 unchanged.
Although SIAEC reported a 205% greater q-o-q and 23% higher y-o-y net profit of $33 million for the period, it did not meet Tan and Lim’s estimate of $37 million, which formed 22% of both theirs and 21% of Bloomberg’s three-year forecast.
They write: “We attribute the miss to lower-than-expected revenue growth of 3% y-o-y, which was due to supply chain constraints impacting base maintenance works. While ebit remained positive at $1 million (150% higher y-o-y), ebit margin was only up slightly by 0.2 percentage points (ppts) y-o-y as labour and material costs remained elevated.”
For the period, SIAEC’s share of associate profits was its “main earnings driver,” growing 28% y-o-y, driven by meaningful growth from engine associates.
While the company does not provide quarterly segment revenue contribution, Tan and Lim estimate its engine and component segment to have recorded “strong y-o-y growth”, while its airframe segment “likely declined y-o-y”.
Meanwhile, flights handled by SIAEC during the period were healthy, growing 12% y-o-y, but the number of checks performed saw a slowdown at 4% lower y-o-y, which the company attributes to supply chain constraints and longer checks for older aircraft.
“We still believe healthy industry trends are intact, backed by elevated maintenance, repair and overhaul (MRO) demand from a slow pace of new aircraft deliveries and issues with newer engine models and strong travel demand,” write the analysts.
For SIAEC’s FY2025, Tan and Lim expect the company’s associates to form around 80% of the company’s core net profit.
They explain: “We expect 49%-owned Eagle Services Asia (ESA) to be a key driver of SIAEC’s FY2025 earnings, as the associate should benefit from elevated geared turbofan (GTF) work volumes in view of safety-related recalls. Workshop expansion initiatives at both ESA and Singapore Aero Engine Services (SAESL) (50%-owned joint venture) should support longer-term associate profits growth for SIAEC, in our view.”
Overall, the analysts say SIAEC is “set to benefit from favourable MRO trends”.
“We conservatively lower our FY2025 to FY2027 earnings per share (EPS) by 3% to 4%, mainly on slower revenue growth assumptions to reflect the slow 1QFY2025,” write Tan and Lim.
Re-rating catalysts noted by the analysts include strong ESA profits and consistent improvement in ebit profitability, while downside risks include an impact in MRO volume from an economic slowdown, as well as prolonged margin pressure.
Meanwhile, SIAEC’s results from the period were “broadly in line” with the expectations of OCBC’s Lim.
However, she notes that the company’s expenditure rose by 2.4% y-o-y to $267.7 million, largely driven by higher material and manpower costs. Lim writes: “We remain constructive on the industry and especially engine maintenance, as operational issues necessitate more inspections and unplanned visits to the shop.”
The OCBC analyst also notes that SIAEC has “been making active inroads” into India, signing a 12-year Inventory Technical Management (ITM) agreement with Air India in February to provide component support coverage for its current fleet of Airbus A320 family aircraft and its subsequent partnering with the airline in May for the development of its base maintenance facilities in Bangalore, India. — Douglas Toh
Thai Beverage
Price targets:
Kiatnakin Phatra ‘buy’ 81 cents
JP Morgan ‘overweight’ 64 cents
HSBC Global Research ‘buy’ 59 cents
Share swap deal could reduce conglomerate discount
Thai Beverage’s (ThaiBev) conditional share swap agreement with TCC Asset is logical as it allows the company to become a pure food and beverage (F&B) company and could reduce a conglomerate discount, analysts at Kiatnakin Phatra Securities say.
On July 18, ThaiBev proposed a share swap of all of its 28.78% shareholding in Frasers Property TQ5 (FPL) to TCC Assets, while the latter would transfer its 41.3% shareholding in Frasers and Neave (F&N) to ThaiBev.
Upon completion, ThaiBev will hold 69.61% of F&N from 28.31% and TCC Assets will own 86.89% of FPL.
Kiatnakin Phatra’s analysts Thitithep Nophaket and Chotipat Leksakul note that, given the increased holding, ThaiBev would have to consolidate F&N rather than recognise a share profit. Given the nature of the property business, the company would no longer recognise the volatile share of profit in FPL, which they think is positive for ThaiBev.
The analysts are keeping “buy” on ThaiBev with a price objective of 81 cents.
JP Morgan analyst Kae Pornpunnarath is positive about the transaction, given its EPS accretion with limited additional financial burden or cash outlay, lower earnings volatility and further streamlining of the corporate structure.
He adds, “This corporate action could act as a catalyst to stock price, in our view.” JP Morgan has an “overweight” call on ThaiBev with a target price of 64 cents.
HSBC Global Research analyst has reiterated their “buy” on ThaiBev with a target price of 59 cents. They point out that the company is taking steps to address the demographic issue in its core Thailand spirits business, which should help the sustainability of growth. In contrast, its core spirits business remains cash flow-generating. — Khairani Afifi Noordin
