Wilmar International
Price targets:
DBS Group Research ‘buy’ $6.67
UOB Kay Hian ‘buy’ $5.50
Citi Research ‘buy’ $5.35
CGS-CIMB Research ‘add’ $4.82
Analysts upbeat on record results
Analysts are all remaining positive on Wilmar International after the group posted a record set of earnings of US$2.4 billion ($3.2 billion) for the FY2022 ended Dec 31, 2022.
In a flash note on Feb 22, the team at DBS Group Research has kept its “buy” call with an unchanged target price of $6.67 after Wilmar’s core net profit of US$468 million for the 4QFY2022 came within the team’s estimates.
The team’s target price, which is the highest among its peers, comes as it believes Wilmar’s strong integrated platform will reward investors with return on equity (ROE) expansion and a steady stream of dividends.
“The platform enables Wilmar to penetrate further downstream to the central kitchen as well as downstream products such as condiments and instant noodles,” writes the team.
That said, after a “strong” FY2022, the team is forecasting Wilmar’s earnings to decline by 18% y-o-y to US$1.98 billion in FY2023. “We conservatively assume the profit windfall from extreme commodity price volatility in 2022 due to Indonesia palm oil export regulation changes, and Russia-Ukraine war will be largely absent. Wilmar successfully navigated volatility in 2022 and delivered strong earnings performance.”
UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow have also kept their “buy” call with an unchanged target price of $5.50, the second highest among the brokerages so far.
Wilmar’s FY2022 core net profit of US$2.24 billion, which is the group’s second straight year of record profits, also stood within Leow and Yow’s expectations.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
To the analysts, Wilmar’s FY2022 results brought in more positive surprises such as the better-than-expected feed & industrial products segment and strong contributions from its joint ventures (JVs), which more than offset the weaker performance from Wilmar’s food products segment.
The way they see it, Wilmar’s FY2023 earnings may see a reversal in terms of segmental contributions, with Yihai Kerry Arawana (YKA) regaining the top position in terms of profit before tax (PBT) contributions.
The analysts also expect China’s reopening to boost sales volumes; PBT margins should recover with the easing of commodity prices.
That said, the good palm refining margin is unlikely to sustain moving into the FY2023 as the analysts do not expect a huge discrepancy between the Indonesian palm oil domestic prices vs global palm oil prices in 2023.
The analysts have kept their earnings forecasts unchanged for the FY2023, FY2024 and FY2025 at US$1.9 billion, US$2.19 billion and US$2.44 billion respectively.
Citi Research’s Jame Osman is also keeping his “buy” call with an unchanged target price of $5.35 as Wilmar’s revenue and net profit for the FY2022 beat his full-year estimates.
Osman notes that the group’s operational trends were mixed with its midstream business performance being the “main positive surprise” while its downstream and upstream businesses came in weaker than expected.
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“Ahead, we believe domestic demand expansion should drive a recovery in YKA’s contribution to Wilmar’s overall earnings in the near-term. We also expect higher midstream utilisation from higher production growth trends, as well as upstream support from higher-for-longer crude palm oil (CPO) and sugar prices,” writes Osman.
CGS-CIMB Research’s Ivy Ng has also kept her “add” call with a higher target price of $4.82 from $4.68 after Wilmar’s FY2022 earnings stood above her expectations.
This is thanks to the lower-than-expected effective tax rate of 14% in the 2HFY2022, compared to 23% in the 2HFY2021, she notes. The lower-than-expected effective tax rate was likely due to higher offshore hedging profit in Singapore, which attracted corporate tax rate of only 5%, she adds.
Wilmar’s total dividend of 17 cents for the FY2022, however, came below Ng’s estimates of 21 cents per share, even though that was the group’s highest dividend since its listing.
In FY2023, Ng estimates that Wilmar will see a 16% y-o-y decline in its net profit due to lower CPO prices and palm processing margin as well as a higher effective tax rate. That said, she has raised her net profit forecast for the FY2023 to FY2024 by 8% to 10% to reflect higher profit margin for food segments on the back of stronger pricing power after China ends its zero Covid policy.
However, this will be partially offset by higher food products profit due to lower raw material costs, she says.
Ng is also projecting average CPO prices to fall by 25% y-o-y in FY2023 and Wilmar’s mid-to downstream palm business to record lower profit margin due to lower volatility in commodity prices.
Ng’s higher target price has factored in the market capitalisation of YKA and Adani Wilmar.
To her, Wilmar offers attractive an attractive FY2023 P/E valuation of 10x and FY2023– FY2024 dividend yield of 4%. — Felicia Tan
Genting Singapore
Price targets:
DBS Group Research ‘hold’ $1.05
Citi Research ‘buy’ $1.20
Outlook rosy but earnings slow to recover
Analysts are mixed on Genting Singapore (GENS) with DBS Group Research’s Jason Sum downgrading his call on the counter to “hold” from “buy” and Citi Research’s George Choi keeping his “buy” call. GENS had reported its results for the 4QFY2022 ended December 2022 and FY2022 on Feb 20.
DBS’s Sum has also upped his target price to $1.05 from $1 previously but says his downgrade comes as he sees GENS’s earnings recovery as largely baked into its share price.
“The stock is currently trading above pre-pandemic levels even though a complete turnaround in earnings is still some time away,” says Sum in his Feb 21 report.
“Furthermore, we believe that valuation multiples could compress, considering uncertainty over the return on investment (ROI) profile of Resorts World Sentosa (RWS) 2.0 and the management’s conservative capital management,” he adds.
Sum says GENS is one of the most profitable diversified gaming operators in a duopoly market. The group’s RWS is one of the largest fully integrated resorts in Southeast Asia and holds an “enviable position” in Singapore, which is a vibrant tourism hub with a strong domestic market.
“Not only is competition in Singapore relatively less intense compared to other markets due to the duopoly structure in the country but RWS also has better business (higher percentage of non-gaming revenue) & geographical diversification (in terms of source markets) and generally enjoys higher ebitda margins compared to peers,” notes Sum.
For FY2023 to FY2024, Sum expects GENS’s earnings momentum to sustain as the earlier-than-anticipated reopening of the important China market should enable footfall at RWS to normalise by late-2023/early-2024. The pent-up demand should also translate to higher spending per visitor in the near term, he says.
“Further ahead, the addition of more gaming areas, attractions/retail/dining options, hotel capacity and improved accessibility into Sentosa will drive earnings growth. Additionally, top-line growth and operating margins could surpass expectations if GENS successfully executes its strategy to attract more premium mass market customers,” he adds.
Citi’s Choi has also upped his target price to $1.20 from $1.04 as GENS’s results for the 4QFY2022 stood in line with his expectations. The analyst kept his “buy” call as he sees GENS as one of the major re-opening beneficiaries in Singapore.
“Management believes dividend growth should be aligned to earnings growth, but the [estimated] 100% payout ratio in 2022 is unlikely to be repeated,” says Choi.
“We expect FY2023 distribution per share (DPS) to increase to 4.0 cents (implying a 4% dividend yield), which is the most GENS has ever paid out,” he adds. “GENS is currently trading at [around] 8.1x FY2024 EV/Ebitda, largely on par with the historical average of [an estimated] 8.0x,” he continues. — Felicia Tan
Parkway Life REIT
Price target:
DBS Group Research ‘buy’ $4.80
Rare jewel among S-REITs
DBS Group Research analysts Rachel Tan and Derek Tan have maintained their “buy” call on Parkway Life REIT (PLife REIT), favouring the trust for its strong earnings visibility amid the current backdrop of a volatile and uncertain market outlook.
“PLife REIT is one of Asia’s largest listed healthcare REITs by asset size and a rare jewel amongst Singapore REITs (S-REITs) that offers highly visible, stable and sustainable earnings by virtue of its resilient industry and long leases with downside risk protection. In addition, PLife REIT owns three private hospitals in Singapore, which have captured the majority of the market share,” they note in their Feb 20 report.
The Singapore hospitals provide a high degree of income visibility to PLife REIT, contributing about 60% of its top line. Its rental reversions are pegged to a consumer price index-linked formula, which underpins its steady growth profile, the analysts add.
The analysts highlight that the renewal of the Singapore master lease in 2021 comes with about a 40% rent increment, 27% rise in net asset value (NAV) as well as a 20-year extension of the lease tenure. While the 40% rent increment kicks in from 2026, the lease guarantees a 3% growth in rentals from FY2023 to FY2025 during the period of asset rejuvenation. The company has a December year-end.
The annual rent review formula shall be applicable from FY2026 with an estimated 25% step up in rents, the analysts point out.
Concurrently, with the renewal of the master lease, the REIT’s sponsor IHH Healthcare has granted a 10-year right of first refusal (ROFR) on Mount Elizabeth Novena Hospital. Given the successful collaboration between PLife REIT and its sponsor, the analysts believe the potential injection of Mount Elizabeth Novena Hospital could be realised.
Meanwhile, major refurbishment and upgrading works at Mount Elizabeth Hospital have commenced, with an estimated capex of $350 million. The analysts note that the refurbishment work would transform the medical institution into a modern and integrated multiservice hub.
PLife REIT’s asset recycling activities in Japan nursing homes are still ongoing — the REIT had acquired five nursing homes for a total of $55.5 million in September 2022 at a net property yield of 5.2% to 6.5%. In FY2021, the REIT acquired three nursing homes for a total of $87.3 million, at a net property yield of 5.7% to 5.9%.
In January 2021, the REIT sold its non-core asset P-Life Matsudo — the only pharmaceutical product distributing and manufacturing facility in its Japan portfolio — for $37.2 million at a divestment yield of 4.3% versus 5.3% acquisition yield, 12% above the original purchase price.
With the recent acquisitions, the analysts believe PLife REIT’s asset recycling exercise will continue to drive growth ahead given its successful track record.
The analysts highlight that the REIT’s management is looking into building a third pillar for its next growth phase, exploring opportunities in developed countries with a mature healthcare market such as Australia and Europe. It however remains cautious about new ventures, which leads to an uncertain potential entry timeline.
DBS lowers their target price to $4.80 from $5.50 by raising its risk-free rate to 2.4% and factoring in a higher cost of debt. — Khairani Afifi Noordin
Singapore Telecommunications
Price targets:
UOB Kay Hian ‘buy’ $3.15
RHB Group Research ‘buy’ $3.30
Maybank Securities ‘buy’ $3.10
PhillipCapital ‘accumulate’ $2.84
‘Buy’ despite challenging quarter
Analysts are remaining positive about Singapore Telecommunications (Singtel) prospects after the telco reported its results for the 3QFY2023 ending Dec 31, 2022 on Feb 16. Among the analysts, UOB Kay Hian and RHB Group Research are slightly more buoyant with their “buy” calls and unchanged target prices. UOB Kay Hian has kept its target price at $3.15 while RHB Group Research has kept its target price at $3.30. Singtel is also RHB’s preferred sector pick.
“Singtel’s 3Q/9MFY2023 results were light against our forecast (consensus miss) on weak regional currencies,” notes the Singapore research team at RHB. “Overall results reflect the foreign exchange (forex) weakness for the Australian dollar (AUD) and regional currencies and extended investments in NCS. This was partially offset by stronger associates and the recovery in roaming revenues.”
That said, several factors, including the lifting of China’s borders, the closure of Optus’ cyber security incident, the scaling up of NCS, as well as the “continued robust” growth from Airtel, should fuel core earnings CAGR of 14% from FY2023 to FY2025, the RHB team writes
UOB Kay Hian is still positive on Singtel as they see the telco’s fundamentals remaining intact. “With a decent yield of 5.9% for FY2023, Singtel remains an attractive play against elevated market volatility, underpinned by improving nearto medium-term fundamentals,” UOB writes. To it, a successful monetisation of 5G, data centres or NCS, and the resumption of regional roaming revenue are all key re-rating catalysts.
Meanwhile, Maybank Securities and PhillipCapital have kept their “buy” and “accumulate” calls but with lower target prices. Maybank Securities has lowered its target price to $3.10 from $3.15 while PhillipCapital’s target price is now at $2.84, down from $3.05.
Maybank also cut its core earnings forecast for FY2023 to FY2025 by 3% to 8% after factoring in slower growth momentum at Optus, near-term challenges at NCS and regional currency headwinds.
Calling the 3QFY2023 a “challenging quarter”, Singtel’s 9MFY2023 patmi missed Maybank’s expectations at 74% of its full-year estimates. He expects operating profits from NCS and Optus to see further challenges as they scale up in digital capabilities, impacting future core ebitda growth.
That said, Singtel remains Maybank’s sector pick, especially during the post-Covid-19 recovery period, as it sees China’s reopening continuing to support the rebound in mobile roaming. The uplift in average revenue per user (ARPU) from 5G services while rewarding investors with special dividends is another factor in the telco’s favour, says Tan.
PhillipCapital sees currency headwinds “everywhere” as Singtel’s revenue for the 9MFY2023 stood within his expectations at 73% of his fullyear estimates. 9MFY2023 ebitda was below 67% of his full-year estimates.
In addition to his lower target price, Phillip has reduced its FY2023 revenue and ebitda estimates by 5% and 7%, respectively, as it lowers its AUD assumptions by 10%. “Earnings growth continues to build up in India and Singapore. Weaker segments are sluggish earnings in Optus and NCS,” writes Phillip. — Felicia Tan
