Wing Tai Holdings
Price target:
DBS Group Research “buy” $2.05
Retail arm growth seen as property potentially softens
DBS Group Research analysts Derek Tan and Rachel Tan have initiated a “buy” call on Wing Tai Holdings, with a target price of $2.05.
According to the analysts’ estimates, Wing Tai is currently trading at a P/NAV ratio of 0.44x, which is at a –1 standard deviation of its pre-Covid-19 P/NAV ratios. The estimated target price is also based on a 50% discount to the analysts’ RNAV of $4.09, translating into an implied P/NAV ratio of 0.51x.
Wing Tai is a property group with development and investment properties in Singapore, Malaysia, Hong Kong, China, Japan and Australia. Its retail arm includes brands such as Mango, Uniqlo, Adidas and G2000.
In their report dated June 27, the analysts are positive on Wing Tai after it substantially sold off its landbank in Singapore with a 95% sell-through rate. This high sell-through rate is good news, as it could shield the group from a potential “multi-year” moderating property market following the property measures imposed by the Singapore government.
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“[Following the high sell-through rate], Wing Tai should see less exposure from a property market that is expected to slow, in lieu of feeling the impact of the recent property cooling measures and upcoming interest rate hikes,” they add. Nevertheless, Wing Tai remains on the hunt to replenish its landbank.
Also, rising interest rates are a potential concern. “We observe that the group has a negative correlation of –0.35 vis-à-vis the Monetary Authority Singapore’s 10-year bond yield, which suggests that rising interest rate environments may not bode well for Wing Tai’s share price,” the analysts write.
“We also observed that during the first leg of interest rate hikes between 2016 and 2018, the group’s share price underperformed its peers, suggesting potential downside risks to its share price with the upcoming rate hikes in 2022,” they add.
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Besides property, Wing Tai’s other key business is its retail arm, which has a joint venture (JV) to run the Uniqlo brand in Singapore. According to Euromonitor, this brand is one of the key market leaders within Southeast Asia’s apparel industry.
Profit generated by Uniqlo’s JVs grew at a six-year CAGR of 11% between FY2015 and FY2021, the analysts note.
In their report, they project the brand’s associates and income from their JVs to grow at a steady CAGR of 9% by FY2025. This, they say, could “support the group’s near-term earnings as Wing Tai builds its property development business”.
Potential catalysts to Wing Tai’s share price, include successful Government Land Sales and en bloc tenders, which could catalyse a further upside to RNAVs.
In addition, potential mergers and acquisitions could act as a positive catalyst, with around $0.7 billion in acquisition firepower based on a gearing ratio of 30%.
Finally, the privatisation of the group could be a catalyst for the longer term, with “similar observations made vis-à-vis the partial offer in 2012”, the analysts write. — Felicia Tan
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Keppel DC REIT
Price target:
DBS Group Research “buy” $2.50
Citibank “neutral” $2.40
Positive on acquisitions in Guangdong
DBS Group Research analysts Dale Lai and Derek Tan have kept their “buy” rating on Keppel DC REIT, with a higher target price of $2.50 from $2.40.
Keppel DC REIT just announced another two acquisitions in Guangdong valued at more than $320 million, following acquisitions in Amsterdam, Guangdong and London in FY2021 ended December 2021, which is estimated to have a 2.6% accretion to the REIT’s distribution per unit (DPU) for the FY2023.
“Amid record low cap rates for data centres globally, Keppel DC REIT continues to deliver acquisitions that are accretive to DPU,” write Lai and Tan. “These accretive acquisitions should add to earnings in addition to organic growth within its existing portfolio.”
While there are near-term challenges in the form of higher interest and utility costs, the bulk of the impact is already factored into the current share price, the analysts note. They expect growing demand for data centres and positive fundamentals in the sector to help Keppel DC REIT return to its organic growth path.
Keppel DC REIT’s current portfolio occupancy of more than 98% is the highest since its IPO in 2014.
Separately, Citibank analyst Brandon Lee has kept a “neutral” rating on Keppel DC REIT, with an unchanged target price of $2.40.
“While data centre cap rates have not expanded like a few other asset classes in other geographies, they also have not compressed, which could facilitate Keppel DC REIT’s future acquisitions in markets where yield spreads remain positive, likely Japan, Europe and China in our view,” says Lee.
The REIT’s current gearing of 36.1% implies $250 million and $630 million of debt headroom before hitting 40% or 45% respectively, which means it has sufficient debt headroom to fund the two aforementioned China data centres purely by debt. “However, it could potentially explore equity fund raising due to potentially more acquisitions,” he adds.
On the whole, despite share price weakness of technology companies, Keppel DC REIT has not seen and does not expect any impact on its business, with demand driven by acceleration of cloud migration and increased prominence of cloud computing, according to Lee. — Chloe Lim
Del Monte
Price target:
PhillipCapital “buy” 69 cents
Lower costs and multiple growth drivers
PhillipCapital’s Paul Chew has maintained his “buy” rating and raised his target price on Del Monte to 69 cents, up from 63 cents, following better-than-expected earnings.
For its 4QFY2022 ended April, Del Monte reported earnings of US$20 million ($27.7 million), up 38% y-o-y, thanks to lower costs and also despite a one-off stock compensation of US$2 million. The company’s final dividend of 1.7 US cents is 42% higher y-o-y.
Earnings for the whole of FY2022 was US$100 million, on the back of a revenue of US$2.34 billion — both of which were slightly ahead of Chew’s forecasts.
Notably, US subsidiary Del Monte Foods Inc (DMFI) registered a four-fold earnings jump in 4QFY2022 to US$19 million, thanks to higher margins and higher revenue of US$411 million, up 25% y-o-y.
Chew says consumer staples are enjoying a lift in demand as US households dine more at home as food inflation escalates. “Households are looking for value and quality home meals, replacing their spending on restaurants as inflation picks up nationwide,” he adds.
On the other hand, Chew expects the demand in the Philippines to remain weak, with revenue dropping 6% y-o-y and earnings sliding 31%, due to a shift in consumer priorities to essential items, away from less-essential food such as canned mixed fruit or packaged fruit.
Overall, free cash flow generated in FY2022 fell to US$66 million, compared to US$163 million a year ago, due to an additional US$135 million in inventory to stock up on raw materials as a hedge from rising prices. Capex, meanwhile, was up US$39 million to US$202 million for expanded capacity.
Chew sees “multiple drivers for earnings growth” in DMFI, namely new products, more distribution channels, higher prices, cost optimisation and food inflation driving more home dining. However, the recovery in the Philippines will be slower as inflation shifts consumption patterns to more staples.
Chew has also raised his earnings estimates for the FY2023 by 9% despite a cut in gross margin assumptions. His P/E valuations have been rolled over to FY2023.
“We increased our discount to industry valuations from 20% to 30%. We believe this is warranted due to the higher gearing and greater exposure to rising interest rates compared to industry peers,” the analyst writes.
“We find Del Monte valuations attractive at an FY2023 P/E of 5x, with a 6% dividend yield,” says Chew, adding that a listing of DMFI would be a re-rating catalyst to de-gear and crystallise higher valuations. — Lim Hui Jie
DFI Retail Group
Price target:
CGS-CIMB “hold” US$2.70
DFI Retail Group (formerly Dairy Farm International Holdings) will likely suffer from weaker margins in FY2022 and perhaps lower earnings, write CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan in their June 24 report. They have kept their “hold” call but lowered the target price to US$2.70 from US$2.90.
“While we think that the worst is likely over for Hong Kong retail sales with easing Covid-related restrictions since late April, and the rollout of the HK$10,000 ($1.765.33) consumption voucher scheme, we continue to see a bumpy path to recovery for DFI,” note Ong and Tan.
“Given HK and Mainland China’s current divergence in their Covid strategies, we see significant challenges to borders reopening in the near term,” they add.
Chinese tourists are unlikely to return in a meaningful volume this current FY2022. Therefore, Ong and Tan expect “further delay” in the earnings recovery of DFI’s health and beauty segment, which, pre-pandemic, was the biggest earnings contributor.
DFI’s margins will be hurt by macro challenges and e-commerce investments too, where higher costs in logistics and utilities are seen.
Such elevated costs have offset revenue gains from segments including grocery retail and home furnishing in 1QFY2022. Ong and Tan expect this to further weigh on margins in the remainder of FY2022.
DFI also intends to further invest in e-commerce capabilities (yuu-to-me in Hong Kong, and Cart in Singapore) as part of its transformation roadmap, they note. “We expect sales and marketing expenses to be elevated in the medium term to drive such initiatives. We now forecast DFI’s operating margin to see further compression of 1.1% points y-o-y in FY2022, lowering operating profit by 32% y-o-y.”
DFI’s stronger associates’ contribution will not be enough to turn the tide, say Ong and Tan.
A bright spot is the potential turnaround in Chinese associate Yonghui in FY2022, given reduced subsidy levels for community group purchase platforms, which has improved the competitive environment, say the analysts.
“Our China consumer analyst forecasts Yonghui to return to profitability in FY2022 (CNY251 million or $52 million net profit, compared to FY2021’s CNY3.9 billion net loss). However, DFI accounts for Yonghui’s contributions with a quarter lag. It will be recognising its share in Yonghui’s 4QFY2021 net loss of CNY1.8 billion in its FY2022 financials. We hence forecast DFI’s net profit to fall 17% y-o-y in FY2022,” write Ong and Tan. — Jovi Ho
ComfortDelGro
Price target:
UOB Kay Hian “buy” $1.73
New Australian contract helps spur higher target price
UOB Kay Hian analyst Llelleythan Tan has kept his “buy” rating on ComfortDelGro Corp (CDG), with a higher target price of $1.73 from $1.66 previously.
Tan’s higher target price, indicated in his June 27 report, is pegged to its average five-year mean P/E of 16.4x. The estimated target price is due in part to higher 2022 earnings forecasts from CDG’s new public bus service contract in Australia’s Northern Territory.
On June 2, CDG’s wholly-owned subsidiary, ComfortDelGro Corp Australia (CDC), was awarded a six-year contract to solely operate public bus services in the Northern Territory. The contract areas cover a significant part of the Northern Territory’s network which includes Darwin and Palmerston, with 170 buses operating across 180 bus routes.
The A$220 million ($211.5 million) contract will commence on July 1 and is estimated to lift the company’s FY2022–FY2024 earnings by 2–3%.
Meanwhile, CDG is seeing improving rail ridership in Singapore due to the government’s relaxation of Covid-19 measures. “From April 26, Singapore’s authorities announced the easing of most of its social distancing measures. Some of the relaxed measures include the removal of group size limits, safe distancing no longer being mandatory and 100% of workers being allowed to return to their workplaces,” says Tan.
“Furthermore, Singapore’s international borders have fully reopened, welcoming back tourists. Backed by a population that is almost fully vaccinated, these favourable tailwinds would help underpin CDG’s public transport and taxi earnings as mobility improves,” he adds.
SBS Transit, CDG’s 75%-owned subsidiary and a public transport operator in Singapore, experienced a strong recovery in rail ridership for May, seeing increases of 56.8% y-o-y and 4.6% m-o-m. This forms 81% of pre-pandemic levels for May 2019.
“We reckon that this is due to more office workers returning to office spaces and the removal of dine-in group size limits. According to [the] Land Transport Authority, passenger demand for point-to-point trips has gradually improved, albeit seeing slight dips due to Covid-19 outbreaks. Overall, we expect rail and taxi ridership to reach near pre-pandemic levels by 1QFY2023,” notes Tan. — Bryan Wu
