Yangzijiang Shipbuilding (Holdings)
Price target:
DBS Group Research “buy” $2.15
Investment arm to be spun off aims for ROE of 8%– 10%
DBS Group Research has reiterated its “buy” call and $2.15 target price on Yangzijiang Shipbuilding (Holdings), with the impending spin-off of its investment arm. “The listing of the investment arm improves corporate governance and catalyses the re-rating of its shipbuilding business,” notes DBS on April 12.
Yangzijiang Financial Holdings (YZJFH) is the investment arm that is now part of YZJ, one of the largest private shipbuilders in China and a component stock of the Straits Times Index.
YZJFH will commence trading on April 28, following a distribution in specie to existing shareholders of YZJ. It is aiming for a return on equity of 8% to 10%.
The management of YZJFH, headed by chairman Ren Yuanlin and CEO Vincent Toe, is also aiming to pay at least 30% of its earnings in the form of dividends for FY2022 to FY2024. YZJ has a December year-end. Assuming earnings of $400 million, that will imply a payout of 3 cents per share, notes DBS.
As an asset manager, YZJFH’s initial pool of capital and funds will be from what has been accumulated by YZJ over the years. It has added an external pool of around $500 million to its AUM, with a target to grow this by 20% a year.
In spinning off YZJFH, YZJ has an initial portfolio of assets worth some $4.2 billion or $1.08 per share. Out of this, 70% of the assets are in the form of debt investments and the remaining 30% in cash. The company plans to reduce the proportion of debt investments to 50% by end of this year and further reduced it to 30% by end of 2023 — that is when the bulk of the debt investments mature.
The assets will be redeployed to other investment and wealth management activities, which, according to DBS, will lean more towards private or alternative assets. Such asset classes suffer from lower liquidity but can potentially give higher returns. YZJFH plans to have around 20% of its portfolio in liquid assets and 10% in specialised real estate.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
According to the company, China, its home market, will be allocated 50% of its portfolio, with the rest of the world such as Southeast Asia, the US and Europe sharing the remaining half. Within China, half the assets will be in fixed income and the remaining half in equities. YZJFH has no debt now and plans to keep it this way.
YZJFH has already drawn EDB Investment and Alexandrian Worldwide as two of its strategic investors and the company is in talks to bring onboard more.
If YZJFH trades below its book value of $1.08 per share when listing commences, it will start buying back its own shares “for an immediate boost to returns”.
Assuming a price to book value of 1.3x for YZJ’s shipbuilding business, 1x for its shipping operations and 0.7x for the investment business, YZJ’s current market cap of $6.1 billion reflects a discount of $2.6 billion. - The Edge Singapore
Sembcorp Industries
Price target:
Credit Suisse “outperform” $3.30
Higher target price on favourable gas market developments
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Credit Suisse analyst Shaun Tan has kept his “outperform” call on Sembcorp Industries. He sees the utilities company, which is the biggest gainer among all 30 Straits Times Index component stocks this year, enjoying a bigger advantage in its business of importing natural gas.
Come 2023, one of the piped natural gas contracts between Singapore and Indonesia might not be renewed. Sembcorp Industries, one of the existing importers of piped natural gas, has an existing contract that will last till 2028.
Currently, Singapore relies on natural gas for some 95% of its power needs, while it tries to grow the proportion of renewable energy.
Within the natural gas market, Singapore uses both liquefied natural gas as well as piped natural gas, which is cheaper.
Assuming the other supplier’s contract is not renewed next year, Singapore will need to lean more heavily on LNG. This means Sembcorp Industries’ existing PNG business will enjoy a bigger cost advantage.
“Sembcorp Industries’ fuel cost advantage for its Singapore power generation business vs market could be larger going forward,” writes Tan in his April 11 note.
Separately, Sembcorp Industries has been investing heavily in renewable energy in markets such as China and India.
“The ongoing green transition, favourable Singapore electricity dynamics, undemanding valuation and attractive risk-reward keeps us positive on SCI,” says Tan.
He has adjusted his FY2022 to FY2024 earnings estimate for Sembcorp Industries by 5%–13% to take into account the better earnings seen from its Singapore operations, along with a higher target price of $3.30 from $3 previously. Sembcorp Industries has a December year-end. - The Edge Singapore
Venture Corp
Price target:
UOB Kay Hian “buy” $22.80
Positive on long term growth
UOB Kay Hian analyst John Cheong is keeping his “buy” call on Venture Corp with an unchanged target price of $22.80.
He remains positive on the blue-chip contract manufacturer’s long-term growth, strong balance sheet and generous dividends — all which will help protect the downside to its share price.
According to Cheong in his April 7 note, Venture Corp has an attractive valuation of FY2022 ending December ex-cash P/E of 13x, compared to its clients’ average P/E of 29x. Its dividend yield of 4.6% is also attractive, in his view. Its known key customers include NCR, Agilent, Philip Morris and they are all expecting revenue to grow in this current FY2022.
As at end 2021, Venture’s reported net cash of $808 million accounts for around 15% of its market cap. Its net cash position led the pack of its US-listed peers, which were mostly in net debt positions.
“More importantly, Venture has consistently paid the same amount of dividends or better than that in the preceding years,” notes Cheong. In FY2021, the company plans to pay a full-year dividend of 75 cents per share.
In its latest annual report, Venture has stressed its bullish outlook with exciting future plans, as well as a strengthened management team that shows its clear succession plans, notes Cheong.
Since its establishment in 1989, Venture has already seen three decades of growth with more to go. “We believe that Venture is at the crossroads of yet another transformation,” says Cheong. “Over the years, Venture has gained good traction in selected ecosystems of interests, becoming a leading technology partner of choice for over 100 global companies. It manages a portfolio of more than 5,000 products in the space of life sciences, medical equipment, lifestyle and wellness, test and measurement, networking among others.”
“With the post-pandemic climate accelerating advancements in selected high-growth technology domains, Venture is excited about the opportunities it can leverage to capture value,” he adds.
Following its various achievements in new product introductions in 2021, 2022 looks set to become another exciting year for the group. This includes the launch of a new platform of next-generation devices which are expected to come to market in the same year.
“Positive market momentum is also visible in other domains, where VMS has a strong foothold, namely instrumentation, test & measurement, networking & communications, advanced industrials, and semiconductor-related equipment,” says Cheong.
Venture’s clear succession planning with an experienced management team is another positive. The group, in November 2021, announced several changes to its leadership team including the appointment of its new CEO, Lee Ghai Keen. Lee had been with the group for over 20 years and had led its research and development (R&D) efforts and global operations over the years.
Wong Chee Kheong, who was previously the senior vice-president of Venture’s healthcare and wellness business, global supply base management & IT, is now the group’s new COO. — Felicia Tan
Sheng Siong Group
Price target:
RHB Group Research “neutral” $1.51
FY2022 earnings likely to ease
RHB Group Research analyst Jarick Seet has kept his “neutral” call on Sheng Siong as he expects the supermarket operator’s future sales and profitability to further normalise as economic activities resume.
Seet has also kept his target price unchanged at $1.51, based on its FY2022 ending December P/E of 19x. Seet’s target price also represents an upside of 0% from the counter’s current share price.
Amid the easing Covid-19 restrictions and the transition into living with Covid-19 as an endemic, Seet expects Sheng Siong to post a 9.7% y-o-y decline in its earnings for FY2022.
The lower earnings are also partially attributable to the higher cost of goods on the back of rising inflation, the analyst writes in his April 11 report.
“We expect future sales and profitability to further normalise as normal economic activities resume, especially when borders reopen and more people continue their travel plans – this is likely to happen over the remaining course of this year,” says Seet.
“That said, Sheng Siong’s normalised profit levels will likely remain higher than that of the pre-Covid-19 period, in our view, as the company will likely continue to open more stores both in Singapore and China,” he adds.
Sheng Siong is likely to continue its expansion into China as its Chinese subsidiary continues to be profitable. The group’s management is also working on nurturing the growth of its supermarket operations in Kunming, where it currently has four stores, says Seet.
In 1HFY2022, Sheng Siong will see two stores begin operations from the three leases it secured in 2021. Its management will continue to search for suitable retail spaces in Singapore, particularly in areas where the group does not have a presence in, notes the analyst.
“Management is also committed to diversifying its supply sources to reduce risks of disruptions and ensure stable input prices,” he writes.
Further to his report, Seet sees inventory shortages in the event of major supply chain disruptions as one of the group’s downside risks. The inability to find affordable areas to lease as well as price wars from its competitors are also key risks to Sheng Siong’s share price. — Felicia Tan
Singapore Telecommunications
Price target:
Maybank Securities “buy” $2.98
NCS’s acquisitions to help contribute
Maybank Securities analyst Kelvin Tan is keeping “buy” on Singapore Telecommunications (Singtel) after the recent spate of acquisitions made by its wholly-owned subsidiary, NCS.
On March 7, NCS acquired The Dialog Group, Australia’s largest privately-owned IT services company, for A$325 million ($325 million), followed by A$290 million paid for ARQ Group. “Integrating digital, cloud and platform services (NCS NEXT) with existing capabilities should support higher margins,” says Tan in his report dated April 7, where he kept his $2.98 target price.
In addition, Tan sees NCS as riding on a multi-year trend, with countries in Asia Pacific only realising the need to digitalise recently.
According to the International Data Corporation (IDC), 28% of organisations in Asia Pacific are in the most progressive stages of digital transformation maturity.
“The three sectors that currently drive NCS’s business are: healthcare & transport; financial, industrial and commercials; and communications, media and technology. This has led to an unprecedented demand surge for digital and technology services, accelerated by Covid-19,” Tan writes.
“While projects can be deployed within three to five years, adapting to change can be slow, extending the runway,” he adds.
With NCS building new capabilities and expanding its business as a pan-Asian B2B digital service provider, Tan is expecting NCS’s ebitda margin to widen on higher-margin cloud services.
“Ebitda has been on the rise and is currently at 10% of Singtel’s group ebitda,” he notes. “This is a positive, but we see upside if NCS can demonstrate: comparable growth in bookings as peers; faster-than-expected revenue growth; and sustained margin expansion as Next’s services form a bigger proportion of NCS’s revenue.”
On Singtel’s ebitda as a group, Tan is forecasting group ebitda to register a 5.9% CAGR over the FY2021 to FY2023 due to the recovery in earnings following the Covid-19 pandemic. The group has a March year end.
“Pre-tax associate income could contribute to [Singtel’s] bottom line by growing 27% over the same period, led by Bharti’s swing to net profit from net loss,” the analyst writes. “We expect net debt to EBITDA, including associate dividends, to remain healthy at 1.6x–2.2x in FY2021–FY2023; providing support to its fixed dividend per share (DPS) commitment.”
To this end, Tan says he continues to like Singtel’s ability to capitalise on regional leadership via exclusive tie-ups with private, public and associates’ businesses; drive new growth engines and unlock infrastructure asset value to drive growth.
Upside factors identified by the analyst include strong growth in enterprise and Digital Life to positive operating leverage; stronger–than–expected average revenue per user (ARPU) due to easing in price competition in countries it operates in; and faster-than-expected monetisation of 5G development.
Meanwhile, downside factors include the possibility of a failure to monetise the 5G development, further wireless margin compression triggered by competition in Singapore or Australia, and worse-than-expected cannibalisation of wireless voice, SMS and roaming by data. — Felicia Tan
Genting Singapore
Price target:
RHB Group Research “buy” 95 cents
Reopening play with dividend upside
RHB Group Research has kept its “buy” rating on Genting Singapore with an increased target price of 95 cents from 90 cents, which is based on an EV/ Ebitda of 8.5x from 7.9x previously.
“The higher multiple reflects Genting Singapore’s better and more certain prospects, as Singapore begins to treat Covid-19 as an endemic, reducing the probability of more future strict lockdowns,” writes the team in its April 8 report.
The government has allocated $500 million to promote Singapore’s reopening and Genting Singapore will be a beneficiary, as both leisure and business travellers are drawn back.
“We believe the pent-up demand for international travel will drive the return of tourists from Genting Singapore’s traditional markets in Asean and Northern Asia, which account for approximately 60%–70% of its visitor numbers prior to the pandemic,” says the team.
In addition, expansion plans for Resorts World Sentosa, also known as RWS 2.0, is said to be ready in 2025, following the delay caused by Covid-19. At this juncture, Genting Singapore has spent $900 million on the project, and earmarked $400 million in capex for 2022.
At the same time, potential cost escalations due to the surge in construction cost may lift its $4.5 billion guidance. “We note that the majority of the costs will likely be backloaded in 2HFY2024 ending December 2024 and FY2025,” says the team. “While plans for funding are not set in stone, Genting Singapore will likely tap on internal resources and cash balance of net cash: $3.1 billion for 4QFY2021 for this.” Genting Singapore has a December year end.
Genting Singapore was bidding for Yokohama’s integrated resort and had husbanded net cash of 38 cents per share in preparation. The programme was eventually cancelled. RHB believes that Genting Singapore will eventually pay a dividend at a pre-pandemic level of 4 cents per share.
“Nonetheless, given the unpredictable recovery path, we conservatively estimate DPS at 2–3 cents for FY2022–FY2023 but do not rule out further upside should the recovery outlook become clearer,” says the research team.
Some key risks the research team considers include the possibility of re-closure of borders and broader regulatory risks. “While Genting Singapore’s recovery play is well-documented, we believe investor interest in the stock may pick up once earnings recover,” says the team. — Chloe Lim
AEM Holdings
Price target:
CGS-CIMB “buy” $6.85
Top pick of the sector
CGS-CIMB Research analyst William Tng has maintained his “buy” call with an unchanged target price of $6.85 on AEM Holdings, after global semiconductor sales have grown for the 11th straight month.
According to the Semiconductor Industry Association, global semiconductor industry sales grew 32.4% y-o-y (3.4% m-o-m) to US$52.5 billion ($71.4 billion) in February. This was also a 3.4% m-o-m increase from January’s figure of $50.7 billion.
Industry leader Intel Corp, which is AEM’s key customer, has laid out a product roadmap that includes the Intel Arc graphics family of chips for laptops, with variants for desktops and workstations to follow later this year.
Intel also provided its product roadmap for data centre chips, where it announced that it will launch its so-called “Sapphire Rapids” chip in 1Q2022 and “Emerald Rapids” in 2023. The chipmaker’s “Sierra Forest” and “Granite Rapids” chips will come in 2024.
As such, Tng says potential re-rating catalysts for AEM are upward revisions to revenue guidance in the coming months and further new customer wins, while upside to his FY2022 earnings forecast could come from potential accretive M&As. He sees AEM as his top pick for the sector. AEM has a December year end.
On the other hand, some downside risks are delivery delays due to lockdowns or movement restriction extensions such as the one in Shanghai, order pushback by customers and margin pressure arising from higher operating costs.
One “company specific risk”, Tng identifies, is an arbitration order filed against AEM in the US, which, according to the company’s preliminary analysis, appears to lack factual or legal support. Furthermore, the arbitration is still in the early stages and the claimant has not quantified their demands.
The arbitration hearing is expected to conclude in 2023 although AEM’s management has guided that its operations remain unaffected by the arbitration. — Lim Hui Jie
