Yanlord Land Group
Price target:
DBS Group Research ‘hold’ 70 cents
Downgrade comes amid continually weak presales and pressure on margins
DBS analysts Jason Lam, Dexter Chun and Ben Wong have downgraded Yanlord Land Group Z25 to “hold” on from “buy” while lifting their target price to 70 cents from 67 cents.
According to the analysts, Yanlord has had continually weak presales performance, with a 52% decrease y-o-y in 1HFY2024 ended June and thinning unbooked sales, as evidenced by a 21% h-o-h decrease to RMB53.6 billion ($9.87 billion).
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
“Development margin will also remain pressured amid the ongoing property downcycle as projects presold at lower margins (10%–15%) enter its profit and loss statement and further inventory impairments are expected up ahead,” the analysts add. They expect Yanlord to record net losses in FY2024 to FY2025 forecasts.
Furthermore, the analysts state that the recent share price rally reduces any incentives to consider value-unlocking options. Yanlord’s share price is up about 13% year-to-date.
The analysts have identified Yanlord’s asset-heavy business portfolio as having meaningful value, with assessed net value reaching approximately $1.13 per share as of June, incentivising its major shareholder to consider full or partial privatisation. However, they think the window for unlocking value has narrowed, as the potential upside may not be as strong following the company’s recent share price rally following China’s shift in policy tone.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
The analysts’ target price is pegged to a 0.2 times one-year forward P/B ratio, equivalent to the average level that Yanlord has traded at during 3QFY2023. — Cherlyn Yeoh
Yangzijiang Shipbuilding Holdings
Price target:
DBS Group Research ‘buy’ $2.88
Dip presents good buying opportunity
DBS Group Research has kept its “buy” call with an unchanged target price of $2.88 on Yangzijiang Shipbuilding after the mainboard-listed group said it stands a “reasonably good prospect of success” against arbitration proceedings levelled against three wholly-owned subsidiaries.
On Oct 12, Yangzijiang Shipbuilding announced that one of its customers had commenced arbitration proceedings on June 10, 2022, and Sept 26, 2022, about the cancellation of 10 shipbuilding contracts amounting to US$900 million ($1.18 billion), which were entered into in November and December 2021.
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In the announcement, Yangzijiang stated that the claimants are seeking US$835 million, comprising the loss of bargain, loss of profits and refund of the payments made by the claimant.
The first tranche of arbitration hearings is scheduled for November 2024.
Based on current evaluations, DBS notes that the group’s legal advisors believe there are no merits in the claims and are highly unlikely to succeed as the quantum of the claim is incorrectly measured and highly inflated.
According to DBS, Yangzijiang continues to have strong arguable defences and the orderings and cancellations had taken place during the Covid-19 period in China when things might not have been normalised.
Historically, DBS has seen cases where the group has worked with customers to help secure financing or alter vessel designs and models.
As such, DBS believes that the dips are a good buying opportunity.
“We continue to see upside catalysts stemming from good order flow, potential capacity increase and margin expansion”, DBS adds, noting that “it also offers [a] decent dividend yield of around 4%.” — Cherlyn Yeoh
Frencken Group
Price targets:
Maybank Securities ‘buy’ $1.54
UOB Kay Hian ‘buy’ $1.77
Recovery expected
Analysts at Maybank Securities and UOB Kay Hian (UOBKH) have kept their “buy” calls on Frencken Group E28 as they expect to see the group posting a gradual recovery across most of its segments moving forward.
While UOBKH analyst John Cheong has maintained his target price of $1.74, Maybank’s Jarick Seet has lowered his target price to $1.54 from $1.77.
Maybank’s Seet notes that the group has not received a large ramp-up in orders in the semiconductor sector. Instead, he believes that the acceleration in orders will likely occur from 2QFY2025 to 3QFY2025.
“We still expect profitability to be stronger in 2HFY2024 versus 1HFY2024, but earnings likely won’t be as strong as anticipated due to slower-than-expected growth in the life science sector,” writes Seet in his Oct 14 report.
He adds: “As a result of higher margins from semi-con and better operating leverage, we expect gross and net margins to improve further, as shown in 1HFY2024 when gross margin rose from 12.3% in 1HFY2023 to 14.8% in 1HFY2024, and net margin jumped from 1.5% to 4.8%.”
Meanwhile, Frencken’s life science segment, which performed well during Covid-19, is showing signs of slowing down.
As a result, although the analyst has cut his FY2024 and FY2025 patmi by 15% and 18%, respectively, Frencken remains his top pick in the Singapore tech sector.
Meanwhile, UOBKH’s Cheong understands that Frencken can leverage on its diverse business segments, as it provides integrated manufacturing solutions for multinational companies in the semiconductor, analytical life sciences, automobile, healthcare and industrial automation sectors.
Like his fellow analyst, Cheong sees a more meaningful recovery in the semiconductor space to arrive only in 2HFY2025.
The group’s automobile segment could also see a slower ramp-up in orders due to some uncertainties of its major customers on whether to focus on electric vehicles or traditional vehicle platforms.
Meanwhile, its industrial automation and healthcare segments are expected to be stable, with some fluctuations for its industrial automation segment.
Overall, Cheong is bullish on the group, noting Frencken’s “diverse exposure to multiple market segments” and its strong balance sheet. — Douglas Toh
Centurion Corporation
Price target:
RHB Bank Singapore ‘buy’ $1.06
Higher target price from better PBWA bed rates and longer-term growth from overseas properties
RHB Bank Singapore’s analyst Alfie Yeo has raised his target price for Centurion Corporation OU8 to $1.06 from 76 cents on the back of better purpose-built workers accommodation (PBWA) bed rates in Singapore and longer-term growth supported by overseas properties.
RHB’s Yeo has kept his “buy” call on the company and raised his earnings and target P/E estimates based on Centurion’s projected earnings for FY2025.
Centurion recently announced that it entered into a framework agreement with accommodation services company Xiamen City Home Apartment Management to establish two joint ventures (JV) to retrofit, renovate and, or manage and operate build-to-rent (BTR) residential accommodation targeting working professionals in Xiamen, located in Fujian province.
Centurion will hold 51% of the JV. Two projects totalling about 1,500 BTR apartments have been identified in central Xiamen under the JV. Both projects have 20-year master leases with the property owners.
Yeo says these overseas developments will support longer-term growth but have negligible impact in the near-term and have left Centurion’s immediate-term growth largely unchanged.
Meanwhile, the group’s PBWA bed rates in Singapore have continued to be robust due to the demand-supply situation, says Yeo, who sees ongoing upward rental reversions lifting average bed rates.
“In view of the strong demand, we raise our Singapore PBWA bed rate assumptions for FY2025-FY2026 by 10%–15% to $400–$450 per bed per month. This results in a +12% and +17% change in our FY2025–FY2026 earnings,” says Yeo.
The analyst also ascribes a higher P/E to his target price to 9 times from 7.5 times, or around +0.5 standard deviation (s.d.) from its historical mean to account for longer-term growth potential in new overseas markets, including Hong Kong and Xiamen. — Nicole Lim
