926 Brokers' Digest

According to DBS Group Research, supermarket sales will continue to rise as customers are forced to spend more time at home. Sales are also expected to be bolstered by spates of panic buying.

In this light, analyst Alfie Yeo believes that Dairy Farm International (DFI) is one stock to watch as a defensive play on the back of resilient demand.

Yeo attests that, having plunged some 22% since the brokerage’s last update on March 6, the counter is now “attractively valued”.

With low risk of a dividend per share (DPS) cut, DFI also offers an “attractive” dividend yield of more than 5%, he adds.

“Given that earnings would be supported by brisk sales during the Covid-19 outbreak, we believe downside for the stock is limited,” says Yeo in a March 25 report. “A prolonged outbreak would continue to sustain demand for food and healthcare products as well.”

As retailers around the world fall prey to supply chain disruptions, Yeo argues that DFI could well be a rare exception as its suppliers have varied procurement sources and are flexible enough to switch products or sources when required.

The way Yeo sees it, the group’s appointment of a new CEO in 2017 marked the beginning of a revival.

“We expect store performance to improve especially in Southeast Asia, as the new CEO implements plans including product range expansion, space management, pricing strategy, and consolidated sourcing,” the analyst says.

However, Yeo is choosing to remain fairly cautious on this development for the time being, as these strategies will take time to implement and reap benefits.

The brokerage is raising DFI’s earnings forecasts for FY2020 and FY2021 by 3% each, on the back of expectations that sales are going to be brisk for the group’s supermarket, as well as health and beauty segments. — By Uma Devi

Bumitama Agri
Price targets:
38 cents DOWNGRADE NEUTRAL (RHB Group Research)
78 cents BUY (Maybank Kim Eng Research)
60 cents BUY (UOB Kay Hian Research)

Golden Agri-Resources
Price targets:
12.5 cents DOWNGRADE SELL (RHB Group Research)
22 cents HOLD (UOB Kay Hian Research)
21 cents UPGRADE HOLD (CGS-CIMB Research)

RHB Group Research is downgrading its ratings for plantation players Golden Agri-Resources (GAR) and Bumitama Agri (BAL) on the back of lower crude palm oil (CPO) price assumptions.

From “buy” calls on both counters previously, the research house is cutting GAR to “sell” and lowering BAL to “neutral”.

RHB is also slashing its target price for GAR by half to 12.5 cents.

“After imputing our revised CPO prices assumptions, we cut our FY2020F earnings by 55% and FY2021F-2022F by 15-16%,” says RHB’s research team in a March 24 report.

“While the weakened CPO prices are partly buffered by Golden Agri’s downstream segment, valuation seems expensive versus peers – it is currently trading at a hefty 28 times [price-to-earnings], even after its recent price retracement,” RHB adds.

Meanwhile, BAL is getting its target price slashed by even more. RHB now has a target price of 38 cents on BAL, some 55% lower than the previous target of 85 cents.

“Bumitama, being a pure planter, would suffer from the weaker CPO prices more than its peers who have downstream operations,” says RHB in a separate report on March 24. “After imputing our revised CPO price assumptions, we have cut our earnings for FY2020-2021 by 16-30%.”

The lower forecasts come on the back of the research house lowering its CPO price forecast to RM2,400 per tonne for 2020, from RM2,600 per tonne previously.

The CPO price forecasts for 2021 and 2022 remain intact at RM2,500 per tonne.

However, the brokerage warns that CPO prices could fall to the “worst-case scenario” of between RM2,000 per tonne and RM2,200 per tonne.

“Our worst-case scenario for demand is still a possibility if Covid-19 is not arrested by end-2020 and crude oil prices do not recover in 2H2020 as projected by our inhouse crude oil forecasts,” RHB says. — By Stanislaus Jude Chan

Jumbo Group
Price targets:
18 cents DOWNGRADE HOLD (DBS Group Research)
32 cents DOWNGRADE HOLD (UOB Kay Hian Research)

DBS Group Research is quickly losing its appetite for Jumbo Group, as the seafood restaurant chain faces a slowdown in China as well as additional travel restrictions and safe distancing measures in Singapore.

The outbreak, and the resultant measures, are expected to put a dent in Jumbo’s earnings for FY2020 ending September. Its China business is also expected to slip back into the red.

“We were sideswiped by the rapid deterioration and severe restriction arising from Covid-19. While share price has taken a severe beating, we believe it could take time for operations to normalise,” says analyst Alfie Yeo in a March 25 report.

DBS is downgrading its recommendation for Jumbo to “hold”, from “buy” previously, and slashing its target price by 52.6% to 18 cents.

Factoring in lower revenue traction from Singapore and China, outlet rationalisation, and lower margins on relatively fixed operating costs, Yeo is cutting the group’s earnings estimates for FY2020 and FY2021 by another 31% and 58% respectively.

“We estimate that more than half of Jumbo Seafood Singapore’s customers are tourists.

And with restriction on short-term visitors to Singapore, this would have a deep implication on its operations,” says Yeo. “We see Jumbo as the most exposed of all F&B plays in Singapore to Covid-19.”

Meanwhile, the analyst has also factored in a lower dividend payout ratio as he believes it will be prudent for the group to conserve cash during this challenging period.

“We believe the share price could lag the market if and when the current pandemic blows over,” Yeo says. “That said, its strong balance sheet and cash position – at 7 cents per share as of September 2019, or about 38% of market capitalisation – should see the group weather through this storm.” — By Samantha Chiew