934 Brokers' Digest

Leading real estate agency PropNex has reported a near two-fold jump in earnings to $7.6 million for 1QFY2020, as it grabbed a higher volume of commission from marketing new launches.

However, given a weak outlook, coupled with circuit breaker measures, which did not allow show flats to stay open, the number of transactions is seen to drop later this year, leading to a weaker 2HFY2020. “The outbreak has tempered any growth expectations we had for the company,” says Phillip Securities’ Paul Chew in a May 20 note.

As such, while Chew maintains his “buy” call on the stock, he has cut his target price from 70 cents to 60 cents, to better reflect the expected 19% earnings drop for the whole of FY2020.

The stock will enjoy some lift as an emerging dividend play — and is well capitalised to do so. “We believe the company intends to position themselves as a high yield paying stock,” says Chew. To maintain dividends at 3.5 cents per annum requires a payout of $13 million. PropNex’s cash on hand stands at $89 million (up $10 million y-o-y), he notes.

In her May 19 note, CGS-CIMB Research analyst Lock Mun Yee, similarly, is keeping her “add” call on PropNex but with a lowered target price of 62.5 cents from 69.8 cents previously. Overall, she is confident that with Propnex’s strong balance sheet, the company can maintain the 3.5 cents per share dividend this year, which translates into an attractive yield of around 7%. — Samantha Chiew

Centurion Corp
Price target:
DBS HOLD 42 cents

Workers’ dorm under pressure but student dorms buoyant

DBS Research Group is maintaining its “hold” call on dormitory operatory Centurion Corp, but at a revised target price of 42 cents. This is up 1 cent from its previous 41 cent call, analyst Ling Lee Keng says in her May 18 note.

Her move comes as the operator’s late April announcement on allowing residents at its purpose-built student accommodation (PBSA) properties in the UK to terminate their leases early, fetched “lower than expected requests”.

The clause had brought terminations amounting to $5.4 million, the company reported. Collectively, it owns a portfolio of 6,400 PBSA beds mainly in the UK and US but also in Australia, Singapore and South Korea.

Interestingly, Centurion reported a 13% lift in revenue from its PBSA segment for 1Q20, ended March.

This comes on the back of higher occupancies at its dwell Archer House in the UK and dwell East End Adelaide, Australia.

Ling is now looking forward to the segment getting a further lift as Australia and the UK look towards easing travel restrictions, particularly for international students.

The UK for one, has adopted a five-tier alert system for its restrictions — with one indicating a complete easing of restrictions and five being a state of lockdown.

The country is now at level four and is taking steps to move down a rung.

“There are positive signs of strong demand for UK PBSAs with [Singapore Press Holdings] reporting strong bookings for its student dormitories for the academic year 20/21,” observes Ling.

Similarly, she believes its Australia portfolio will bounce back as restrictions are looking to be eased as some areas such as South Australia, open for face-toface lessons. The government is now looking towards a gradual return to face-to-face learning by July 3.

“Centurion could see a quick recovery in bookings and occupancy with the release of pent-up education demand. Based on current restrictions, we expect a 70% FY20F average occupancies for both UK and Australia PBSAs,” she points out.

Conversely, Ling is not as confident of the company’s purpose-built workers’ accommodation (PBWA) operations, which has a portfolio of 28,000 beds, and generated revenue of $22.8 million in 1Q20, up 15% y-o-y.

“With a weaker economy as a result of Covid-19, Centurion may be affected by a reduction in demand for foreign workers and PBWA beds. (Centurion) may also experience an increase in debt delinquencies and longer collection cycles, as its clients’ businesses may be impacted by the crisis,” says Ling, who is estimating occupancy levels of 90% and 85% respectively for Singapore and Malaysia. — Amala Balakrishner

ST Engineering
Price targets:
DBS HOLD $3.40
RHB BUY $3.90
CGS-CIMB ADD $3.86

Weaker aerospace segment but defence business resilient

The Covid-19 outbreak has hurt the commercial aerospace industry. ST Engineering, with a big chunk of exposure to this industry, is likely to suffer.

However, analysts believe the company’s earnings to remain relatively resilient thanks to its defence business.

“The aviation MRO space will be the biggest drag on earnings, as airlines look to defer maintenance spending, flying hours are reduced and new aircraft deliveries slow down. Taking this into consideration, we cut FY2020/2021 earnings by 16% and 18% respectively,” say Suvro Sakar and Jason Sum of DBS Group Research.

ST Engineering saw a promising 1QFY2020 as it ended with a record-high order book of $16.3 billion worth of new contracts — an increase from the $15.3 billion at the end of 4QFY2019. Still, with the company set to face the full brunt of the Covid-19 recession in the coming quarters, Sakar and Sum reckon that the new order run rate could slow down going forward, with management anticipating a 5–15% reduction in topline for FY2020. CGS-CIMB Research analyst Lim Siew Khee, on other hand, expects a smaller 3% y-o-y dip.

With earnings set to decline by 16% and 18% respectively in FY2020 and FY2021, Sakar and Sum have downgraded ST Engineering from “buy” to “hold”, with a lowered target price of $3.40 from $4.60. Nevertheless, they acknowledged that ST Engineering’s earning decline still outperformed other industry peers.

Much of this resilience has arisen from ST Engineering’s significant exposure to the defence industry (30–35% of its revenue), which has been deemed an “essential service” by the Singapore government. Shekhar Jaiswal of RHB Research notes that the long gestation period of the industry and broad product base means that the business is expected to remain steady in 2020. The firm will also ramp up the supply of Hunter Armoured Fighting Vehicle (HAV) under Phase 1 (2–3 years) of a contract with the Singapore Ministry of Defence, with a Phase 2 contract already secured.

RHB’s Jaiswal has kept his “buy call” albeit with a reduced target price of $3.90 from $4.15. CGS-CIMB’s Lim, on the other hand, has an “add” call and price target of $3.86. — Ng Qi Siang