935 Brokers' Digest

Phillip Securities is maintaining its “accumulate” call on Dasin Retail Trust with a price target of 91 cents, even though its 1Q2020 revenue and net property income (NPI) came in below Phillip Securities’ forecast.

Dasin Retail Trust’s revenue for 1Q2020 ended March 31 fell 21.0% y-o-y from 1Q2019, due to lower turnover rent and $6.0 million in rental rebates offered to tenants in February and March.

The delayed acquisition of Shunde Metro Mall and Tanbei Metro Mall, which is estimated to be completed in 3Q2020, did not contribute to the earnings as expected. The trust’s distribution per unit (DPU) plunged 58.3% to 0.71 cent for 1Q2020, from 1.70 cents the year before.

“The joint acquisition of Shunde Metro Mall and Tanbei Metro Mall was approved at the EGM on 20 December 2019. We were anticipating a mid-1Q2020 completion. However, the Covid-19-induced volatility in the global markets has resulted in delays in the private placement, and consequently the completion of the acquisition,” notes Phillip Securities. “Financing of the acquisition has been adjusted in light of the depreciation of share price and weakening of the Singapore dollar against renminbi. We think the acquisition is headed for a 3Q2020 completion,” it adds.

The research house has reduced its DPU estimate for FY2020 by 16.9% to 5.2 cents after factoring in a total of $7.9 million (an additional $1.9 million was granted to tenants in April) in rental rebates for FY2020 and lower rental reversions.

Phillip Securities says it remains positive on Dasin Retail Trust for its inorganic growth prospects with rightfor-first-refusal pipeline for 18 properties in four cities, which will help to mitigate the DPU gap.

Dasin Retail Trust is also liked for its healthy portfolio metrics, which are underpinned by assets with an occupancy rate of 96.8%, and a weight average lease expiry (WALE) of 4.5 years. However, due to the shorter operating hours owing to the Covid-19 pandemic, the trust’s turnover rents for March and April stood at 37% and 32% below 4Q2019 levels. Portfolio occupancy also fell by 2.0 percentage points q-o-q to 96.8% on nonrenewals and vacant space due to ongoing asset enhancement initiatives (AEIs).

“We expect Dasin to acquire two to three more assets in order to maintain a DPU yield of about 8% by the time the distribution waiver falls off completely in FY2022. As such, we raise our terminal growth rate from 0.5% to 1.5% to better reflect the pace of acquisitions,” says Phillip Securities. — Felicia Tan

ComfortDelGro
Price targets:
DBS HOLD $1.50
UOB KayHian BUY $1.82
Maybank Kim Eng BUY $1.98
Phillip Securities NEUTRAL $1.50
Macquarie NEUTRAL $1.67
CGS-CIMB HOLD $1.50
RHB NEUTRAL $1.45

Analysts cut estimates and price targets amid bleak near-term view

The economy is slowly opening up, but analysts say ComfortDelGro’s (CDG) recovery could be “gradual” at best.

As such, with lower traffic volume, they have cut earnings and price targets of the land transport operators on a bleak near term outlook.

Both RHB Group Research analyst Shekar Jaiswal and DBS Group Research analyst Andy Sim hav slashed their earnings forecasts for CDG for FY2020 ending December by 19% and 7% respectively, while Maybank Kim Eng Research analyst Kareen Chan has reduced her FY2020 Ebit margin forecast by 50 basis points, to reflect a slower pace of decrease in operating costs.

CGS-CIMB Research analyst Ong Khang Chuen has lowered his FY2020 earnings per share (EPS) forecast by 3.4%, to factor in higher taxi rental rebates but lower service fees and ridership for public transportation.

DBS’ Sim says continued calls for safe distancing and work-from-home arrangements are likely to limit daily commute, affecting Singapore’s largest taxi operator directly.

“The next few months would still be challenging for CDG, particularly its taxi operations” and as the outlook for public transport services is subdued, he says.

Sim also notes that the company is slated to be excluded from the MSCI Singapore Index from May 29, and this could still put significant pressure on CDG’s share price as index-based funds move to reduce their near-term exposure.

For 1QFY2020, CDG reported earnings of $36.0 million, down 48.9% y-o-y. Revenue in the same period dropped by 9% y-o-y to $862.4 million.

RHB’s Jaiswal says: “With expected near-term earnings weakness and likely slow recovery in business to pre-Covid-19 levels, we see limited catalysts to turn positive on earnings and share price outlook.”

However, Jaiswal notes that CDG’s net cash balance sheet of $26.4 million could be “put to good use” at a time like this, especially since the company does not expect to undertake any new capital expenditure for the rest of the year.

In addition, he says, CDG has available facilities of some $700 million to undertake an “accretive acquisition”.

DBS, RHB and CGS-CIMB are reiterating their “hold” calls on CDG. Both DBS and CGS-CIMB have lowered their target prices for the stock to $1.50, representing a downside of 2.9%. Meanwhile, RHB’s target price of $1.45 represents a 6% downside for the counter.

Maybank has bucked the trend with a “buy” call on CDG, terming the company to be a “beneficiary of post-Covid-19” with a taxi business that will be “on its path of recovery” as safe distancing policies ease. The brokerage has a target price of $1.98 for the stock, representing a 29% upside. — Uma Devi

Singapore Medical Group
Price targets:
RHB NEUTRAL 25 cents
UOB KayHian BUY 43 cents

RHB maintains ‘neutral’ on wider uncertainty RHB Group Research is keeping “neutral” on Singapore Medical Group (SMG) but with a lowered target price of 25 cents, from 35 cents, as uncertainties will persist amid the phased lifting of the “circuit breaker” that will last for months.

In a May 26 report, analysts Lee Cai Ling and Jarick Seet said: “Travel restrictions and closure of the aesthetic business due to the government’s circuit breaker have impacted SMG.” The company relies on overseas patients for between 15% and 20% of its revenue.

In addition, SMG’s aesthetics business has to stay shut, amid lower patient numbers across other clinics. As a result, Lee and Seet have cut their earnings forecast for FY2020 ending December by 47%, and expect a U-shaped recovery in FY2021. They note that SMG has contained costs and will enjoy some support from government grants in terms of wages and rental.

“Barring any unforeseen circumstances, we expect the situation to improve towards the later part of this year with the gradual opening up of the economy,” say Lee and Seet.

Meanwhile, SMG has halved its dividend to 0.4 cent per share, which implies that the company is in cash-conversion mode.

“As at Dec 31, 2019, the group was in a $5.1 million net cash position, coupled with an operating cash flow from 1Q2020 (and support from the government and its landlords), we view the short-term liquidity risk as low. SMG also has debt facilities of at least $9.5 million that are available for drawdown,” say the analysts.

The conversion rights of the $10 million convertible loan was at 42.3 cents, 80% in excess of the recent share price. SMG’s largest shareholder, CHA Healthcare Singapore, informed the group it will not be exercising the conversion right.

The convertible loan of $10 million — drawn down on June 4, 2019, for the main purpose of M&A — was largely unutilised. This has caused a negative carry of $0.3 million (at 3.5% per annum), in addition to $0.3 million in loan-related expenses. — Samantha Chiew