939 Brokers' Digest

CGS-CIMB Research has initiated coverage on Malaysia-based, Singapore-listed glove manufacturer UG Healthcare Corporation (UGHC) with an “add” or “buy” call and target price of $1.36.

UG Healthcare has its own global downstream distribution network and distributes its proprietary “Unigloves” brand to over 50 countries.

In a June 23 report, analyst Ong Khang Chuen says he likes UG Healthcare’s undemanding valuation and own brand manufacturing (OBM) model, which allows for a higher average selling price (ASP) hike potential amid the strong glove demand during the Covid-19 outbreak.

In view of the surge in demand due to the pandemic, UG Healthcare has been able to raise its selling prices. “We estimate that UGHC was able to raise price hikes for its OBM (which accounts for around 70% of sales volume) gloves by 10% each month since February 2020,” Ong says.

“On the back of the strong ASP increases and higher sales volume, we forecast that UG Healthcare will see top line growth of 42.2%/29.5% y-o-y in FY2020F/2021F respectively,” he adds.

While the company’s net margin fell to 2.4- 5.6% in FY2017 to FY2019 compared to 9.3% in FY2016 on the expansion of its downstream distribution platforms, its OBM business is expected to help lift profitability.

“(We) forecast UG Healthcare’s EBITDA margin expanding 6.8%/7.7% points y-o-y in FY2020F/2021F on the back of higher ASPs, lower raw material prices, and cost savings from internal efficiency enhancements and better economies of scale,” says Ong.

He also estimates that UG Healthcare’s net profit will jump nearly 11 times to $9.1 million for 2HFY2020, to hit a full year earnings quadruple that of the preceding year. — Felicia Tan

Wilmar International
Price target:
RHB Research “Buy” $4.87

One step closer to IPO for Wilmar’s subsidiary Yihai Kerry

RHB Group Research is reiterating its “buy” call on Wilmar International with a new target price of $4.87 — from $4.83 previously — as it is one step closer to its China listing.

Wilmar’s subsidiary Yihai Kerry was amongst the first batch of 32 companies selected for Shenzhen Stock Exchange’s (SZSE) growth enterprise market (GEM) board pilot registration system for listing.

Wilmar’s management has also previously guided that the IPO process would likely be hastened under this programme. The removal of the IPO valuation cap under the new rule also creates potential upside for its value.

As at June 22, Wilmar has submitted an updated draft prospectus to the SZSE for its review and approval. According to the new GEM stock issuance and listing review rules, the total time SZSE takes to review the new listing and register with the China Securities Regulatory Commission (CSRC) should not exceed three months from the date it accepts the application documents. Issuers and sponsors are also required to respond to SZSE inquiries within three months.

Wilmar maintains its timeline guidance on the IPO and targets to receive listing approval in 2H2020.

In a June 24 report, analyst Juliana Cai says: “Given that Yihai Kerry has previously undergone one round of review by CSRC, we believe the audit inquiry process with SZSE would be smoother this time and the approval could be hastened.”

Under the new listing rules, Yihai Kerry may have potential for a higher IPO valuation as the IPO price will be decided by the market. It will not be bound by any IPO valuation cap.

“We note that Yihai Kerry has highlighted an indicative use of proceeds amounting to RMB13.87 billion ($2.72 billion) in its prospectus. Since Wilmar plans to float 10% of Yihai Kerry, the indicative proceeds translate to a market capitalisation of RMB138.7 billion and imply 25.6 times FY19 P/E,” says Cai.

The IPO price has not been set yet. Hence, there could be room for higher IPO valuation to be achieved, given that China consumer peers are trading at about 34 times FY2020F P/E.

While management has repeatedly highlighted that it would leave some upside for IPO investors, the new rules allow stocks to trade with no up or down limit on the first five days of listing. Therefore, Yihai Kerry could quickly rerate to a peer average even if the IPO valuation multiple was set conservatively.

“We believe the IPO would draw substantial interests due to its large capitalisation, aside from its strong household name in China’s consumer packed edible products,” adds Cai. — Samantha Chiew

Yoma Strategic Holdings
Price target:
PhillipCapital “Buy” 46 cents

PhillipCapital initiates coverage on Yoma with ‘buy’ on ‘stellar growth’ in financial services

PhillipCapital has initiated coverage on Myanmar-based investment company Yoma Strategic Holdings with a “buy” call and a target price of 46 cents. The call comes as the Myanmar conglomerate has its feet firmly placed in the country’s most attractive and fast-growing consumer segments — namely mobile finance, property, food and beverage (F&B) and motor vehicles.

Analyst Tan Jie Hui identifies five investment merits for Yoma: Attractive valuations, possession of a huge land bank of 20 million sq ft equivalent to 10 to 15 years of sales, stellar growth in the financial services, its status as the largest F&B operator in Myanmar and infrastructure improvements in the country. These merits could also benefit Yoma’s heavy equipment and motor segment. She expects Yoma’s revenue for FY2020 and FY2021 to reach $108.2 million and $113.3 million respectively.

Yoma currently generates its revenue through property, F&B, motors and financial services, with property development being the biggest contributor. However, Yoma is seen to drive more growth from its financial services and F&B business, says Tan.

For now, Yoma’s property arm Yoma Land boasts one of Myanmar’s largest land banks at 9.3 million sq ft and 20 million sq ft of gross floor area. It also has three strategically located flagship developments — StarCity, Yoma Central and The Peninsula Yangon and Pun Hlaing Estate. The land bank will be developed progressively over the next 10 to 15 years.

Yoma Financial Services oversees Yoma Fleet, one of Myanmar’s largest vehicle leasing and rental operators, and Wave Money, the country’s first and leading provider of mobile financial services (MFS) that is licensed to provide services such as money transfers, airtime top-ups and bill payments.

Yoma F&B — which is made up of the restaurants (including 45 KFC outlets), bottling and logistics segments — is the largest F&B platform in Myanmar. The company also has interests in food and vehicle distribution.

In March this year, Yoma Micro Power (YMP), one of its joint ventures finished building 250 micro solar-hybrid power plants which will help power rural Myanmar. Rural households can pay for their utilities via cash or Yoma’s Wave Money.

According to Tan’s sum-of-the-parts valuation, and upon applying a 20% conglomerate discount, he reached a target price of 46 cents for the stock.

In November 2019, Ayala Corporation — one of the largest conglomerates in the Philippines — acquired a 20% stake in Yoma at 45 cents a share, valuing the company at $1.06 billion. — Felicia Tan