Jardine Matheson
Price target: CGS-CIMB “add” US$48.61
Lower than expected earnings but balance sheet remains strong
No thanks to a US$1.2 billion ($1.62 billion) cut in the fair value of its investment properties, Jardine Matheson has reported losses of US$775 million for 1HFY2020. Its underlying net profit of US$373 million for the same period has fallen short too. Yet, CGS- CIMB analyst William Tng has upgraded the Hong Kong-based conglomerate to “add” from “hold”, on optimism that its strong balance sheet can help see it through the uncertainties arising from Covid-19 and that earnings uncertainty has already been priced in, writes Tng in his July 31 report.
Jardine Matheson holds stakes in various other listed entities, all of whom suffered from some form of pressure. Hong Kong Land’s Hong Kong office portfolio saw a 5% vacancy at the end of 1H2020 compared to FY2019’s 2.9%, while its Singapore office portfolio saw positive rental reversions and 1.5% vacancy at the end of 1H2020 compared to the 5% in FY2019.
Excluding the gain on the disposal of its investment in Permata Bank, Astra’s net profit fell 44% y-o-y when measured in the Indonesian rupiah mainly due to lower contributions from its automotive, financial services and heavy equipment and mining businesses.
Dairy Farm International’s sales fell 9% y-o-y, while underlying profit fell 40% y-o-y due to lack of international tourists in Hong Kong and social distancing measures in Southeast Asia.
Tng has also reduced the company’s target price to US$48.61 from US$52.53 previously, and cut earnings per share estimate for FY20F by 29.8%.
The target price, according to Tng, is still based on 0.78x FY20F price-to-book value (P/BV) which is 0.5 standard deviation below its historical 20-year average P/BV.
Tng has also cut Jardine Matheson’s EPS for FY2021F- 2022F by 7.7% and 1.3% respectively. “Our FY2020-2022F earnings cuts reflect the downward revisions for its operat- ing subsidiaries given the uncertainties from the Covid-19 outbreak,” he adds. — Felicia Tan
Singtel
Price target: DBS “buy” $3.04
Will associates lend a helping hand?
DBS Group Research is reiterating its “buy” call on Singtel, but with a lowered target price of $3.04, from $3.09. Analyst Sachin Mittal said the revised target price is largely due to continued weaknesses in Singtel’s Australian and Singapore businesses. Contributions from Australia to the group’s bottom line is likely to be affected by the sharp sequential decline of National Broadband Network (NBN) migration fee, coupled with roaming weakness, but this will be partly offset by lower handset losses.
Home market Singapore is unlikely to see fair weather either as both roaming and prepaid revenues will continue to be suppressed by travel restrictions. Enterprise revenues too are likely to suffer from projects put on hold.
Yet, Singtel’s investment in its associates is worth $2.57 per share based on their market value, which is higher than its current market price. This implies that Singtel’s holdings in Singapore and Australia are trading at a negative value of –9 cents per share.
However, this will be partially offset from lower losses by associate Bharti, and contributions from associates are likely to remain stable, given that a reduction in losses from Bharti will offset potentially weak results from Globe and Telkomsel.
On the other hand, Globe’s results are expected to decline in 1QFY2021 from the spike in results experienced in 4QFY2020. Globe is expected to contribute $69 million (–18% q-o-q, +4.4% y-o-y) in 1QFY2021.
Meanwhile, Telkomsel’s contributions are likely to remain largely flattish due to continued competitive pressure from XL Axiata and Indosat which are vying for revenue market share gains in territories outside the main market Java.
On that note, contributions from associates are expected to be stable at $404 million over 1QFY2021, represent- ing a 1% increase q-o-q and 48% increase y-o-y. This will primarily be driven by a $24 million sequential reduction in losses from Bharti with it contributing $17 million in losses, sequential $15 million reduction in Globe’s earnings with $69 million earnings contribution and a $243 million contribution from Telkomsel which constitutes some 60% of total associate contributions to Singtel.
Over in Australia, Singtel also plans to divest its telco towers worth about $1.6 billion to $1.7 billion, and the funds from the deal are expected to be utilised to improve Optus’s 4G regional coverage and to fund its 5G network rollout without further burdening the balance sheet.
Overall, Mittal is positive on the stock. “We expect Singtel to re-rate to 4.5% yield (15-year historic average) in a low-interest environment. In our view, FY2021 projected dividend per share (DPS) of 12.25 cents at 75%- 80% payout ratio is sustainable in the long term,” he adds. — Lim Hui Jie
Singapore Exchange
Price target: CGS-CIMB “add” $9
DBS Group Research “hold” $8.40
PhillipCapital “buy” $9.28
RHB Research “buy” $9.20
OCBC “hold” $8.30
Analysts upgrade on record revenue and dividend surprise
CGS-CIMB Research, DBS Group Research, PhillipCapital and RHB Research have upgraded their calls on the Singapore Exchange (SGX), following its record revenue posted for FY2020 announced on July 30. SGX also surprised shareholders with a higher dividend of 8 cents per share for 4QFY2020, and is guiding for an annualised payout of 32 cents per share, up from 7.5 cents per quarter previously.
To DBS Group Research analyst Lim Rui Wen, the higher dividend increase will be underpinned by decent trading volume amid the volatile market. “SGX’s volume growth in derivatives in the last few years is testament to its execution capabilities,” says Lim, who has upgraded SGX to “hold” from “fully valued”, with a new target price of $8.40, up from $7.40.
For FY2020, the bourse generated a revenue of $1.05 billion, up 15.7% from FY2019 — the highest level since it was listed two decades ago. Earnings in the same period was $472 million, up 21%. For 4QFY2020, SGX reported higher-than-expected earnings of $121 million up 16.6% y-o-y but down 11.9% q-o-q.
CGS-CIMB analyst Ngoh Yi Sin sees SGX’s FTSE Taiwan Index Futures gaining traction and thus helping mitigate loss of other derivative products. She has upgraded her call to “add” with a new target price of $9, from $8.
PhillipCapital analyst Tay Wee Kuang is upbeat about two of SGX’s recent acquisitions, index firm Scientific Beta and FX trading platform Bid-FX. He has upgraded SGX to “buy” with a higher target price of $9.45, up from $9.28.
“Both acquisitions will complement SGX’s current business by expanding its suite of products and present cross-selling opportunities for the company,” says Tay.
RHB analyst Leng Seng Choon believes that with SGX’s monopoly on Singapore equities trading, there’s limited downside risk. However, if the pandemic is prolonged, volumes might decline from what is seen now, says Leng, who is keeping his “buy” call and $9.20 target price.
Meanwhile, OCBC Investment Research warns of “weaker than expected trading volumes and activities”, driven by lowered risk appetite while also noting regional competition pressures and products, fee pressure and risk of market share loss. OCBC has a “hold” call and fair value of $8.30. — Jovi Ho
