SEA
Price target:
CGS-CIMB “buy” US$158.20
Strong topline growth despite Covid-19 tide though profits remain elusive
Tech stocks continue to profit from Covid-19 lockdown measures, as SEA reported strong adjusted revenue growth of 93.4% y-o-y and 40.8% q-o-q. Despite still forecasting a net loss of US$1.418 billion ($1.94 billion) for the fiscal year ended December, CGS-CIMB analysts Ngoh Yi Sin and Darren Ong have maintained their “buy” call with a target price on the NYSE-listed stock at US$158.20 up from US$152.
The results were ahead of the analysts’ full year forecasts following strong growth in SEA’s digital entertainment and ecommerce units, Garena and Shopee, respectively. SEA’s Ebitda of US$8 million beat Ngoh and Ong’s forecast of an US$59 million Ebitda loss.
“SEA made no changes to its earlier FY2020 guidance of US$1.9-US$2 billion gaming revenue and US$1.7-US$1.8 billion ecommerce revenue, but we note that during its briefing call, management seemed confident of outperforming these targets,” note the analysts.
They have also increased their adjusted revenue estimates for FY2020-2022F by 1.5%-19.9% on higher gaming and ecommerce growth.
The success of Garena’s self-developed mobile game Free Fire has seen the gaming arm’s 2QFY2020 adjusted revenue surge 39.8% q-o-q and 61.6% y-o-y to US$716 million. The record popularity of the game has seen 500 million quarterly active users (QAUs) and an exponentially higher paying ratio of 10%, relative to 8.9% in 1QFY2020. As such, Garena’s adjusted Ebitda was up 46.2% q-o-q and 65.4% y-o-y to US$436 million. According to Ngoh and Ong, Garena’s strong content creation of games like Rampage II Uprising and an in-game crossover with Money Heist, as well as its organisation of recurring esports events, will see it sustain strong user momentum into 2H2020.
E-commerce arm Shopee’s 2QFY2020 gross merchandise value (GMV) has also seen a robust 110% y-o-y and 30% q-o-q rise following higher gross orders numbering 616 million. Take-rates have also risen to 6.4% from 1QFY2020’s 5.1% and 2QFY2019’s 4.6% due to higher commissions, advertising revenue and cross-border volumes.
Still, Shopee’s adjusted Ebitda losses widened from US$260 million in 1QFY2020 to US$305 million in 2Q20 due to higher sales and marketing costs.
Seen from another perspective, adjusted Ebitda loss per order fell from US$1.01 in 2QFY2019 to US$0.50 in 2QFY2020. Shopee’s market leadership, growing brand portfolio and added social and entertainment features such as live streams of K-pop music festivals have seen it continue its high GMV growth trajectory despite countries rolling back lockdown measures. — Ng Qi Siang
Fu Yu Corp
Price target:
DBS “hold” $0.27
RHB “buy” $0.30
DBS sees weak year ahead but RHB’s ‘top picks’ on balance sheet and dividend appeal
Fu Yu Corporation reported a 26% y-o-y drop in revenue to $71.6 million for 1HFY2020 ended June, due to weaker end-user demand and disruptions caused by government restrictions. However, thanks to better margins and favourable forex movements, it was able to report a 46.3% y-o-y increase in its earnings to $7.4 million.
With a weaker economic outlook, DBS analyst Ling Lee Keng is keeping her “hold” call on the stock, although with a raised target price from 21 cents to 27 cents, which is pegged to 12.6 times Fu Yu’s forecasted 12-month forward earnings — a historical four-year average.
Ling is cheered by the company’s better gross profit margins and improved efficiency and cost management. She also notes that the company’s balance sheet remains strong, with a net cash of $101.6 million and FY2020 dividend yield of about 5.6% is attractive.
On the other hand, RHB analysts Jarick Seet and Lee Cai Ling are more optimistic on Fu Yu, with a higher price target of 30 cents from 28 cents. For them, Fu Yu remains one of the sector’s “top picks” due to its “stable and resilient” balance sheet.
“With further new projects in the medical, consumer and automotive fronts, we expect positive growth momentum for 2H2020,” they write in a Aug 17 report.
Seet and Lee also like the company for its strong cash position, tight lid on costs and management’s experience dealing with previous crises. Coupled with a rich cash flow generation, they believe that Fu Yu will be able to weather this storm and likely come out stronger than its competitors and to reward its investors with an attractive dividend despite a temporary drop in profits for FY2020. They estimate Fu Yu to give out 1.7 cents per share for FY2020, which translates into a yield of 6.7%. — Lim Hui Jie
iREIT Global Group
Price target:
PhillipCapital “neutral” $0.68
Stable results but gets downgraded on dilutive rights issue
PhillipCapital analyst Tan Jie Hui has downgraded iREIT Global Group to “neutral” from “accumulate” with a lower target price of 68 cents from 76 cents previously.
While the REIT posted stable results for 1H2020, it was offset by the weaker exchange rates between the Euro and the Singapore dollar. To that end, iREIT Global declared a 2.7% y-o-y lower distribution per unit (DPU) for the same period.
The REIT’s occupancy rate improved q-o-q to 95.7% from 94.7%, with a weighted average lease expiry (WALE) of 3.7 years. Some 95.9% of the REIT’s leases were also locked in till 2022.
However, Tan says the revised recommendation came on the back of the REIT’s rights issue to fund its acquisition and repay loans is dilutive to the REIT’s DPU and net asset value per share (NAVPS).
On Aug 7, iREIT Global announced that it will be issuing 281.8 million new rights units to raise an estimated EUR90 million ($140.9 million). The money raised will be used to fund the proposed acquisition (of some EUR49.1 million), and repay the EUR32 million term loan facility granted by City Developments Limited. The acquisition, according to iREIT, is expected to be completed in 4Q2020.
Looking at the data based on 1H2020’s numbers, Tan says the DPU for the enlarged portfolio is estimated to decline by 18.9% to 2.31 cents from 2.85 cents. The NAVPS for the enlarged portfolio is also expected to decline by 14.5% to EUR47 cents from EUR55 cents.
“Amid the looming recession, the take-up in office space and investment activity in Europe is expected to slow down in 2020. However, office rents where IREIT’s properties are located are not expected to be significantly affected due to strong local fundamentals e.g. low vacancy rates and lack of supply,” says Tan.
“iREIT’s portfolio has remained resilient with the majority of the leases supported by blue-chip tenants. The impending acquisition will increase and diversify iREIT’s asset and tenant base, and mark what we believe to be the beginning to iREIT’s growth plans now that it is backed by supportive stakeholders. It has been a rough start to growth, but growth nonetheless,” she adds.
On the downgrade and lowered target price, Tan says that her target price “translates to a FY2020e distribution yield of 6.9% and a total upside of 0.8%”.
“We factored in for the EUR90 million rights issue to fully fund the acquisition and repay the CDL loan,” she writes in a report dated Aug 13.
Tan has also lowered her DPU estimates for FY2020e, FY2021e and FY2021e by 10%, 17%, and 17%, respectively.
“In light of more organic growth opportunities presented by the Spanish portfolio, we increased our terminal growth rate to 1.5% from 1% previously”. — Felicia Tan
Koufu Group
Price target:
DBS Group Research “buy” $0.77
UOB Kay Hian “buy” $0.78
CGS-CIMB “add” $0.86
PhillipCapital “buy” $0.77
Deli Asia acquisition to bring in more dough
Analysts still have a strong appetite for Koufu Group and expect the food court operator to bounce back from its lacklustre 1H2020 results in the second half of the year. No thanks to “circuit breaker” measures in April and May, Koufu saw 1H2020 earnings dip by 82% y-o-y to $2.5 million, while revenue fell by 23% y-o-y to $89.0 million. Its interim dividend of 0.5 cents was half of what was declared in 1H2019.
With dining-in once again allowed, Koufu — led by executive chairman and CEO Pang Lim — is seeing better footfall at most of its food courts, stalls and restaurants, except those outlets catering largely to tourists and the office crowd.
DBS Group Research analysts Alfie Yeo and Andy Sim, while keeping their “buy” call, have trimmed their price target from 77 cents to 75 cents to take into account the drop in 1H earnings.
Besides pricing in a better second half, they believe that Koufu’s acquisition of fried food and dough seller Deli Asia in July for $22 million will contribute “substantially” to its FY2021 earnings.
Similarly, UOB Kay Hian’s Joohjit Kaur, who has a “buy” call and 78 cents target price, sees significant q-o-q earnings improvement, thanks to additional government grants and also higher turnover, especially in the heartland areas (which accounts for between 50% and 60% of revenue).
Even with the weak economy, Koufu is still opening new outlets including a food court at the Le Quest mixed development, a quick-service restaurant at Canberra Plaza and also more retail kiosks under the newly acquired Dough Culture brand.
CGS-CIMB analyst Ngoh Yin Sin notes that Koufu has hopped on the digital bandwagon and is looking to roll out its own delivery app to more areas to meet the increased frequency of takeaways and deliveries given the pandemic and capacity restrictions. “We continue to like Koufu as a resilient F&B play with strong cash generation and balance sheet,” says Ngoh, who continues to rate Koufu “add” with an unchanged target price of 86 cents.
PhillipCapital’s Terence Chua, while keeping his “buy” call, has trimmed his target price from 80 cents to 77 cents, as he expects lower FY2021 earnings, partly due to a delay in Kou- fu’s expected completion of a new integrated facility which should help make operations more efficient.
Nevertheless, he remains positive on Koufu’s outlook post-circuit breaker. “We believe the recovery in consumption post circuit breaker will continue to improve footfalls and revenue of the food courts and coffee shops in 2H2020. We expect the completion of the Group’s new integrated facility in 4QFY2020 to see cost savings and an additional revenue source for them,” says Chua. — Samantha Chiew
Yanlord Land Group
Price target:
OCBC “buy” $1.41
Goldman Sachs “buy” $1.90
High contracted sales lends support despite poor 1H2020
It was a disappointing 1H2020 for Chinese developer Yanlord Land Group following weakened profits. Still, OCBC Investment Research has issued a “buy” call on the counter on the basis of a high contracted sales target for FY2020. The team likes that it is a “high quality” developer with strong exposure to key economic regions like the Yangtze River Delta, Bohai Rim and Greater Bay Area.
“We believe its past three years’ focused land banking in China’s most affluent cities will bear fruit,” says Goldman Sachs analysts, who have upgraded their call from “neutral” to “buy” and higher price target of $1.90, up 52%.
Still, 1H2020 was below expectations for OCBC Research as earnings fell by 58.5% y-o-y to RMB492.9 million, no thanks to higher mix of less profitable units sold.
“Although we expect FY2020 to be a backend loaded year given the delays caused by Covid-19, we still consider this set of results to be below our expectations,” writes the OCBC research team, which has trimmed the target price from $1.45 to $1.41.
Even so, Yanlord has recorded strong sales of RMB35. 7billion for the first seven months of FY2020, which translates into y-o-y growth of 57.3% — a figure well above the industry average. Contracted ground floor area was 998,300 square metres. Yanlord has also accumulated contracted pre-sales pending recognition of RMB75. 8billion as of Jun 30 2020, which might lead to strong growth momentum in 2HFY20 and FY2021.
“We are also positive on Yanlord’s sales composition, as 70.7% and 16.3% of its 1H20 contracted sales were derived from the Yangtze River Delta and Greater Bay Area, respectively,” the team adds, noting that it has a high cash collection ratio of about 90% — an important data point, given Yanlord’s high net gearing of 88.2% as of June 2020, up 8.1% from end FY2019. Management hopes to reduce gearing by year’s end.
Yanlord’s land acquisition strategy in 2H2020 would depend on its contracted sales performance.
OCBC cuts its FY2020 and FY2021 core earnings forecasts by 40.3% and 10.3% respectively, with lower margins, higher financing costs assumed.
Potential catalysts for the stock would be easing price caps in the cities where Yanlord is exposed to, strong- er than expected pre-sales and a boost in dividend per share. Further property cooling measures, rising offshore funding costs and forex risks on top of land bank acquisitions could, however, see share prices fall. — Ng Qi Siang
Thai Beverage
Price target:
PhillipCapital “buy” $0.82
ThaiBev’s Sabeco could continue to drag due to alcohol consumption curb
Saigon Beer-Alcohol-Beverage Corp (Sabeco), a subsidiary of Thai Beverage (ThaiBev), could continue to be a drag on the parent company, according to Phillip Securities’ head of research Paul Chew.
This comes as the regulatory ban on drink driving continues to curb beer consumption in Vietnam, the brokerage warns. In 3QFY2020, ThaiBev’s beer volumes contracted almost 20% due to Sabeco’s underperformance.
However, ThaiBev’s domestic beer volume declined only marginally in Thailand and its market share is at a record high, Chew notes.
Still, Phillip Securities has maintained its “buy” call for the stock with an unchanged target price of 82 cents.
The brokerage points out that ThaiBev has coped well with the lockdown and ban in alcohol sales with significant cost controls over advertising and marketing costs.
Moreover, shares of the company are attractively priced at 14 times FY2021 earnings, compared to a historical average of 18 times earnings. — Jeffrey Tan
