Brokers Digest 908

The best is yet to come for CSE Global, say analysts, as the group garnered four “buy” calls across brokerages DBS Group Research, CGS-CIMB Research, KGI Securities and RHB Group Research.

Barring a 4.7% decline in earnings to $5 million for 3QFY2019 ended September, the Mainboard-listed technology solutions provider posted a solid set of results across a number of other key financial metrics.

Revenue for the quarter surged 21.9% to $111.5 million, owing to higher contributions from the Americas and Asia-Pacific. Operating profit also registered a 2.3% growth to $7.1 million.

But CSE Global’s greatest asset rests in its robust order book: The group’s order intake from continuing operations nearly doubled to $156.1 million in 3QFY2019, from $80.3 million in 3QFY2018. Additionally, the order book stood at $232.6 million at the end of the quarter, representing a 71.5% y-o-y growth from $135.6 million.

While CSE Global has noted that industry conditions remain uncertain in view of ongoing trade tensions and a worldwide economic slowdown, analysts appear fairly certain that the group remains poised to thrive in the near term.

“New order intake almost doubled y-o-y, more than we anticipated, on the back of an increase in oil production in the Americas,” says DBS analyst Ling Lee Keng in a Nov 8 report. “With its increase in oil and gas projects, and a large contract win announced recently, we anticipate this to contribute positively to CSE’s earnings in FY2020F and beyond.”

Moving forward, CGS-CIMB Research analyst Cezzane See says CSE’s order backlog could soar to its highest in five years in FY2019F. “Assuming further order intake of $100 million and revenue recognition of $100 million in 4QFY2019F, CSE could end FY2019F with an order backlog of at least $300 million (compared with $232.6 million as at end-3QFY2019),” says See.

UMS Holdings
Price targets:
$1.00 BUY (DBS Group Research)
79 cents HOLD (CGS-CIMB Research)

Market watchers are expecting UMS Holdings to ride an expected recovery in the semiconductor industry, after the precision engineering group beat analysts’ estimates by a significant margin with a better-than-expected set of results for 3QFY2019 ended September.

UMS saw its earnings jump 21% to $9.2 million during the quarter, on the back of a 12% rise in revenue to $32.9 million. The higher revenue was led by a 14% increase in contribution from the semiconductor segment, driven by a surge in demand for semiconductor integrated systems.

CGS-CIMB Research analyst William Tng opines that with an industry upswing underway, UMS is expected to deliver a stronger q-o-q performance in 4QFY2019. Thus, the research house has raised the group’s FY2019 forecasts.

“The oversupply in the memory market is easing,” says Tng in a Nov 12 report. The analyst has also raised his FY2020-FY2021 earnings forecasts, noting that UMS recently renewed its contract with a key customer, Applied Materials.

DBS Group Research agrees that the successful contract renewal bodes well for the company. The way analyst Ling Lee Keng sees it, the renewal of the contract for another three years helps to strengthen UMS’ earnings visibility.

“Demand is picking up, with chip inventories easing and new technological disruptors driving the growth of new products and capabilities,” Ling says in a Nov 13 report. “We have revised up our projected earnings by 6% to 7%, as we expect the growth momentum to continue.”

Mapletree North Asia Commercial Trust

Price targets:
$1.60 BUY (DBS Group Research)
$1.45 BUY (HSBC Global Research)
$1.41 BUY (OCBC Investment Research)

Units in Mapletree North Asia Commercial Trust (MNACT) fell 8.7% in the first half of the week to close at $1.16 on Nov 13, as its anchor asset Festival Walk shopping mall found itself caught in the middle of escalating violence in Hong Kong.

In 2QFY2020, the mall accounted for some 62% of the REIT’s total net property income.

Festival Mall was forced to close early on Nov 10, following skirmishes between Hong Kong protestors and police at the mall, which resulted in some injuries. The mall also closed early on Nov 11 and 12.

Festival Walk remained closed on Nov 13, after suffering “extensive damage” as protestors torched the office lobby and a Christmas tree in the mall on the night of Nov 12. Groups of protestors had also smashed the glass panels at entrances to the property and balustrades on various levels of the mall.

“We note that when the Hong Kong protests began in June, Festival Walk had been relatively unscathed from the various skirmishes across the city, which were largely confined to the streets,” says DBS Group Research lead analyst Derek Tan in a Nov 11 report, noting that Festival Walk has been the source of strong growth in cash flows for MNACT.

Following up on the report, Tan notes that investors have generally stayed cautious on MNACT.

“Given this fresh news, the stock will remain sideways for now. Value hunters may only come in towards the 7% yield handle, which is close to current levels,” says Tan in an email to The Edge Singapore on Nov 13.

Venture Corp

Price targets:

$16.91 DOWNGRADE HOLD (Maybank Kim Eng Research)

$17.18 DOWNGRADE ACCUMULATE (Phillip Capital)

$16.67 DOWNGRADE HOLD (UOB Kay Hian)

Analysts are turning bearish on Venture Corp, in the light of more challenging times ahead amid geopolitical uncertainties.

While Venture reported a 5.5% rise in earnings to $85.2 million for 3QFY2019 ended September, Maybank Kim Eng Research analyst Lai Gene Lih notes that this was primarily due to a low base. “Stripping out foreign exchange gains and adjustments for tax overprovision in previous years, core 3QFY2019 Patmi would have been flat y-o-y,” Lai says in a Nov 11 report.

The analyst is downgrading Venture to “hold” and slashing its price target by 10.3% to $16.91. He believes that Venture’s earnings performance in the next two quarters may be lacklustre, owing to a high-base consideration and an earnings recovery that could take longer than expected.

“As the capex environment remains weak, new products may receive lacklustre end-market take-up or their introduction may even be delayed. Collectively, these may slow the pace of an earnings recovery,” Lai says.

Singapore Technologies Engineering

Price targets:

$4.47 ADD (CGS-CIMB Research)

$4.64 BUY (DBS Group Research)

$4.50 BUY (Maybank Kim Eng Research)

$4.64 BUY (OCBC Investment Research)

Analysts are buoyant on ST Engineering (STE), as the technology, defence and engineering conglomerate posted 3QFY2019 earnings in line with expectations on the back of record-high revenue.

For 3QFY2019 ended September, STE saw its revenue jump 27% to $2.07 billion — the highest y-o-y growth in over a decade.

The revenue surge was driven by Aerospace revenue, which soared 53% y-o-y to $1.1 billion on the consolidation of its recently acquired Middle River Aircraft Systems, as well as revenue recognised from various end-of-programme reviews.

However, earnings for the quarter grew a more moderate 3% to $139.1 million. The company’s 3QFY2019 earnings were affected by a provision of $14.2 million before tax made for the arbitration outcome with Hornbeck Offshore Services. Excluding this, earnings would have been 12% y-o-y higher at $150.3 million.

“STE’s 3QFY2019 core earnings of $150.3 million were in line, and its growth story is unfolding nicely,” says DBS Group Research lead analyst Suvro Sarkar in a Nov 12 report. “We are more conservative on margins and earnings compared with consensus, but still expect STE to generate high single-digit core earnings growth in FY2018-FY2021.”

Sarkar notes that STE’s current valuation of 20x FY2020F PER looks elevated at first glance. However, he says this is reflective of its record-high order book.

Lim Siew Khee, an analyst at CGS-CIMB Research, believes that STE’s diversified portfolio could continue to fuel its growth amid the challenging macroeconomic landscape. “We like STE for its diversification of business,” says Lim, who has a “high conviction” call on the counter.

The analyst notes that STE’s electronics contract wins have levelled up from close to $560 million per quarter in 2016-2018 to close to $780 million per quarter in 2019, on the back of more smart city-related projects.

Notably, in 3QFY2019, it secured $833 million of new contracts, [including] a bulky, close to $300 million smart city-related next-generation emergency responses management system for a public safety agency out of Singapore,” Lim says.

While OCBC Investment Research agrees that STE is a “clear outperformer”, it warns that “the upside may be diminishing”.

“On a total returns basis, STE has outperformed the Straits Times Index by a wide margin year-to-date, with the reinvested total return for STE at 22.7% and 10.4% for the STI, based on Nov 8 closing prices,” says OCBC’s research team in a note on Nov 11.

Singapore Airlines

Price targets:

$9.40 HOLD (UOB Kay Hian)

$10.50 OVERWEIGHT (JP Morgan Research)

$10.70 BUY (Maybank Kim Eng Research)

$10.00 HOLD (CGS-CIMB Research)

$10.46 BUY (OCBC Investment Research)

$10.40 BUY (DBS Group Research)

Although Singapore Airlines (SIA) reported mixed performances across the group in 2QFY2020, analysts are still remaining positive on the stock.

In its 2QFY2020 results, SIA’s earnings came in at $94.5 million, 70% higher y-o-y, owing mainly to higher contributions from associates and joint ventures of $78 million. Revenue increased 5.3% y-o-y to $768.5 million, driven mainly by growth in passenger-flown revenue, although the top line was dragged down by lower cargo-flown revenue.

The way Maybank Kim Eng Research sees it, SIA has been able to navigate the challenging macroeconomic conditions better than its peers, owing to its fuel hedge and cost-efficient operations. However, it forecasts that the group will see lower profits this year.

“SIA is able to fill up its passenger capacity convincingly. However, this is at the expense of low yields and therefore suggests [that] the market is still fragile,” says analyst Mohshin Aziz in a Nov 6 report. The analyst also cautions that the aviation sector is undergoing one of its most challenging periods, owing to overcapacity and a relatively subdued market.

For now, Chu Peng, an analyst at OCBC Investment Research, believes SIA’s passenger bookings are expected to remain healthy in the near term, driven by its long-haul flights to the US. Meanwhile, DBS Group Research analyst Paul Yong notes that SIA’s transformation programme is paying off.

On the other hand, CGS-CIMB Research warns that the weakening global economic growth and ongoing US-China trade war could slow SIA down. Analyst Raymond Yap notes that SIA’s airfreight demand and yield have been negatively affected since late 2018.

However, he adds: “So far, SIA mainline has not seen weaker premium demand despite slowing global economic momentum.”

Bumitama Agri
Price targets:
80 cents BUY (Maybank Kim Eng Research)
72 cents BUY (DBS Group Research)

Analysts are optimistic on Bumitama Agri, even as the Indonesian oil palm plantation operator missed consensus’ earnings estimates in 3QFY2019 ended September.

Bumitama saw the quarter’s earnings plunge 29.7% to IDR189.61 billion ($18.3 million) even though revenue rose 1.4% y-o-y to IDR1.94 trillion. The earnings decline was mainly attributable to low crude palm oil (CPO) average selling price, low palm kernel ASP and weaker-than-expected fresh fruit bunches output growth.

“3QFY2019 earnings missed our and consensus’ estimates on low output and prices. However, that will change in 4QFY2019 with the recent CPO price rally, expectations of flat q-o-q output and lower fertilising costs,” says Ong Chee Ting, an analyst at Maybank Kim Eng Research, in a report on Nov 12.

The way Ong sees it, the counter is a laggard play in the recent CPO price recovery and offers good medium-term growth prospects. Despite a 17.4% rally since late October, shares in Bumitama closed at 64 cents on Nov 13 — 12.9% below its recent peak of 73.5 cents in April.

“We believe the liquidity discount placed on the counter is excessive. Stronger output in the second half of the year should help to provide a buffer to earnings this year,” say DBS Group Research analysts William Simadiputra and Lim Rui Wen in a Nov 12 report. “We believe Bumitama’s share price will ride along with the positive momentum of CPO price in 4QFY2019.”