Yangzijiang Shipbuilding
Price target: UOB KayHian “buy” $1.17
Top pick for earnings growth, undemanding valuations and strong financial position
UOB KayHian is keeping its “buy” recommendation on Yangzijiang Shipbuilding (YZJ) with a target price of $1.17, saying the stock remains one of its top picks for 2021 on the back of the resumption of earnings growth, undemanding valuations and strong financial position.
According to analyst Adrian Loh in a Jan 4 report, YZJ remains a compelling stock for 2021 as its valuations remain undemanding, with 2021 EV/Ebitda and P/B multiples of 2.6 times and 0.52 times respectively, a P/E growth ratio of 0.69 and net cash of 22 cents per share, or 23% of its current share price.
“In addition, if we add its net cash position to the current portion of its debt investments of RMB13.6 billion as at 3QFY2020, this would be equivalent to its current market capitalisation of $3.5 billion. This implies that investors are essentially getting its shipbuilding business for free,” adds Loh.
Meanwhile, YZJ has outperformed expectations with US$1.8 billion ($2.4 billion) worth of new orders in 2020, despite the Covid-19 pandemic. More importantly, the company appears to have expanded its market share in China given that almost all of its orders in 2020 were from Chinese clients compared to the past which saw a more even distribution of orders originating from clients in Europe, US and Asia.
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“We expect the company to build on this momentum in 2021 and conservatively forecast a similar level of order wins of US$1.8 billion. We also highlight commentary from management that global new shipbuilding orders declined by about 50% in 9MFY2020 in the face of a depressed market, which makes the company’s order wins this year all the more compelling,” says Loh.
On the outlook, the analyst expects a solid 4QFY2020 ended December for YZJ, given that the company’s new order wins peaked during the quarter at nearly US$1 billion.
“While we forecast a 25.2% y-o-y decline in FY2020 net profit, we do not expect dividends to be negatively impacted, unlike other companies in the same sector or even in sectors which traditionally have been viewed as “safe”,” says Loh.
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In 2019, YZJ paid a final dividend of 4.5 cents per share and the company is forecast to pay a similar dividend this year, which equates to a FY2021 yield of 4.9% at the current share price.
In addition, results may be bolstered by the potential of a tax write-back at the end of 2020 as its new shipyard may qualify as a “New High Tech Enterprise”, thus attracting a lower tax rate of 15%, compared to the current 25% tax rate that YZJ has provisioned for. This would equate to a tax write-back of around RMB100 million which Loh has yet to factor into current forecasts.— Samantha Chiew
APAC Realty
Price target: UOB KayHian “hold” 41 cents
Asset-light property play
While UOB KayHian believes APAC Realty is well-positioned to grow further, it has initiated coverage on the real estate brokerage with a “hold” rating and target price of 41 cents.
UOB KayHian says the company offers an asset-light play on the resilient Singapore property transaction volumes, supported by enhanced liquidity and government stimulus amid the Covid-19 pandemic.
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Moreover, its globally recognised ERA brand and regional master franchise place the company in a position to cross-sell and grow beyond Singapore.
In addition, positive newsflow on the Covid-19 vaccination roll-out may provide a boost to its share price.
However, UOB KayHian reckons that investors should only accumulate the stock at 37 cents, according to its initiation report dated Dec 17, 2020. — Jeffrey Tan
Fu Yu Corp
Price target: RHB “buy” 30 cents
A ‘stable dividend dispenser’ despite Covid-19
Despite the impact of the Covid-19 pandemic, RHB Securities has remained bullish on Fu Yu Corp as a “stable dividend dispenser”.
The brokerage expects the precision plastic components manufacturer to make a 1.7 cents payout for FY2020 ended December, which translates to an “attractive” yield of 6.3%.
This comes as Fu Yu has a strong net cash position of $97.8 million and zero borrowings, it notes.
“Despite a blip in FY2020 caused by the Covid-19 situation, we believe Fu Yu — with a strong net cash balance sheet — will be able to weather the storm,” RHB analyst Jarick Seet writes in his Dec 28, 2020, note.
“We also think that it can at the same time provide its investors with attractive dividends despite an estimated temporary drop in profits for FY2020,” he adds.
Seet has maintained his “buy” rating for the stock with an unchanged target price of 30 cents. — Jeffrey Tan
Singapore Press Holdings
Price target: CGS-CIMB “Hold” $1.10
SPH needs boost from non-media segments
Singapore Press Holdings needs a boost from non-media segments, says CGS-CIMB analyst Eing Kar Mei in a note dated Jan 5.
The group’s media business may have made an Ebit loss of $9.4 million due to Covid-19 in FY2020 ended August, Eing believes the department may see improvement in the near term given the improving business sentiment and low base effect during the financial year.
“However, in the long term, we continue to see structural decline risks in the industry as advertisers allocate a larger portion of their budgets to the digital and social media platforms,” she says. The group’s property business should also deliver a stronger performance in FY2021, says Eing.
“Barring another major lockdown, we believe its retail business which was mired by temporary closures and rental rebates should improve in FY2021. While we expect its retail malls to continue to face rental pressure due to weak operating environment, overall revenue performance in FY2021 should be better versus FY2020.”
The group’s purpose-built student accommodation (PBSA) achieved 88% of its targeted revenue in the academic year 2020/2021 (from September 2020 to mid-2021). Eing believes that the latest lockdown in the UK may have a smaller impact on SPH, after going through the first lockdowns and hassles of returning home and to universities.
“Rental refunds for PBSA of GBP4.5 million ($8.1 million) in FY2020 were at the lower end of the expected GBP4 million to GBP8 million,” she notes.
“Bed occupancy rate of Orange Valley Singapore rose from 75% in September 2019 to 80% in August despite stiffer competition. Master lessees for its Japan aged-care business continued to pay rent in full on a timely basis, while underlying portfolio occupancy stayed a high 90%,” she adds.
Due to the lower base effect in 4QFY2020, Eing foresees stronger q-o-q results in the 1QFY2021, excluding Covid-19-related grants.
This, she says, may also be due to “seasonally stronger ad spend in 1Q on events such as Black Friday and Cyber Monday, more students returning to UK, and lower rental rebates to tenants in its retail malls”.
“On a y-o-y basis, while financial performance of the property business should be stronger due to acquisitions (Student Castle, Westfield Marion, aged-care assets in Japan), we think it could be offset by weaker media performance due to Covid-19 and the structural decline,” she adds.
To this end, Eing has maintained “hold” on the counter with an unchanged target price of $1.10.
“While we think the stock has limited catalysts, downside has been priced in at 0.5 times P/BV (–2 standard deviation from five-year mean); the stock offers 3–5% dividend yield. If we ascribe zero value to media, our target price, which has imputed a 30% holding discount, will fall to 95 cents,” she says.
Shares in SPH closed flat at $1.13 on Jan 6. — Felicia Tan
