Kimly
Price target: RHB Group Research “buy” 39 cents
Higher target price amid expectations of JVs and acquisitions
RHB Group Research analyst Jarick Seet has maintained his “buy” call on coffeeshop operator Kimly with a raised target price of 39 cents, from 34 cents.
He notes that despite the restrictive measures arising from Covid-19, Kimly’s business model remains “resilient”, as it has tapped on various platforms to drive higher sales over the various food delivery platforms even as direct outlet sales dipped.
For FY2020 ended September, revenue for the coffee shop operator grew 1.2% y-o-y while PATMI expanded by 25.8% y-o-y.
Even with the lifting of the “circuit breaker” measures, crowds have returned to the coffee shops but delivery volume only dipped slightly.
Seet believes this is because Kimly’s offerings are one of the most affordable options and with the economy worsening, it presented a more sustainable option for the average family in Singapore.
He also believes Kimly’s recent acquisitions may spur its growth in FY2021. The coffee shop operator recently completed phase two of the acquisition involving eight food outlets. This now puts 80 food outlets and 134 food stalls under Kimly’s portfolio.
On Sept 9, 2020, Kimly separately entered into two joint ventures (JVs) with two coffeeshops in Bukit Batok and Upper Aljunied, which should “further boost profitability” for FY2021.
“We expect Kimly’s business to remain strong amidst this pandemic, and it will likely continue to reward shareholders with attractive dividends,” Seet says.
“Looking ahead, we expect new joint ventures and acquisitions to further boost its PATMI. This, on top of the global rally on consumer stocks, led us to raise our terminal growth rate assumption to 1% from 0%, which resulted in a higher target price,” he adds. — Felicia Tan
Fortress Minerals
Price target: PhillipCapital “buy” 47 cents
Strong 3QFY2021 earnings prompts higher target price
PhillipCapital’s Vivian Ye has maintained her “buy” call on Fortress Minerals (FML) with a higher target price of 47 cents, up from 28 cents. This follows the iron ore miner’s earnings growth in 3QFY2021 ended November to US$4.33 million ($5.72 million). This is a 477.9% y-o-y increase from US$751,000 in 3QFY2020.
On top of booking higher earnings, FML’s operating cash flow during the quarter increased seven times to US$11.7 million.
Ye also highlighted that gross margins increased from 57.7% to 75.1% in 3QFY2021. Revenue for the quarter more than doubled y-o-y, driven by higher prices for high-grade iron ore concentrates. Average selling prices reached a record US$110.06 per dry metric tonne (DMT) as iron ore prices reached a seven year high.
This was coupled with the average unit cost being lower y-o-y through increased iron ore production.
FML has also entered into a conditional sales and purchase agreement with Canadian gold producer Monument Mining for the acquisition of the entire Monument Mengapur (MMSB).
MMSB owns a 100% stake in the Mengapur copper and iron project in Pahang, Malaysia. FML will pay a royalty fee of 1.25% of gross revenue from all products produced at Mengapur to Monument Mining.
With this deal, FML’s magnetite resources will surge from 7.18 million tonnes from its Bukit Besi mine in Terengganu as of February last year to 17.93 million tonnes.
Mengapur is located 65km away from the Kuantan port, which is the main bulk iron ore export port on Malaysia’s east coast. It is also close to the two largest steel mills in Malaysia, both of which are FML’s customers.
Ye says Mengapur should complement FML’s existing portfolio of advanced iron ore projects and the acquisition should make it a sizeable regional player.
However, FML faces the prospects of a lower iron ore price with the additional supply. Ye expects 2021 prices to drop from US$190 per DMT to around US$110 per DMT. This will translate into lower average selling prices of US$95 per DMT for FML, from US$110.06 per DMT in 3QFY2021.
Despite this, she believes FML’s revenue should still increase with higher iron ore volumes sold following its announcement of an offtake agreement made last September. Operating expenses are also expected to be stable with the help of improved economies of scale. — Lim Hui Jie
SPH REIT
Price target: CGS-CIMB “add” $1.06 Maybank Kim Eng “hold” 80 cents OCBC “hold” 88 cents
Mixed reactions to 1Q results
As SPH REIT announced DPU of 1.20 cents for the 1QFY2021 ended November on Jan 14, analysts from CGS-CIMB Research, Maybank Kim Eng and OCBC Investment Research are mixed on the REIT’s recovery prospects.
CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have maintained their “add” call on SPH REIT albeit with a slightly lower target price of $1.06 from $1.07 previously, as they expect “gradual improvement” to follow.
Revenue for SPH REIT in 1QFY2021 grew by 10.8% y-o-y to $66.6 million, coming in at 24% of their full-year forecast, with growth driven by the REIT’s Australian portfolio. Occupancy rate during the quarter remained stable q-o-q at 97% to 100%. Tenant sales also saw “good recovery”, though rental pressure remains.
“Considering the strong tenant sales recovery, barring a resurgence of Covid-19, we believe lease renewals would be less of a concern although rental reversions would be under pressure,” says Eing and Lock in their Jan 14 note.
Despite the positive outlook, they have reduced their DPU estimates for FY2021 to FY2023 by 3% to 0.4%. “Barring the resurgence of Covid-19, we expect the malls to experience gradual recovery in footfall from current levels. It is trading below book at 0.86 times P/B (–1 standard deviation below mean) and over 6% yield,” they say.
On the other hand, analysts from Maybank Kim Eng and OCBC Investment Research (OIR) have given or maintained their “hold” calls on the REIT as they foresee slow recovery.
Maybank Kim Eng’s Chua Su Tye says the REIT’s 1QFY2021 results were in line with the brokerage’s and the street’s estimates. As such, he has maintained his forecasts, with a target price of 80 cents.
While SPH REIT’s Singapore portfolio occupancy rose slightly for Paragon and Clementi Mall, Chua notes that there’s been a “slow pick-up” in tenant sales at Paragon due to lower tourism spend amid tight border controls.
As such, he foresees Paragon’s operational weakness to “persist beyond FY2021” even as Singapore’s retail recovery gains traction.
“Its balance sheet remains sound, but we see low near-term deal catalysts, as tenant retention gets prioritised,” he says, adding that he prefers Frasers Centrepoint Trust (FCT) for its “more resilient suburban mall portfolio”.
Chua has rated “buy” on FCT with a target price of $2.90.
Despite her “hold” call, OCBC analyst Chu Peng has upped her fair value estimate on SPH REIT to 88 cents, from 82 cents previously.
This is due to SPH REIT’s healthy portfolio occupancy rate as at Dec 31, 2020, even though management highlighted negative rental reversions in 1QFY2021.
“We expect rental reversions to remain under pressure in FY2021 as business sentiment remains weak and tenant retention is prioritised. Given positive developments on vaccines, we decrease our cost of equity (COE) from 7.8% to 7.4%,” she adds. — Felicia Tan