Brokers' Digest 970

With the new year comes “new highs” for Hutchison Port Holdings Trust, as higher dividends are expected from FY2022 ended December 2021 on a “sustained recovery ahead”, says DBS Group Research.

HPH Trust has controlling interests in container port assets located in two of the world’s busiest container port cities by throughput: Kwai Tsing in Hong Kong and Yantian Port in Shenzhen, China.

“We believe that HPH Trust’s share price has more room to re-rate in 2021 given its firm earnings recovery momentum. We also see further upside potential to our target price if the company confirms its intention to raise its dividend payout for FY2022 and beyond after its debt repayment programme ends in FY2021,” says DBS analyst Paul Yong in a Feb 1 note. Yong is maintaining his “buy” on HPH Trust with a higher target price of 27 US cents (36 cents) from 22 US cents.

Yong says HPH Trust ended FY2020 on a high note due to firm 2HFY2020 volumes. He is raising FY2020 and FY2021 earnings estimates by 10% and 7% respectively after factoring in higher throughput volume assumptions. “We expect exports out of China to remain firm for at least the first half of 2021 as many parts of the world remain in lockdown while a synchronised global recovery in the second half would also be a boost,” he adds.

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Yong highlights that major exporters like Malaysia and some parts of Europe are going into fresh lockdowns to battle new waves of infections, and manufacturing production could drop sharply. “With China picking up the slack, its exports should continue to grow. Hence, we expect to see China’s PMI: New Export Orders to remain in expansion mode in 1HFY2021, with a positive reading of 50.2 for January.”

Yantian’s December throughput jumped 7.4% y-o-y to 1.232 million Twenty-foot Equivalent Units (TEUs), continuing the strong rebound in volumes seen since June. In the first half of 2020, volumes at Yantian dropped 12.2% y-o-y but increased by 14.6% in the second half.

Meanwhile, Kwai Tsing’s December throughput jumped 10.3% y-o-y to 1.317 million TEUs, continuing the strong rebound in volumes seen since June. In the first half of 2020, volumes at Kwai Tsing dropped 2.6% y-o-y but increased by 5.8% in the second half. In 2019, HPH Trust’s volumes in Hong Kong accounted for 70% of Kwai-Tsing’s volumes.

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In addition, Yong notes that Biden’s win should also ease US-China trade tensions and help to stabilise China’s exports to the US.

Yong is optimistic on dividends on the trust’s improving earnings outlook bolstering cash flow and balance sheet. “We are confident that the Trust will raise its DPU payout from FY2022F onwards. Including dividends paid to non-controlling interests (of Yantian Port), we expect HPH Trust to raise its total dividend payout to 47% in FY2022F, from 36–38% of Ebitda from FY2019–FY2021F. This would still be significantly below the trust’s payout before 2017.”

HPH Trust has a market capitalisation of US$1.87 billion, supported by major shareholders including Hutchison Ports (27.6%) and Temasek Holdings (14.0%). — Jovi Ho

Venture Corp
Price target:
RHB Group Research “buy” $22.60

Brighter path ahead

RHB Group Research’s Jarick Seet has maintained his “buy” call on Venture Corp and an unchanged target price of $22.60. In a Feb 2 report, Seet notes that Venture Corp has continued its recovery trajectory, reporting a 14.2% q-o-q growth in net profit after tax to $80.2 million in 3QFY2020 ended September, and that the company expects to deliver stronger 2HFY2020 vs 1HFY2020 — provided Covid-19-induced lockdowns and disruptions do not deteriorate further.

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The company is now fulfilling its backlog of existing orders while its R&D labs have plans to subsequently release a number of newly developed products into manufacturing in early 2021.

To maintain margins, the company continues to work with its customers in implementing further cost controls and improving production efficiency. However, Seet thinks “average selling prices pressures will align to end-market demand, and that non-essential market segments may see some pressure, given the slower rate of recovery”.

Furthermore, he thinks that production is highly unlikely to go back to pre-Covid-19 levels due to social distancing. Venture’s main aim now is to meet customer demand, as well as how to balance orders and deliver such orders to clients.

Seet’s target price is pegged to a higher-than-average PE ratio of 19 times, but which is justified to reflect its resilient margins and stability vis-à-vis its peers.

Venture, which is regarded for its stable dividend payout, is expected to pay out a total FY2020 dividend of 75 cents, assuming the final dividend remains unchanged, Seet says. — Lim Hui Jie

Keppel DC REIT
Price target:
PhillipCapital “accumulate” $3.20

Upgraded on stronger demand

PhillipCapital analyst Natalie Ong has upgraded her recommendation on Keppel DC REIT (KDC REIT) to “accumulate” from “neutral” with a higher target price of $3.20 from $2.91 previously. On Jan 26, KDC REIT declared a DPU of 9.17 cents for FY2020 ended December 2020, up 20.5% y-o-y, in line with her estimates.

“Our dividend discount model-based target price has been raised to reflect higher occupancy and asset productivity following asset enhancement initiatives, which raises our net property income by 6.9% on a same store basis (excluding any acquisition assumption),” Ong writes in a Feb 1 report.

The REIT’s portfolio occupancy improved 1.1 percentage points q-o-q to 97.8%, and 2.9 percentage points y-o-y, thanks to handover of newly converted data centre space at one of the data centres, known as KDC5, tenant expansion at another, KDC1, as well as the inclusion of a new tenant at KDC2.

According to Ong, the demand-supply gap will drive market rents upwards, benefitting the REIT, where Singapore assets under management make up 56% of its portfolio. “Given the moratorium on data centres in Singapore, we expect market rents to be bid up in the coming two years. Present higher demand has led to higher occupancy for KDC REIT’s portfolio, though market rents have not moved,” she says.

“While KDC REIT’s portfolio occupancy in Singapore is high at 97.0%, Colocation leases in Singapore have weighted average lease expiries (WALEs) of 1.4–4.0 years. These coincide with expected rent appreciation.”

“In the meantime, KDC REIT is expected to benefit from organic growth as many of its leases have built-in periodic rental escalations averaging 2–4% per annum,” she adds. — Felicia Tan

Starhill Global REIT
Price targets:
CGS-CIMB “add” 66 cents
OCBC “hold” 53 cents

Analysts positive on stable occupancy

Analysts are generally positive on Starhill Global REIT (SG REIT) following announcement its 1HFY2021 ended December 2020 results where DPU was 1.88 cents, down 16.8% y-o-y.

This was largely due to rental assistance for its eligible tenants affected by the Covid-19 pandemic, which also brought down net property income by 12.3% y-o-y to $65.0 million.

On the bright side, actual portfolio occupancy remained resilient at 96.0% in 1HFY2021, with stable retail portfolio occupancy of 96.9%. Meanwhile, gearing improved from 39.1% as at September 2020 to 35.8% as at December 2020.

Looking forward, the retail scene has seen some improvement. Ho Sing, CEO of YTL Starhill Global, says, “We are encouraged by the improvement in tenants’ sales and shopper traffic at our malls while portfolio occupancy remains stable. We have been working with our tenants to help them ride through this difficult period, including the provision of targeted relief support which impacted the financial performance in 1HFY2021.”

To that end, CGS-CIMB Research is reiterating its “add” call on SG REIT but with a lower target price of 66 cents from 70.6 cents. In a Jan 29 report, CGS-CIMB lead analyst Eing Kar Mei likes this REIT for its stable occupancy, as well as recovering tenant sales and football, despite the weaker 1HFY2021 results.

“With less rental rebates expected, we foresee a gradual recovery going forward. About 55% of its revenue in FY2020 was from long lease structures, which provided income stability,” says Eing.

On the other hand, OCBC Research Group is keeping its “hold” recommendation on SG REIT with a target price of 53 cents. In a Feb 1 report, the OCBC research team has a cautious outlook. “While there are some signs of recovery, we believe there still exists uncertainties and a lack of earnings visibility ahead. Although some of SG REIT’s properties are under master leases, the severe and widespread impact of Covid-19 has resulted in management extending, or having the intention to extend some form of rental rebate to its master lessees to share the pain and build a stronger longer-term relationship,” it says. — Samantha Chiew