Broker's Digest: AEM, Genting Singapore, Riverstone Holdings, Far East Orchard

AEM Holdings has reported lower earnings for its 1HFY2021 ended June but some analysts agree with the company’s view that the current 2HFY2021 will be better. Furthermore, with Temasek Holdings poised to be the largest shareholder via a placement, the provider of testing services for the semiconductor industry is well poised for further growth.

Maybank Kim Eng’s Lai Gene Lih, for one, has kept his “buy” call but with a higher target price of AEM from $5.56 to $5.77. DBS analyst Chung Wei Le, in his Aug 10 note, has raised his target price from $4.73 to $4.99, which is pegged to 13.7 times FY22F earnings, which is the same multiple as AEM’s previous peak valuation in 2018.

“AEM is in a strategic position to benefit from its key customer and industry uptrend. The stock is currently trading at an 11.5x FY22F PE, which is at a 30.7% discount to its peer average of 16.5x,” writes Chung, citing the strong industry momentum. CGS-CIMB’s William Tng, meanwhile, has slightly trimmed his target price from $4.63 to $4.61 to take into account a larger share base while keeping his “add” call.

For Maybank’s Lai, the 1HFY2021 earnings y-o-y drop of 46.6% to $78 million was in line with his estimates, given how AEM had already flagged the weakness and also because of a high base effect coming off 1HFY2020 when AEM’s new products brought in additional revenue. However, the extent of the decline was steeper than consensus expectations.

See also: Test debug host entity

Temasek is investing some $103 million by taking up 26.8 million new shares at $3.8477 each, equivalent to 9.5% of AEM’s existing share base. Upon completion, the Singapore state investment agency will become AEM’s single largest shareholder. Russell Tham, a semiconductor industry veteran, will be representing Temasek on AEM’s board.

“We believe the cash infusion would speed up AEM’s expansion into adjacencies to provide end-to-end solutions to customers,” writes Lai in his Aug 9 note. “We value the long-term strategic relationship and endorsement that brings with a significant new shareholder,” notes Chung.

Even with the earnings drop, AEM is reaffirming its guidance that revenue this year will be between $460 million and $520 million, and that the growth momentum will be carried into FY2022, as AEM phases in new generation tools into the high volume manufacturing sites globally run by its key customer, Intel Corp.

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AEM is also actively diversifying its revenue base, and has reiterated that it expects to gain meaningful revenues from the deep engagement it has with 10 of the top 20 semiconductor companies globally in 2022, notes Lai.

According to Chung and Ling, given the “limited visibility” for now, but with the underlying strong industry momentum, they do not rule out a potential series of further earnings upgrades as was seen in FY2020.

For CGS-CIMB’s Tng, possible rerating catalysts he sees for AEM include possible upward revisions to revenue guidance in the coming months. On the other hand, downside risks are delivery delays due to lockdowns and movement restriction extensions, loss of competitiveness by its key customer and aggressive competitive response from its competitors. — The Edge Singapore

Genting Singapore
Price target:
Maybank Kim Eng “buy” $1.16

Pro-IR incumbent tipped to win Yokohama mayoral race

Maybank Kim Eng analyst Yin Shao Yang has kept his “buy” call and $1.16 target price on Genting Singapore,

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Mayoral elections are round the corner in Yokohama, where Genting Singapore is in a joint venture to bid for its next big project.

Now, even as the majority of candidates are opposed to having the IR, Maybank Kim Eng analyst Yin Shao Yang is for now keeping his “buy” call and $1.16 target price on the stock.

According to Yin in his Aug 9 note, public sentiment in Yokohama does not favour having the IR. However, with the anti-IR camps split, the pro-IR incumbent “may just win”.

“If this were to happen, we maintain our view that Genting Singapore-Sega Sammy will prevail in the Yokohama IR request for proposal process. In our view, there is little downside risk as we gather that the market has not imputed any upside potential from a Yokohama IR,” notes Yin.

Out of the eight candidates in the run for the Aug 22 election, six are anti-IRs and the remaining two for. “That said, pundits reckon that there are only five candidates that carry real heft,” writes Yin, listing Fumiko Hayashi, the pro-IR incumbent, as one of these five.

“Channel checks reveal that if Ms Hayashi prevails, the winner of the Yokohama IR RFP process will be announced soon after,” adds Yin, whose $1.16 target price is based on a discounted-cash-flow model that includes a 30 cents per share contribution from a 50% ownership of the Yokohama IR. — The Edge Singapore

Riverstone Holdings
Price target:
RHB Group Research “neutral” $1.30

RHB stays ‘neutral’ on Riverstone on downtrend in glove prices

Despite a “strong” set of 1HFY2021 ended June earnings, RHB Group Research has kept its ‘neutral’ rating for Riverstone Holdings with an unchanged target price of $1.30.

In an August 6 research note, RHB’s Singapore research team says Riverstone’s 1HFY2021 results were in line with their estimates, with the company reporting a surge in earnings on higher average selling prices (ASPs) and volumes.

But looking ahead, the team anticipates earnings will be negatively impacted due to a weaker ASP outlook for gloves.

“We believe that long-term glove consumption growth remains solid due to higher hygiene awareness globally. However, we believe ASPs have peaked in 1QFY2021 due to rising competition from the new supply of gloves in the market,” the team explains.

The team also highlighted the company’s plan to complete Phase 7 of its expansion for FY2021, which will increase its capacity by 14% to 12 billion pieces per annum, up from its current total capacity of 10.5 billion pieces per annum.

The team discloses that its earnings estimates incorporate blended ASP assumptions of US$65 ($88), US$50 and US$39 per 1,000 pieces of gloves for FY2021, FY2022 and FY2023 respectively. — Atiqah Mokhtar

Far East Orchard
Price target:
DBS Group Research “buy” $1.70

‘Poised to rerate’ higher with pivot away from residential business

DBS Group Research’s Chung Wei Le and Derek Tan have maintained their “buy” call on Far East Orchard, along with an unchanged target price of $1.70.

According to them, the stock holds “deep value” and there are “compelling reasons to trade higher.”

They note that Far East Orchard is currently trading at a 12-month trailing price to book (P/B) multiple of 0.41 times, which is a deep discount to its hospitality peers (0.82 times) and purpose-built student accommodation (PBSA) peers (0.66 times).

As the stock pivots away from the lumpy residential business into recurring income-focused businesses (Hospitality and PBSA), they believe that earnings volatility will minimise and the stock should rerate higher.

Chung and Tan forecast earnings before interest and taxes (ebit) from PBSA to grow at a CAGR of 21.6% from FY2020–FY2025, led partly by an increase in the number of PBSA beds from 3,561 to 5,000 in 2025.

They see PBSA as an asset class that has shown resilience against economic downturns. “We believe that this segment will be Far East Orchard’s main growth engine in the next few years.”

Furthermore, the recovery in its hospitality segment is expected to boost earnings in FY2021 and FY2022 with the gradual return of leisure travel.

Far East Orchard also aims to add about 8,500 hotel rooms by 2025, and based on their estimates, this could translate to about $32 million and $7 million of additional revenue and ebit respectively.

They warn, however, that the main risk is the worsening of the Covid-19 situation, which could defer or deter any planned potential leisure travel, affecting Far East Orchard’s hospitality business.— Lim Hui Jie