Aztech Global
Price target:
CGS-CIMB Research ‘add’ $1.01
Room for order book to grow
Analyst William Tng at CGS-CIMB Research has reiterated his “add” call for Aztech Global 8AZ on the back of anticipated growth prospects, saying that there is room for its order book to grow. Tng has cut his target price to $1.01 from $1.02 previously.
Using the previous year as a guide, Tng thinks that Aztech could report q-o-q revenue/net profit growth for its 2QFY2023 ending June 30, which is expected to be announced by July 25. Noting that over the past three years, Aztech’s second quarter results have performed better than the first for both revenue and net profit, Tng expects this trend to continue in FY2023.
“We think that 2QFY2023 revenue/net profit could be $175 million (+8.2% q-o-q, –26.1% y-o-y)/$21 million (+56.5% q-o-q, –27.7% y-o-y). 1H2023 revenue/net profit could come to $336.5 million/$34.4 million,” he adds.
As at May 4, Aztech had an order book of $661.9 million that it was trying to deliver in FY2023, says Tng. Aztech is also on track to commence operations by 2QFY2023 at a new 300,000 sq ft facility at Pasir Gudang, Malaysia, for manufacturing internet of things (IoT) devices and data communication products.
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The analyst thinks that this facility could help Aztech gain a better competitive advantage in building IoT devices, and thereby secure greater value orders from customers and win new customers in market segments such as security camera-related products.
Citing a May 9 report from Marketsandmarkets, Tng notes that the video surveillance market generated US$48.7 billion ($65.77 billion) of sales in 2022 and it could post a CAGR of 9.4% (2022-2027) to reach US$76.4 billion by 2027.
“We think there is room for Aztech to grow its IoT-enabled security camera business given its still small revenue size of US$0.59 billion as at end-FY2022,” he says.
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In addition, Tng has a suggestion for Aztech to better align its dividend policy with the industry norm. He notes that most technology companies under CGS-CIMB’s coverage declare either interim and final dividends or only a final dividend, but in FY2022, Aztech declared dividends for 3QFY2022 and 4QFY2022.
He notes that Aztech’s FY2022 dividend payout ratio was above the industry’s average of 34% and the second-highest payout ratio after Venture Corp.
“We think Aztech could consider aligning with the industry practice and switch to paying dividends on an interim and final basis,” he says. “Aztech is targeting a minimum dividend payout ratio of 30.0% for FY2023 (per its 2022 annual report).”
Tng’s new target price of $1.01 is now based on an 8.3x FY2024 P/E, 0.5 standard deviations below its three-year average forward P/E, noting that inflationary cost pressures could remain a challenge for the rest of FY2023 and inefficiencies could add to costs as the Pasir Gudang plant is brought into operation. — Nicole Lim
Dyna-Mac
Price target:
Maybank Research ‘buy’ 40 cents
Positive on yard expansion plans
Maybank Research analyst Jarick Seet has maintained his “buy” call on Dyna-Mac with an unchanged target price of 40 cents as the engineering company focuses on its yard expansion plan.
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According to Seet, Dyna-Mac, which is currently operating close to full utilisation, is confident of leasing additional land near its current facilities by the end of 2023, which could potentially see its capacity expand by 30% to 40%.
The analyst says that this expansion would correspond with robust floating production storage and offloading (FPSO) demand in the medium term and expects revenue to increase at the same rate as its expanded capacity by some 30% to 40% from FY2024 ending December 2024 onwards.
Seet notes that Dyna-Mac is also exploring M&A opportunities and hopes to acquire similar businesses in the industry with recurring revenues. “As Dyna-Mac’s earnings are now almost entirely based on its order book, management is keen to diversify into more recurring revenue streams in similar industry segments and is exploring M&A opportunities on this front,” he explains.
“We believe this direction will be positive for shareholders as it will add more certainty to earnings and cash flows, especially during downturns,” adds Seet.
The analyst maintains a bullish long-term outlook for Dyna-Mac as he believes the company will be one of the key beneficiaries of the 2022 to 2026 multi-year upcycle the oil and gas industry is experiencing.
Seet adds that Dyna-Mac’s valuation at a 20.2x FY2023 P/E is undemanding compared to the 28.6x for global peers.
Catalysts for the company on the upside will arrive from the boom in the oil and gas sector; larger contract wins, which would boost its revenue and order book; and inorganic growth through acquisitions due to its net cash balance sheet. Additionally, Seet forecasts strong organic earnings growth of at least 30% CAGR for the next two years.
On the downside, a decline in oil prices would reduce investments in the oil and gas space, while higher labour costs would reduce Dyna-Mac’s margins. New competitors entering the industry could also temporarily reduce its market share, says Seet. — Bryan Wu
ComfortDelGro
Price targets:
Maybank Research ‘buy’ $1.45
UOB Kay Hian ‘hold’ $1.37
Unfazed by new platform fees
Analysts from Maybank Research and UOB Kay Hian Research have maintained their “buy” and “hold” calls for ComfortDelGro C52 Corporation (CDG) with unchanged target prices of $1.45 and $1.37, as CDG’s new platform fee comes into effect from July 1.
While CDG’s share price has underperformed on the back of slower-than-expected earnings after post-pandemic economic reopening, Eric Ong of Maybank believes the transport company could now be “turning the corner”.
Judging by CDG’s results for 1QFY2023 ended March, Ong believes the worst for the company could be over, with core ebit likely bottoming out despite near-term cost challenges. “We expect to see stronger growth in 2HFY2023, underpinned by continued margins recovery in its public transport services and taxi businesses,” he says.
With CDG acquiring some 1.15 million shares in the open market at an average price of $1.09 since May 23, Ong says that the recent share buyback signals emerging value in the stock.
He notes that CDG’s balance sheet is strong with a net cash position of $715 million (or 33 cents per share as at end 1QFY2023. His target price of $1.45 is based on a discounted cash flow model, which assumes an 8.3% weighted average cost of capital (WACC) and 1% long-term growth rate.
Also providing a boost to the company will be the implementation of a new platform fee of 70 cents for each ride booking made on the CDG Zig app from July 1. This new fee will also apply to limousine transfers made through its app but not for rides booked via phone calls or text messages or for street hails.
Ong says this is a “timely” move as CDG looks to roll out the next version of the app that comes with new and enhanced user features and services, which already include merchant deals, restaurant reservations and private bus charters.
Based on CDG’s ride volume of some 8 million in Singapore recorded in 1QFY2023, Ong estimates the platform fee will generate almost $6 million in additional revenue per quarter or $22 million annually.
Meanwhile, UOB Kay Hian analysts say that with the new platform fee aimed at improving the quality of the app’s procure-to-pay (P2P) services and features, this implies that the entire platform fee would go to CDG and not the drivers.
“This is in line with most of CDG’s domestic ride-hailing peers that already have platform fees implemented at similar rates, with most of the fees also going directly to the respective companies,” they say, adding that this should not reduce its ride-hailing market share as CDG is only just “playing catch-up” with what has become an industry norm.
With an estimated $11 million to $12 million h-o-h increase in revenue for 2HFY2023, the analysts have increased their full-year 2023 forecast for CDG’s taxi operating profit 76% higher y-o-y to around $92 million.
They have increased their FY2023, FY2024 and FY2025 patmi estimates by 8% to 16% on the back of higher contributions from the taxi segment to $165.3 million, $195.3 million and 216.6 million, respectively.
“Based on our estimates, the taxi segment would be CDG’s largest operating profit contributor in 2023 and 2024, given declining margins from the public transport segment,” say the analysts, adding that potential upside could come from further decreases in CDG’s taxi rental rebates in its upcoming quarterly review or increases to the 5% online taxi commission rate.
Maybank’s Ong points out that with competition easing as key ride-railing players such as Grab and Gojek work towards profitability, he believes CDG could raise its taxi booking commission rate, which stands at 5% compared to its industry peers of 15% to 20%, later this year.
However, despite improving fundamentals, a decent dividend yield and a robust balance sheet, the UOB Kay Hian analysts believe that CDG is “fairly valued” at current price levels. They recommend that investors take profit on any run-up in share price performance close to their target price of $1.27, considering that near- to medium-term earnings headwinds, margin compression and a lack of immediate catalysts are likely to cap share price performance. — Bryan Wu
HRnetGroup
Price target:
CGS-CIMB Research ‘hold’ 80 cents
Downgrade on weak macroeconomics and challenging labour market
CGS-CIMB Research has downgraded its “add” call to “hold” for HRnetGroup as a result of weak Singapore macroeconomic conditions and a challenging labour market in China.
Analysts Kenneth Tan and Lim Siew Kee have lowered their target price from $1 to 80 cents, based on a 13x FY2024 P/E, 0.5 standard deviations (s.d.) below FY2017-FY2022 mean, as they anticipate greater earnings uncertainties.
Tan and Lim expect Singapore to record a lacklustre gross domestic product growth of 1.3% y-o-y in 2023, given trade headwinds from a global slowdown. This is a key risk to the volume of jobs that HRnetGroup can match, they say.
“Key exports declined steeply (–15% y-o-y) for the eighth consecutive month in May as electronics exports came in weak. While the unemployment rate remained low at 1.8% (as at 1QFY2023 ended March), the job vacancies to unemployed persons ratio declined q-o-q to 2.28, signalling that labour market tightness has started to ease, in our view.” the analysts say.
In addition, Tan and Lim say that the pace of recovery in China, which is one of the company’s key markets, looks uncertain. They note that HRnetGroup said in its FY2022 AGM that its China operations were “severely impacted in 1QFY202” due to challenges in building business pipelines.
The latest China economic data released in June also seems to corroborate this, with both industrial output and retail sales falling short of Reuters consensus expectations.
“We turn more bearish on the pace of recovery as HRnetGroup’s China operations are mostly focused on clients in the industrial and technology sectors, which we view as vulnerable to the ongoing slowdown in global demand.” the analysts conclude.
Finally, Tan and Lim highlight downside risks to their permanent placement volume assumptions as employers turn more cautious amidst weakening macroeconomic conditions and the weaker-than-expected labour market recovery in China.
They also expect slower average placement revenue growth, despite rising wages, due to lower contributions from the technology and semiconductor industries which typically command higher salaries as compared to sectors such as retail and travel.
“While resilient flexible volumes and further recovery in travel-related revenue should help, we believe these are insufficient to offset the earnings impact from weaker perm. As such, we cut our FY2023–FY2025 permanent placement revenue by 4%–6%; this reduces our earnings per share forecasts by 4%–8% due to the lower margin mix,” they add. — Nicole Lim
StarHub
Price target:
DBS Group Research ‘hold’ $1.05
Awaiting clarity on earnings trajectory
DBS Group Research reiterates its “hold” recommendation on StarHub CC3 with a target price of $1.05 as the research house waits for more clarity on the group’s earnings trajectory. “As StarHub has committed to a minimum 5 cents dividend per share, its 5% dividend yield is reasonably attractive while waiting for earnings recovery,” says DBS.
Meanwhile, StarHub on June 26 earmarked approximately $50 million to establish a share buyback programme to repurchase up to 3% of its issued share capital of approximately 51.9 million shares. This is part of its DARE+ initiative to enhance long-term shareholder returns.
The programme will be financed through surplus cash, considering the group’s short to mid-term capital expenditure requirements, cash flow trends, cost savings, and the revenue and margin growth anticipated from its DARE+ transformation programme. It will also account for future growth plans and funding necessities.
For DBS, the magnitude of this buyback is more than the $2 million to $3 million bought back each year for employee stock options. As per the mandate, the company is authorised to repurchase up to 10% of the issued share capital; the maximum price the company will pay for repurchases will be 105% of the average closing price over five market days.
While in the case of off-market repurchases, the maximum price will be 110% of the average closing price over five market days. The completion timeline of the programme may extend beyond one year, depending on the purchase prices of the shares and the annual review and parameters outlined by the share purchase mandate.
DBS sees the potential of the buyback shares to be utilised for M&A, including industry consolidation.
The acquired shares will be held as treasury shares and utilised according to the objectives outlined in StarHub’s 2023 EGM circular, such as including annual vesting of employee share plans, potential utilisation as consideration for significant future M&A to enhance the company’s market position, or cancellation to reduce the company’s share capital.
“Additionally, as of 1QFY2023 ended March, StarHub maintains a low Net debt/Ebitda ratio of 1.45x, providing ample capacity for future investments to drive growth. This financial strength ensures sufficient flexibility for seizing potential opportunities that may arise,” says DBS. — Samantha Chiew
