BRC Asia
Price targets:
CGS-CIMB Research ‘add’ $2.30
DBS Group Research ‘buy’ $1.89
Construction activities ramping up
Following better-than-expected FY2023 ended Sept 30 earnings, CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have maintained their “add” call on BRC Asia BEC and raised their target price to $2.30 from $2.20. The steel supplier plans to pay a special dividend of 5.5 cents on top of a final dividend of 5.5 cents, bringing the FY2023 total to 16 cents, or a yield of 10%.
”We see BRC benefiting from a favourable construction sector outlook in 2024 driven by elevated industry order books and robust projects pipeline,” the analysts write in their Nov 22 note. Their $2.30 target price is based on an “undemanding” 6x FY2024 earnings, with support from the dividend of 10%.
In 4QFY23, the company booked a one-off $5.4 million impairment charge for its 17%-owned Maldives associate. Thanks to better margins, BRC’s core earnings for 4QFY2023 were up 8% y-o-y and up 43% q-o-q to $32 million, beating expectations.
BRC Asia is seen to continue to capitalise on robust construction activities this coming year. The CGS-CIMB analysts note that in September, construction output in Singapore, measured by progress payments, hit a multi-year high. “We see a robust pipeline of projects in 2024 from the public residential, specifically, the ramp-up of built-to-order flats, and infrastructure ones, such as railway projects, which we think BRC will be able to capitalise on given its dominant market share in Singapore’s reinforced steel industry,” the analysts say.
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Potential re-rating catalysts, according to CGS-CIMB, include better improvements in labour productivity driving a quicker recovery in construction activities and boosting BRC’s sales volumes. Downside risks include counterparty credit risks and weaker construction demand.
DBS Group Research is similarly positive about the stock with a “buy” call and $1.89 target price but warns that some potential hurdles ahead. Earlier this year, the so-called heightened safety period (HSP), which refers to a slower pace of construction activities following a spate of fatal accidents, ended.
According to DBS, this key overhang for BRC Asia has been removed because worksites can resume at a quicker pace. “BRC has already observed a general acceleration in the progress of local construction progress post-HSP but sees intermittent periods of downtime due to safety concerns and resource constraints,” warns DBS.
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“Additionally, higher electricity, manpower, and financing costs could exert some pressure on margins in the construction industry which may eventually flow through to BRC.” — The Edge Singapore
Venture Corp
Price target:
Maybank Securities ‘buy’ $15.40
Over-correction
Following indications of a pick-up in production volume, Maybank Securities analyst Jarick Seet has in his Nov 22 report raised back his target price for Venture Corp to $15.40, from $14 previously.
His previous target price of $14 was stated just over a fortnight ago on Nov 6 after the manufacturer gave its 3QFY2023 business update. The new price target on Nov 22 brings Seet’s estimate for this counter back to the level he had back in August.
Citing the company’s management, Seet says that customers’ inventory levels have dropped. In addition, mass production of new products has started in the current 4QFY2023 with more slated for the coming FY2024, likely leading to higher operating margins. “As a result, we are now more confident 3QFY2023 was the bottom for Venture and expect revenue and patmi growth in FY2024,” says Seet, who has kept his “buy” call.
For FY2024 and FY2025, Seet has raised his patmi projections by 7.1% and 9.8% respectively. Using a higher P/E multiple of 15x from 14.5x due to a brighter outlook, Seet derived a higher target price of $15.40.
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Furthermore, Venture has a track record of maintaining its dividends at a sustainable level in both good times and bad times. With $956.5 million in net cash, Seet believes Venture can maintain the 75 cents per share payout, which translates into a yield of 5.8%. “There is also potential to increase dividends if FY2024 performance is good due to its positive cash flow and strong balance sheet with no immediate huge capex plans,” he says.
Given how Venture’s share price has dropped by around a quarter year to date, Seet believes that’s an over-correction. “With a brighter outlook, we believe Venture is undervalued at current levels trading below its historical 10-year P/E of 16x,” says Seet.
“Venture has also conducted several share buy-backs, especially in October, which add conviction to our call that 3QFY2023 was likely the bottom for Venture,” he adds. — The Edge Singapore
Frasers Property
Price targets:
CGS-CIMB Research ‘add’ $1.41
DBS Group Research ‘buy’ $1.20
Undervalued privatisation candidate
CGS-CIMB Research and DBS Group Research are maintaining their “add” or “buy” calls on Frasers Property TQ5 despite a 2HFY2023 net loss of $74 million due to fair value losses of $441.8 million.
The company had booked the losses for its UK commercial properties and also its Australia-based industrial and logistics assets, no thanks to higher cap rates amid an environment of higher interest rates.
The fair losses brought its full-year earnings for FY2023 ended Sept 30 to $123.2 million, down 81.3% from $928.3 million in FY2022. Revenue was up 1.8% y-o-y to $3.95 billion.
Despite lower earnings, Frasers Property plans to pay a dividend of 4.5 cents, representing a payout ratio of 50%. In FY2022, it paid just 3 cents.
Keeping their “buy” call and $1.20 target price, which is pegged to a 60% discount to its RNAV of $3, DBS analysts Derek Tan, Rachel Tan and Tabitha Foo describe Frasers Property as an “unappreciated” developer.
They point out that the group is trading at a “remarkably cheap” valuation. For context, the value of its stakes in the various listed REITs already exceeds the current market cap of $3.1 billion.
Given its record low valuations of 0.3x P/B and 0.2x P/RNAV, it is deeply undervalued and an attractive privatisation candidate.
“The market is assigning zero value to its solid track record as a developer of residential homes in Singapore and Australia, global industrial and logistics sourcing and development platform, and fast-growing hospitality business,” the DBS analysts note.
The DBS analysts expect Frasers Property to enjoy a rebound in earnings for the coming FY2024, thanks to higher revenue recognition from its development projects in Singapore, China and Australia, with presales of around $2.9 billion already made.
The group is expected to see growth from its industrial, logistics, and commercial properties in Europe, the UK, Australia and Asean.
CGS-CIMB Lock Mun Yee, who has kept her “add” call on the stock, notes that Frasers Property is developing 17 new properties with a total space of 609,000 sqm in Australia and Europe, with an additional land bank of 2.4 million sq m, giving more room for further growth down the road.
Lock is also cheered by the improving hospitality portfolio, where RevPAR in Asia Pacific was up 60.5% y-o-y in FY2023 while Europe was up by 6.9%. Further growth is seen with the recent acquisition of two premium rental apartments in Shenzhen and Osaka.
While Lock has trimmed her earnings estimates for the coming FY2024 and FY2025 to reflect changes in the completion dates of some residential projects in Australia, she has kept her $1.41 target price, which is pegged to a 45% discount off the RNAV of $2.56.
The analysts of both brokerages agree that active asset recycling, which involves selling assets into listed REITs, is a positive move. — The Edge Singapore
SGX Group
Price target:
RHB Bank Singapore ‘neutral’ $10.30
Monthly volume trending lower
RHB Bank Singapore analyst Shekhar Jaiswal remains “neutral” about the Singapore Exchange S68 Group (SGX) after its disappointing set of market statistics for October.
“The disappointing market data from 1QFY2024 [ended Sept 30] for the cash equities business has trickled over to October,” writes Jaiswal in his Nov 17 report.
SGX’s securities turnover and securities daily average value (SDAV) came in “well below” Jaiswal’s FY2024 estimates despite the m-o-m increases. Both numbers remained lower on a y-o-y basis with $19.7 billion for total securities market turnover value and $897 million for SDAV.
“The year-to-date (ytd) securities market turnover value and SDAV for FY2024 are tracking 10% and 11% below the numbers for the same period in FY2023,” the analyst notes. “The implied FY2024 SDAV, based on data through September, is 14.8% below our estimate.”
Derivatives volume also fell although the implied FY2024 derivatives daily average volume (DDAV) remains in line with Jaiswal’s estimates.
While the analyst has kept his target price unchanged at $10.30, he notes that the group lacks near-term catalysts amid the uncertain macroeconomic outlook and the likelihood of a decline in interest rates in 2024. Annualising SGX’s current operating data would also lower Jaiswal’s target price estimate based on his sensitivity analysis to SDAV and DDAV.
He also sees fixed income, currencies, and commodities or FICC as growth drivers for SGX over the longer term.
“Despite SGX’s plans to boost dividends by a mid-single-digit percentage in the medium term, its yield is below the market yield of 5.6%. Our target price includes an 8% environmental, social and governance (ESG) premium to fair value (FV), which is based on 21x FY2024 P/E,” says Jaiswal. — Felicia Tan
Delfi
Price targets:
CGS-CIMB Research ‘add’ $1.56
UOB Kay Hian ‘buy’ $1.76
Election boost
Chocolate maker Delfi has reported a better ebitda for its 9MFY2023 ended September but analysts covering this counter have slightly trimmed their respective target prices as they project slower growth ahead amid greater macro uncertainty.
In 3QFY2023 ended Sept 30, Delfi’s ebitda dipped by 6.3% y-o-y to US$12.9 million ($17.2 million) while revenue was 12.9% higher y-o-y to US$126.4 million but just a 0.8% improvement q-o-q. The softer 3QFY2023 was in line with seasonal trends, where marketing and distribution costs held steady even though demand dipped.
However, for 9MFY2023, Delfi reported patmi of US$32.8 million, up 22.1% y-o-y. Revenue was up 15.2% y-o-y to US$412.6 million. Ebitda reached US$52.8 million, up 9.4% y-o-y.
For the current 4QFY2023, Tay Wee Kuang of CGS-CIMB Research, who has an “add” call on this counter, expects the company’s operating margin to recover because of operating leverage.
Given slower revenue growth ahead, no thanks to a weaker macroeconomy, higher raw material costs and unfavourable forex, Tay has trimmed his earnings projected for Delfi’s FY2023 and FY2025 by 3.8% and 5.6%.
His lower target price of $1.56, from $1.65 previously, is still pegged to 15x FY2024 earnings, which is slightly below the historical average since FY2018 due to tapering revenue growth rates.
Re-rating catalysts include stronger-than-expected 4QFY2023 revenue momentum and better consumer sentiment as Indonesia heads to the polls later next year.
In their Nov 21 note, UOB Kay Hian’s John Cheong and Heidi Mo kept their “buy” call on Delfi as they expect the company to enjoy revenue growth in its home market of Indonesia next year as “handouts by political parties, which usually kick off campaigns, may boost chocolate sales”.
However, to account for higher material costs, they have cut their FY2023 and FY2025 earnings by 4%, leading to a reduced target price of $1.76 from $1.83 previously. — The Edge Singapore
UMS Holdings
Price targets:
UOB Kay Hian ‘buy’ $1.56
CGS-CIMB Research ‘buy’ $1.49
Maybank Securities ‘buy’ $1.44
DBS Group Research ‘buy’ $1.55
Poised to ride on recovery
Analysts from UOB Kay Hian, CGS-CIMB Research, Maybank Securities and DBS Group Research have maintained their “buy” calls on UMS Holdings 558 following better 3QFY2023 ended Sept 30 numbers over the preceding 2QFY2023.
In 3QFY2023, UMS reported earnings of $15 million, 64% lower y-o-y but 32% higher q-o-q. This brings its 9MFY2023 earnings to $44 million, down 46% y-o-y. UMS, rare among tech stocks for paying quarterly dividends, plans to pay 1.2 cents for 3QFY2022, which is the same as 2QFY2022 and 1 cent higher than in 1QFY2022.
UMS’s 3QFY2023 earnings were in line with expectations by UOB Kay Hian and Maybank although it is higher than CGS-CIMB Research’s full-year estimates but lower than DBS’s expectations.
UOB Kay Hian analyst John Cheong sees a “buoyant outlook” supported by the “sanguine guidance” of outperformance. His positive view is also reinforced by how UMS benefited from improved material margins which grew to 51.2% in 3QFY2022 from 50.5%, thanks to favourable forex and renewal of its integrated system contract with its key customer.
UMS’s revenue continued to show signs of stabilisation in 3QFY2023, falling 29% y-o-y but only declining 4% q-o-q. Revenue in the semiconductor segment fell 30% y-o-y due to slower global semiconductor demand while revenue in UMS’s other segments plunged 55%, mainly due to a weaker material and tooling distribution business which was affected by the general business slowdown.
“The decline in semiconductor revenue was due to a 34% drop in component sales, from $45 million in 3QFY2022 to $30 million in 3QFY2023 and a 25% y-o-y decline in the group’s Semiconductor Integrated System (SIS) sales from $45 million in 2QFY2022 to $33 million in 3QFY2023,” notes Cheong.
All key geographical markets of UMS posted lower sales this year with revenue in Singapore falling 28% y-o-y, US sales decreasing 12% due to lower component sales for new equipment and revenue in Taiwan declining 37% as a result of lower component sales.
Despite this, UMS expects performance in the coming months to be supported by the positive guidance of some major semiconductor equipment makers who expect to deliver sustainable outperformance.
According to Semiconductor Equipment and Materials International (Semi), an FY2024 rebound is expected to continue through FY2026, with wafer shipments setting new highs as silicon demand increases to support artificial intelligence (AI), high-performance computing (HPC), 5G, and automotive and industrial applications.
Semi also predicts fab equipment spending to recover to US$97 billion ($130 billion), representing a 15.5% y-o-y rise, while total foundry capacity, consisting of foundry as well as integrated device manufacturers, is set to increase by 7% in 2024.
“Investments into fab construction projects which hit a historical high in FY2023 are expected to continue at a higher level in FY2024,” says Cheong, adding that UMS has also secured an in-principle agreement with its new customer for a new renewable three-year contract.
“This new customer contract win will boost UMS’s buoyant outlook as its new Penang facilities will be ready for volume production by September. The production ramp-up will enable it to take on new orders from its new customer which is estimated to reach at least US$30 million next year,” writes Cheong.
Cheong’s unchanged target price of $1.56 is based on a P/E valuation of 13.5 times UMS’s FY2024 earnings per share (EPS) or 0.5 standard deviations (s.d.) above its historical mean P/E.
CGS-CIMB Research analyst William Tng has kept his target price unchanged at $1.49, which is still based on 12 times 2025’s P/E and 1.0 s.d. above its 10-year average P/E, given the potential upswing in UMS’s net profit.
As UMS’s profit was better than expected, Tng has raised his FY2023 earnings per share (EPS) forecast by 4% to factor in the better gross material margin and lower tax rate.
For Ling Lee Keng of DBS, UMS’s 3QFY2023 results were below her expectations. Nonetheless, she still deems it a “strong performance”, with UMS’s 2HFY2023 recovery remaining “intact”.
As such, she has increased her target price to $1.55 from $1.51 previously, pegged to a higher P/E of 13x, near the 1 s.d. level from its four-year average, and up from 12 times as she expects UMS’s outlook to improve.
In addition, UMS’s new Penang facilities allow the company to position it as an alternative site to capture industry volume trying to avoid sour trade ties between the US and China. “More companies are looking to diversify their manufacturing footprints. The completion of the new plant in Penang offers new growth opportunities,” says Ling.
Maybank Securities’ Jarick Seet also likes UMS’s brighter prospects due to the anticipated recovery in the semiconductor industry in FY2024. Noting the raised dividends during the 2QFY2023, the analyst expects UMS to continue its dividend of 1.2 cents per share for the 4QFY2024, bringing its total yield for FY2024 to 4.3%. — Douglas Toh
Valuetronics Holdings
Price targets:
PhillipCapital ‘buy’ 70 cents
UOB Kay Hian ‘buy’ 72 cents
Cash equals 90% of market cap
Following better-than-expected first-half numbers, PhillipCapital and UOB Kay Hian have become more positive about Valuetronics BN2 Holdings.
In 1HFY2024 ended Sept 30, the Hong Kong-based manufacturer reported earnings of HK$82.1 million ($14.3 million), up 42% y-o-y, which was 62% of what PhillipCapital’s Paul Chew was projecting for the full fiscal year.
Chew, who has kept his “buy” call, believes that the company’s margin recovery due to a better product mix, a weaker renminbi, plus new growth from four new customers in the coming two years, will lead to a stronger set of 2HFY2024 numbers and better earnings visibility.
Having raised his FY2024 earnings forecast by 15%, Chew has a new target price of 70 cents for the counter, which is pegged to the industry average’s 11x forward earnings. His previous target price was 61 cents.
In addition, Chew believes the share price will see support from the company’s cash balance of HK$1.14 billion, equivalent to 90% of its market capitalisation.
At current levels, Valuetronics trades at a dividend yield of around 6% and there is further support in the form of a HK$182 million share buyback (of about 58 million shares), he adds.
UOB Kay Hian’s John Cheong, meanwhile, has upgraded his call to “buy” with expectations that the new “promising” customers will help generate more earnings in the coming months, along with a higher target price from 56 cents to 72 cents.
Cheong has raised his earnings forecasts for FY2024, FY2025 and FY2026 by 20%, 17% and 13% respectively after increasing his gross margin estimates by 2.6 percentage points to 15.6% to take into account a smoother supply chain and lower labour and material costs.
With the company’s sizeable cash balance, Cheong has also doubled his interest income estimates to between HK$52 million and HK$54 million.
“Valuetronics is currently trading at only 1x FY2024 ex-cash P/E and offers an attractive FY2024 dividend yield of around 7.7%,” states Cheong, whose new target price of 72 cents is pegged to 10.6 times FY2024 earnings. — Felicia Tan
Sea
Price targets:
PhillipCapital ‘buy’ US$61
Maybank Securities ‘buy’ US$62
Target cut on subdued outlook
Analysts from PhillipCapital and Maybank Securities have maintained their ‘buy’ calls on Sea following its 3QFY2023 ended Sept 30 results but have both cut their respective target prices given the subdued outlook.
PhillipCapital’s Jonathan Woo has a target price of US$61 ($81.86) from US$87 while Maybank’s Kelvin Tan has a target price of US$62 from US$80 previously. Woo says Sea’s near-term outlook is clouded by higher spending and competition.
Sea’s revenue in 3QFY2023 came in line with Woo’s expectations. However, he was disappointed by the net loss of US$15 million, no thanks to a 50% y-o-y surge in spending on e-commerce sales and marketing, which reversed three prior quarters of profitability.
While Sea’s Shopee e-commerce unit has gained market share as measured using gross merchandise value (GMV) and gross orders return to strength, it has come at the cost of profitability.
In 4QYF2023, Sea plans to spend more as it is seasonally the best time to acquire new users and gain market share, says Woo, adding that spending will persist into the coming FY2024 in new growth markets such as Latin America, says Woo.
Nonetheless, he agrees that this spending has “somewhat” paid off for 3QFY2023 as seen by Shopee’s sequential increase in both its GMV/Gross orders, up 11% and 24% q-o-q respectively. Meanwhile, core marketplace revenue was up 32% y-o-y to US$1.3 billion.
However, despite the release of its new game Undawn in June which Woo had anticipated to result in user growth, bookings and quarterly active users (QAU) were flat q-o-q for Garena, Sea’s gaming unit.
“On a y-o-y basis, QAU decline (–4%) seems to be moderating, although bookings are still down 33% y-o-y, implying still present near-term headwinds for gaming as its largest and most profitable game, Free Fire, continues to decline in popularity,” says Woo.
Woo expects Sea to be profitable in FY2024, with its commitment to not overspend on Shopee, plus profitability contribution from Garena and SeaMoney. However, to take into account higher spending, Woo has cut his FY2023 ebitda projections by 19% and FY2024’s by 16% to reflect a ramp-up of investments, and has a lower discounted cash flow target price of US$61 from US$87.
Likewise, Tan from Maybank notes Sea, due to the higher spending to drive e-commerce volumes, has resulted in a 9MFY2023 patmi of US$274.2 million that is “way below” the consensus FY2023 forecasts.
The analyst expects near-term share price consolidation given the uncertainty about the effectiveness of its investments to re-accelerate Shopee and its ability to counter intense competition.
As Temu, the overseas arm of China’s e-tailer Pinduoduo, has made a foray into Southeast Asia, alongside persistent competition from TikTok Shop, Tan thinks that pressure to invest could intensify and cloud Sea’s net profit path.
However, he notes that he continues to see significant longer-term potential for the business given its market-leading position, ecosystem of services across e-commerce and financial services coupled with favourable regional dynamics given expectations for both e-commerce and gross domestic product growth in the region.
As such, he has cut his growth outlook for Shopee, reducing his FY2023–FY2025 earnings forecasts by 31%–42%. “Our TP is cut to US$62 based on a lower e-commerce multiple,” the analyst says. — Nicole Lim
