CapitaLand Investment
Price target:
Citi “buy” $4.65
Maiden share buyback ‘a pleasant surprise’
CapitaLand Investment’s (CLI) maiden share buyback of 2 million shares is “a pleasant surprise”, says Citi Research analyst Brandon Lee.
“While we would have liked CLI to cancel the shares, we see the move as a great start for a company that listed less than a month ago whereas the last share buyback done by CapitaLand took place over three years ago,” writes Lee in an Oct 12 note.
Lee is recommending “buy” on CLI with a target price of $4.65, which represents an upside of 38.8%.
CLI bought back 2 million shares, or 0.04% of its share base, for $6.8 million on Oct 11. The average purchase price between $3.37 and $3.38 is slightly above the last closing price of $3.35.
CLI’s share purchase mandate stands at 260.2 million shares or 5% of the share base and management’s current intention for the treasury shares is to use them in employee share schemes, letting management take advantage of tax deductions and mitigates dilution impact on existing shareholders.
“Subject to the prevailing market conditions, CLI intends to continue making share purchases via market purchases on the Singapore Exchange to increase its number of treasury shares for partially or fully satisfying any share awards obligations under its share schemes,” writes Lee.
Lee views CLI’s maiden share buyback positively for two key reasons.
Firstly, it sends an indirect signal to the market that management views the current price of $3.38, which is 1.15 times the book value at 1QFY2021 ended March 31 as an undemanding price for the stock, says Lee. Secondly, the move will improve both return on equity and return on assets, he adds.
On Sept 20 and 23, CLI’s chairman Miguel Ko purchased 0.7 million and 0.6 million shares respectively, both times forking out $2.1 million.
Separately, CLI’s 31%-owned CapitaLand China Trust (CLCT) has announced the acquisition of four logistics properties in China for RMB1.7 billion ($350.7 million).
This will expand CLCT’s assets under management by 8% to $4.7 billion. “Aside from a oneoff acquisition fee of $3.5 million, we estimate CLI will earn incremental recurring fee-related earnings (FRE) of $2.5 million, comprising $1.6 million in REIT fees and $0.9 million in property management fees.”
Shares in CLI closed 3 cents higher, or 0.90%, at $3.38 on Oct 12. — Jovi Ho
SATS
Price target:
Citi “buy” $4.70
Vaccinated travel lanes expand to nine more countries
Citi Research analyst Kaseedit Choonnawat has kept “buy” on SATS with a target price of $4.70 as Singapore announced that it was expanding its vaccinated travel lane (VTL) lists to nine more countries.
From Oct 19, Vaccinated travellers will be able to fly to Canada, Denmark, France, Italy, the Netherlands, Spain, the UK and the US.
Vaccinated travellers will also be able to fly to South Korea from Nov 15 under the VTL scheme.
According to Choonnawat in an Oct 10 report, SATS will be a key beneficiary on the expansion of the VTLs. The airline company is also his top pick among the Asean aviation sector, he reveals.
The way he sees it, the VTL is different to the reciprocal green lanes (RGLs) in that it is better for the travel sector. RGLs targets essential travelling and requires official or company sponsorships, which have been yielding limited passenger traffic recovery at Changi Airport.
“We believe VTLs should show more positive results as potential travellers can self apply online, most counterparty countries have been accepting international visitations without mandatory quarantine, i.e., Europe with certain conditions and visible empirical evidence of international travelling recovery among leisure centric countries such as Mexico and Turkey,” he writes.
While traffic recovery from VTLs to Singapore may not be as sharp as leisure-centric countries, Choonnawat estimates that the expansion will cover some 16% of 2019’s arrivals to Singapore.
The leisure segment accounts for just over 50% of visitors’ purpose to Singapore. Business purposes, on the other hand, account for around 40%.
Choonnawat says his forecast of SATS’s FY2022 passengers handled reaching 39% of FY2020 is subject to delay risks. However, his forecast is “moving in the right direction in our view”.
In his report, Choonnawat’s estimates include an average weighted average cost of capital (WACC) of 8.2%, a medium-term traffic CAGR of 3.3% over FY2020–FY2030. The CAGR uses the traffic at Changi Airport as proxies. Choonnawat has also estimated SATS’s capital expenditure (capex) to be at $1.5 billion over the next nine years.
Downside risks include challenges related to logistics for the leading vaccine and new Covid-19 variants. “However, we believe investors would take a forward view given the credibility of the latest vaccine development. Other counterparty countries taking longer than expected to reciprocally reopen borders with Singapore would delay traffic recovery. Any of these or other factors that impact flight traffic volumes could cause the shares to fail to reach our target price,” he says. — Felicia Tan
Singapore Telecommunications
Price target:
CGS-CIMB “add” $2.90
Top pick from an ‘overweight’ sector
Analysts at CGS-CIMB remain “overweight” on the Singapore telco sector as the earnings risk from more intense mobile competition due to TPG’s entry have been priced in.
In an Oct 8 report, analysts Foong Choong Chen, Ong Khang Chuen and Andrea Choong say the mobile segment is expected to be more stable, with enterprise revenues rising stronger in CY2022 compared to the previous year.
The key downside risks for the sector include worse-than-expected mobile competition and a prolonged Covid-19 travel restriction. The former would weigh on Singtel and StarHub’s mobile revenue performance, while the latter would delay the full recovery of both mobile network operators’’ international roaming and prepaid revenues.
The analysts choose Singtel as its top pick, while also highlighting StarHub and Netlink NBN Trust (Netlink Trust) with “add” recommendations for all three counters. CGS-CIMB’s target price for Singtel, StarHub and Netlink Trust are $2.90, $1.65 and $1.10 respectively.
Singtel and StarHub are the environmental, social and corporate governance (ESG) leaders in Asean, the analysts point out. Both companies topped CGS-CIMB’s Asean ESG rankings, with scores surpassing its peers in Malaysia and Thailand within the firm’s coverage as at end-CY2020.
Although Netlink Trust could not be compared directly against the other telcos due to the difference in its business model, the analysts believe that the company has also fared well in its sustainability efforts and would see a further rating improvement in the coming year.
StarHub was ranked marginally higher than Singtel for data privacy and security. This was due to StarHub’s lower number of major reported incidents, proactive surveillance and its transparent approach to resolving issues.
The analysts add that both Singtel and StarHub have made big investments to beef up their commercial cybersecurity capabilities in the past six years and are well-placed to capture the strong demand in Singapore and Asia Pacific.
The cybersecurity revenue for Singtel and StarHub grew to $564 million and $221 million respectively in CY2020. This represents 8% and 14% of Singtel Singapore and StarHub’s total service revenue.
While Singapore telcos are not big carbon emitters, the analysts say the environmental pillar may gain importance in the future, due to the telcos’ growing data centre business and the possibility of the government raising carbon tax higher than earlier indicated.
In this front, the analysts ranked Singtel slightly higher than StarHub, as the former has set more ambitious targets towards net-zero carbon emissions by 2050. It also reports on broader environmental metrics. Climate-related matters constitute 20% of its ESG key performance indicators, which in turn have a 20% weight in the top management’s long-term incentives schemes.
While Singtel, StarHub and Netlink Trust have all played their role to narrow the digital divide, CGS-CIMB’s analysts say Singtel is a clear leader for driving financial inclusion and positioning itself for future opportunities in digital financial services.
Aside from its Dash e-wallet, Singtel is also part of a Grab-led consortium that has secured a digital full-bank licence in Singapore. The analysts add that the Grab-Singtel consortium is also a front runner to securing a digital banking licence in Malaysia, which may be issued in 1Q2022. — Khairani Afifi Noordin
Koufu Group
Price target:
Maybank Kim Eng “buy” 78 cents
Key beneficiary of ‘Covid-19 resilience’
Maybank Kim Eng analyst Eric Ong has initiated a “buy” on Koufu Group with a target price of 78 cents, given how the food court operator is seen as a key beneficiary of Singapore’s “reopening”, as the country moves towards “Covid-19 resilience”.
“Despite the government’s cautious approach, Singapore remains firmly on the path of reopening as it extends quarantine-free travel to more countries, with almost 85% of the population fully vaccinated. Hence, we believe footfall at its outlets will improve once the restrictions are gradually eased,” says Ong in his Oct 11 report.
The target price is based on an 18 times FY2022 price-to-earnings ratio, in line with its local peers, says Ong, noting that backed by its robust cash flow-generative business, the company is currently in a net cash position of $68.8 million.
With this strong balance sheet, Koufu continues to expand and strengthen its presence with new F&B outlets in Singapore and overseas. In 1H2021 ended Jume 30, Koufu opened one food court with one self-operated F&B stall, two R&B Tea kiosks and three Dough Culture kiosks in multiple locations.
Another two new food courts at Marina Square, NTU and one food court shop at its new Koufu headquarters were opened in 3Q2021.
To widen its footprint in Singapore, Koufu had recently opened a food court at Outram Community Hospital. It also secured leases for a Dough Culture kiosk at Jurong East MRT Station and a Grove quick service restaurant at Northshore Plaza in 4Q2021.
Moving forward, Koufu’s expansion plans will focus on new housing estates, hospitals, malls and tertiary education institutions. The company is also actively looking for joint ventures partners to bring the R&B Tea brand to Thailand and Malaysia as it progressively introduces other F&B retail brands into various markets.
The company also aims to set up at least 20 outlets by FY2023 to further expand the Grove brand. Ong expects the new stores to contribute positively to its organic growth upon opening.
Meanwhile, Koufu obtained a Temporary Occupation Permit in April for its new integrated facility in Woodlands. The company expects to progressively commence operations from the integrated facility starting in 4Q2021, says Ong.
He adds that about 75% of the 20,000 sq m gross floor area will be used for its own operational purposes including a cloud kitchen, while the rest has been fully sublet to third-party operators. — Khairani Afifi Noordin
Raffles Medical Group
Price target:
RHB “buy” $1.65
Price upgrade on further border reopening
News of the further opening of Singapore’s borders has pushed RHB Group Research’s Shekhar Jaiswal to increase his price target on Raffles Medical Group from $1.45 to $1.65.
“Our new target price implies 2022 P/E of 39 times, which is in line with the P/E multiple for regional (Asean) healthcare operators,” he explains.
Jaiswal’s move comes as the healthcare operator — which is the sole provider of Covid-19 Polymerase Chain Reaction (PCR) tests at Changi Airport — is expected to benefit as Singapore opens up vaccinated travel lanes (VTL) with more countries, with up to 3,000 passengers entering Singapore daily once all 11 VTLs are operational.
Passenger arrivals from the 11 VTL countries accounted for around 10% of Changi Airport’s pre-Covid-19 arrivals. As such, Jaiswal reckons Raffles Medical will benefit from having more on-arrival PCR tests to administer.
Meanwhile, the analyst believes the company’s near-term revenue growth will be supported by the conversion of the Connect@Changi facility into a dedicated Covid-19 treatment facility (CTF).
This will be among the five CTFs set up over the past two weeks to augment the capacity of hospitals.
Going forward, Jaiswal is expecting Raffles Medical to have a 5% to 13% increase in its profit between 2021 to 2023, amid better operating metrics.
Key risks he foresees include delays in the reopening of Singapore’s borders as well a push back in the ebitda breakeven timeline for the Raffles Hospital in Chongqing. — Amala Balakrishner
Mapletree North Asia Commercial Trust
Price target:
DBS Group Research “buy” $1.30
Worst could be over for Festive Walk
DBS Group Research has kept “buy” on Mapletree North Asia Commercial Trust (MNACT) with a higher target price of $1.30 from $1.20 as the REIT’s unit price looks set to re-rate.
“We believe that operational metrics will continue to improve on the back of continued re-opening in Hong Kong, driving 9% CAGR in DPU over the coming two years,” write analysts Derek Tan and Geraldine Wong in an Oct 11 report.
According to Tan and Wong, MNACT’s 7% yield is the highest among its class of large- and mid-cap peers.
In addition, the worst could be over for the REIT’s anchor asset, Festival Walk, which contributes some 55% to its overall revenue.
“Festival Walk may be poised for an operational turnaround as Covid-19 cases in Hong Kong dive down and the continued re-opening of the Hong Kong retail scene. In addition, its strategic pivot to office properties in Japan and Korea offering long weighted average lease expiries (WALEs), anchors the stability of its overall portfolio going forward,” write the analysts.
Following the recent inclusion of several Singapore REITs (S-REITs) in the EPRA Nareit Developed Asia Index, Tan and Wong believe MNACT is next.
The REIT’s recent acquisitions from Japan and Korea have caused the analysts to estimate that MNACT will derive over 75% of its PBIT from developed markets.
That may set the possibility of its inclusion in the index, “which should help to further improve liquidity in the medium term”.
In their report, Tan and Wong see that they are more buoyant on the counter compared to that of the consensus, who “tend to ascribe too high a risk on the stock given its exposure to Festival Walk”.
“Acquisitions would enable MNACT to reduce its reliance on this property and accelerate its growth momentum,” they add.
Key risks, however, would include the event of a significant downturn in Hong Kong and China’s economies, leading to lower rents. — Felicia Tan
