China Sunsine Chemical Holdings QES
Price target:
UOB Kay Hian ‘buy’ 57.5 cents
China reopening brightens outlook
UOB Kay Hian analysts Heidi Mo and John Cheong have maintained their “buy” call on China Sunsine Chemical Holdings with a higher target price of 57.5 cents from 45 cents previously, citing a less challenging outlook for the company following China’s reopening.
The analysts note that China Sunsine’s 2HFY2022 ended December 2022 results aligned with their expectations. Its net profit fell by 11% y-o-y to RMB214.9 million ($41.4 million), bringing 2022 core profit to 95% of UOBKH’s estimates.
China Sunsine’s 2HFY2022 performance came from lower revenue of RMB1.8 billion, 8.4% lower y-o-y due to a decline in sales volume and a decrease in average selling prices (ASPs) of rubber accelerators.
In FY2022, overall ASP increased by 8% y-o-y to RMB20,237 per tonne, as China Sunsine was able to pass on the increase in raw material prices to customers, the analysts add. This drove the 2.7% y-o-y rise in 2022 revenue, offset by the 5% lower sales volume.
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Due to the lower recorded revenue, China Sunsine’s gross profit fell by 4.9% y-o-y to RMB469.9 million in 2HFY2022. However, the period’s gross margin expanded by 1 percentage point (ppt) y-o-y, with a more favourable sales mix consisting of a higher proportion of antioxidant products.
China Sunsine’s full-year gross and core profit margins also improved by 2.3 ppt and 1.3 ppt, respectively.
The analysts highlight that China Sunsine had in October last year commenced the construction of a project with a 20,000 tonnes per year capacity for an intermediate material used to produce many kinds of accelerators. The construction of phase two of an insoluble sulphur project will also increase the company’s insoluble sulphur capacity by 50% to 90,000 tonnes per year.
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These projects are expected to be completed by the end of this year and are likely to lift sales volume when operational, Mo and Cheong add.
Due to lower expectations for the crude oil price, according to the US Energy Information Administration, UOBKH has tweaked its FY2023 and FY2024 gross margin assumptions to 30% and 29.1%, respectively.
“We have also raised FY2023 and FY2024 earnings estimates by 6% and 7% to RMB491 million and RMB575 million, respectively, on account of an improved outlook for automobile sales in China, which is expected to grow at 4% y-o-y in 2023,” they add. — Khairani Afifi Noordin
Wing Tai Holdings W05
Price target:
Lim & Tan Securities ‘accumulate’ $1.95
Attractive valuations, positive outlook
Lim & Tan Securities is keeping a positive outlook on property developer and retail operator Wing Tai Holdings, with analyst Chan En Jie maintaining his “accumulate” call on the counter with a target price of $1.95.
Wing Tai’s 1HFY2023 ended Dec 31, 2022 revenue and operating profit came in at $260.8 million (–14.9% y-o-y) and $29.1 million (–43.0% y-o-y) respectively, from lower progressive sales as less than 95% of its development units in Singapore have been sold.
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“Going forward, redevelopment of Lakeside Apartments en-bloc is targeted to commence in FY2024, while the successful tender for the freehold Holland Tower site in March will add to its landbank,” says Chan, adding that he believes that the demand for this launch will remain resilient, given the limited supply of new residential developments in the Lakeside region with the most recent launch way back in 2016.
The group continues to see steady profitability from its Uniqlo joint ventures (JV) in Singapore and Malaysia in its retail segment. Taking reference to Uniqlo parent company Fast Retailing’s 30 times P/E valuation on the Tokyo Stock Exchange, Wing Tai’s share of Uniqlo JV profits of $44.8 million in FY2022 would have valued Wing Tai at $1.3 billion, above its current market cap (without even including its development and investment properties segment). Wing Tai’s overall market cap is $1.20 billion as of April 4.
“Backed by the reopening of borders and return of tourism, the recurring Uniqlo income serves to smoothen Wing Tai’s lumpy property development earnings (especially in Hong Kong),” says Chan.
The group’s property interest in Hong Kong is represented by its 34.1% stake in the associated company, Wing Tai Properties. Wing Tai Properties has seen the fair value of its investments and development units marked down by HK$1.2 billion ($200 million) due to a weakened economy and property market in 2022, rising interest rates and an uncertain economic outlook. As a result, Wing Tai Properties saw a consolidated loss of HK$540 million in FY2022 ended Dec 31, 2022 compared to a gain of HK$854 million in FY2021.
“Wing Tai’s FY2023 results may be impacted by the losses from its 34.1% stake in the Hong Kong-listed Wing Tai Properties. However, we note that these losses are non-cash in nature, and Wing Tai Properties can deliver a relatively stable core business profit, enabling them to deliver an unchanged full-year dividend payment of 27.0 HK cents per share,” says Chan, who has decreased the group’s FY2023 net profit by 27% for factor in potential downward pressure from Wing Tai Properties.
Supported by a low net gearing of 8.1% and a dividend yield of 4.1%, Wing Tai trades at an undemanding 0.34 times P/B compared to its four-year historical mean P/B of 0.44 times. “The group’s cash buffer of $412.8 million provides firepower for landbank replenishment, and a gearing ratio of 30% can provide Wing Tai an additional $500 million cash for potential acquisitions and opportunistic purchases,” says Chan. — Samantha Chiew
Mapletree Logistics Trust M44U
Price targets:
CGS-CIMB Research ‘add’ $1.88
Maybank Securities ‘buy’ $1.80
AUM growth following acquisition
Analysts are upbeat on Mapletree Logistics Trust (MLT) following the REIT’s continued portfolio rejuvenation and recycling efforts.
CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong have maintained their “add” call on MLT with a higher target price of $1.88 from $1.84 previously, as the REIT resumes its asset under management (AUM) growth.
Lock and Ong note that MLT has proposed the acquisition of eight properties in Japan, Australia and South Korea for $913.6 million, or at a 4% discount to independent valuation. The eight modern logistics warehouses are fully leased with a weighted average lease to expiry (WALE) of 4.4 years and will boost MLT’s portfolio occupancy to 97%, after the purchase.
“Not only are the Japan assets located close to major highways and population catchment areas, but management indicated that some of the properties are under-rented, providing potential rental upside upon lease renewals. Meanwhile, the Australia and South Korea assets have stable cash flows with built-in rental escalations,” they add.
Lock and Ong say the acquisition of the eight properties, which is expected to be completed by May, will “rejuvenate” MLT’s portfolio, as the average age of the eight properties is 5.5 years, as well as deepen the REIT’s footprint in Tokyo, Sydney and Seoul, where there are tight supply and low vacancy rates for logistics warehouses.
Post-transaction, they expect 73% of MLT’s AUM to be in developed markets compared to 70% previously. The acquisitions are expected to generate an initial property yield of 3.5% in Japan, 4.7% in Australia and 4.6% in South Korea, and are accretive when compared to management’s guidance of an average 2.3% funding cost.
MLT intends to fund the acquisitions through a combination of net additional debt and proceeds from a private placement. The trust also plans to secure new Japanese yen debt to provide a full natural hedge to its properties as well as take on a new renminbi loan to increase its natural renminbi hedge within its portfolio.
Overall, the REIT estimates its pro forma gearing will rise to 39.9% from 36.6%, post-transaction, while pro forma distribution per unit (DPU) is expected to show a 2.2% accretion. “With its balance sheet still on solid footing, we believe MLT would likely look to tap into new acquisition opportunities even as it continues on its capital recycling strategy,” say Lock and Ong.
On the other hand, Maybank Securities analyst Krisha Guna upgraded his call on MLT to “buy” from “hold” with a higher target price of $1.80 from $1.60.
“The deal will deepen MLT’s regional network and improve the quality with new-build, better specs freehold assets,” the analyst writes in his report dated March 31.
“Assets are 100% occupied on a weighted average lease expiry (WALE) of 4.4 years, longer than the current portfolio. Step-up rents in Seoul and Sydney and under-rented portfolio in Japan should result in organic growth as well,” he adds. “Pro forma DPU and NAV accretion for 9MFY2022/2023 is 2.2% and 0.6% respectively. Gearing will increase to 39.9% (+3.3% percentage points or ppt).”
In his view, MLT’s continuing to pursue its stated strategy of rejuvenation and opportunistic recycling through accretive deals is a plus while China’s growing consumption augurs well for the REIT. About 22% of MLT’s gross rental income (GRI) is from China. — Bryan Wu & Felicia Tan
DBS Group Holdings D05
Price target:
RHB Bank Singapore ‘buy’ $39.80
Lower target price following service disruption
DBS Group Holdings’ digital banking service disruption last week was but a “transitory dampener”, say RHB Bank Singapore’s analysts. Nevertheless, the glitch has hurt DBS’s reputation as a leading digital and technology bank, and they add that warnings of supervisory action would likely keep its share price range-bound in the near term.
As a result, RHB analysts have cut DBS’s target price to $39.80 from $42 in an April 3 note while keeping “buy” on Singapore’s largest bank. The new target price represents a 21% upside against a last traded price of $33.
Customers could not access DBS’s digital services from the morning of March 29. The bank fully restored its digital services around 5.45pm that same day.
According to the bank, the glitch affected its digibank both on mobile and online, as well as its DBS PayLah and DBS mTrading services.
This is the second disruption at DBS in 16 months. In November 2021, a problem with DBS Bank’s access control servers disrupted its online banking services for over three days.
Acknowledging the bank’s failure to ensure uninterrupted digital banking services 24/7, DBS’s management says it will thoroughly review the incident. A special board committee will convene immediately to conduct a full and detailed investigation of the incident.
In response to the disruption, the Monetary Authority of Singapore (MAS) has warned of supervisory action. It said the “disruption of DBS’s digital services is unacceptable, coming a year after a similar incident in November 2021”.
MAS has instructed DBS to conduct a thorough investigation to establish the root cause of the disruption. The regulator says it will take commensurate supervisory actions after gathering the necessary facts.
In February 2022, MAS announced supervisory action against DBS after the November 2021 disruption. The regulator ordered DBS to set aside 1.5 times of its risk-weighted assets for operational risk, which led to an additional $930 million in regulatory capital that lowered the common equity tier-1 (CET-1) ratio by 40 basis points (bps).
With the latest glitch, it would not be a surprise if DBS is required to further raise the multiple for operational risk, according to RHB’s analysts. “That said, we believe this would not impact its operations as a CET-1 ratio of 14.6% in December 2022 is comfortably above management’s optimal level of 13%.”
Barring further service downtime, RHB believes investors will eventually refocus on the bank’s “still healthy” earnings trajectory. DBS posted a net profit of $8.19 billion for the FY2022 ended December, 20% higher y-o-y. — Jovi Ho
Marco Polo Marine 5LY
Price target:
RHB Bank Singapore ‘buy’ 6 cents
Upbeat outlook on long-term earnings growth
RHB Bank Singapore is keeping its “buy” call on Marco Polo Marine, which it sees as being in a “sweet spot”.
“We maintain an upbeat outlook on Marco Polo Marine’s long-term earnings growth,” says analyst Alfie Yeo, who has also given a higher target price of 6 cents from 5 cents. The target price has a 0% discount or premium to its intrinsic value as the company’s environmental, social and governance (ESG) score of three is on par with RHB’s country median. Yeo will be taking over coverage of this company.
“[Marco Polo Marine] remains on track to build, own and operate its first commissioning service operation vessel (CSOV) by December 2023 or 1QFY2024. Due to the shortage of such vessels (which are used to build offshore wind farms), charter rates should be attractive. As Marco Polo Marine is one of a small handful of CSOV owners, it should be able to capitalise on the demand for such vessels,” he adds.
The analyst sees the company’s CSOV segment as driving its earnings growth due to improvements in its core shipyard and ship chartering services operations.
“We forecast an 18% earnings growth compound annual growth rate (CAGR) for FY2022 to FY2025, on the back of a 17% revenue growth CAGR to $137 million, mainly driven by the deployment of its CSOV from FY2024 onwards,” says Yeo.
During 1QFY2023 ended Dec 31, 2023, Marco Polo Marine reported higher revenue of $23.7 million, 95.9% higher y-o-y in 1QFY2022. This was attributed to the strong demand for its vessels and higher ship repair volumes. It also reported a 153.8% y-o-y growth in its gross profit at $6.6 million for the quarter.
“Both charter and utilisation rates (now close to 90%) have increased, led by strong demand from the oil and gas and Taiwan offshore wind farm sectors. Its shipyard is benefiting from stronger demand for the installation of ballast water systems while utilisation rates (74%) remained steady, even with the extended capacity of Dry Dock 1,” the analyst notes.
“[Marco Polo Marine’s] gross profit margin (GPM) improved by 7.5 percentage points (ppt) to 28% due to the pick-up in its utilisation rate,” he adds. On this, Yeo has raised his earnings estimates for FY2023 by 35% on better charter rates and utilisation assumptions. “[This is] given the momentum of improved utilisation and charter rates for its vessels, backed by firm demand by offshore windfarms and healthy ship repair volumes,” he writes.
The analyst has also increased his FY2024 earnings estimate by another 9% to $20 million. Further to this report, Yeo is positive about the outlook for the demand for the company’s offshore vessels.
“In the drive towards sustainability and green energy, countries in North Asia are building up their offshore windfarms to boost their green or renewable energy initiatives. According to the Global Wind Energy Council’s (GWEC) Offshore Report in 2022, global new offshore installations are forecasted to increase at 6.3% CAGR from 2021 to 28,589 MW in 2026,” Yeo points out.
“Based on the pipeline and the outlook for building offshore wind farms in Asia, the market is currently facing a shortage of tier-1 CSOVs, with only [around] 10 now operating (mainly deployed in Europe), while another 30 or so are on order,” he adds.
On the back of his positive estimates, the analyst carefully notes that these are based on Marco Polo Marine’s improved charter rates, stronger utilisation rates, and the successful deployment of its CSOV over the next two years. — Felicia Tan
