Dyna-Mac Holdings
Price target:
OCBC Investment Research ‘buy’ 36 cents
Bonus issue
OCBC Investment Research analyst Ada Lim has kept her “buy” call on Dyna-Mac as she sees further upside for the company given a stronger-than-expected upcycle and potential catalysts ahead.
Meanwhile, Lim has lowered her fair value estimate of the company to 36 cents from 50.5 cents to account for the issuance of the bonus warrants and assuming that 100% of the warrants will be converted.
Dyna-Mac proposed a bonus issue of up to 207.4 million warrants based on one bonus warrant for every five existing ordinary shares in December 2023. The warrants were meant to reward the company’s shareholders for their loyalty and support, said Dyna-Mac in its Dec 18, 2023, statement.
The bonus warrants were approved on Jan 23. Each bonus warrant will entitle the holder to subscribe for one new ordinary share of the company at an exercise price of 15 cents, which Lim calls a “deep” discount of 46.4% to Dyna-Mac’s last-closed price of 28 cents per share as of Dec 15.
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The gross proceeds from the exercise of the bonus warrants have been earmarked for capital expenditures (capex) and general corporate and working capital purposes. The proceeds are expected to amount to $31.1 million.
“In our view, existing investors can consider exercising their warrants to avoid dilution and to participate in the company’s future growth,” she writes in her Jan 24 report.
On Dyna-Mac’s acquisition of Exterran Offshore, Lim is positive on the move, as she sees that the additional fabrication capacity will help the company’s top and bottom line growth. The acquisition also shows management’s bullishness for the company’s future outlook.
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On the environmental, social and governance (ESG) front, Lim likes Dyna-Mac’s initiatives in reducing carbon emissions, building a diverse and inclusive work environment, and its commitment to fully complying with legal and industry requirements. Dyna-Mac is set to announce its results for the FY2023, which ended Dec 31, 2023, after trading hours on Feb 20. — Felicia Tan
Venture Corp
Price target:
CGS-CIMB Research ‘add’ $15.90
Target price cut
CGS-CIMB Research analyst William Tng has kept “add” on Venture Corporation V03 with a lower target price of $15.90 from $16.61. The analyst still likes the counter for its dividend yield of 5.46% over FY2023 to FY2025 but predicts lower earnings for the same period.
Tng’s report dated Jan 24 comes ahead of Venture’s FY2023, which ended Dec 31, 2023, results, which will be announced on Feb 22. “We think FY2023 net profit could fall 27.9% y-o-y to $266.6 million as customers’ orders could remain weak,” he writes. In the 4QFY2023, Venture’s net profit could come in at $66.3 million, down 35.4% y-o-y and flat q-o-q, according to Tng’s calculations.
The analyst is basing his estimates on Plexus’ Jan 16 announcement, where the company said that it would not meet its revenue guidance for the 1QFY2024 ended Dec 31, 2023, as it saw continued market-driven inventory corrections and an incrementally weaker demand from the healthcare and life sciences as well as industrial market sectors. Plexus previously guided for its 1QFY2024 revenue to be US$990 million ($1.33 billion) to US$1.03 billion. Instead, it expects to make between US$980 million to US$985 million in revenue, 1.% to 4.4% lower than its previous guidance.
“We think the read-through from Plexus is that the 4QFY2023 demand environment could similarly remain weak for Venture,” says Tng.
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With Bloomberg consensus lowering its revenue growth expectations for Venture’s customers, Tng has lowered his FY2023 to FY2025 revenue forecasts by 0.5% to 2% “to be conservative”. His earnings per share (EPS) forecasts for the same period were also reduced by 1.3%, 7.2% and 4.3% for FY2023, FY2024 and FY2025 respectively. Revenue growth expectations by the Bloomberg consensus slowed from 1.24%, 5.20% and 7.81% for the FY2023, FY2024 and FY2025 as of Oct 6, 2023, to 0.72%, 2.58% and 6.85% as of Jan 17.
“Similarly, for Venture’s Lifesciences customers, Bloomberg consensus FY2023 – FY2025 revenue growth expectations (as at Oct 6, 2023) of 0.16%, 5.71% and 7.83% have now slowed to -2.95%, 0.51% and 7.33% as at Jan 17,” Tng notes.
His dividend per share (DPS) forecasts of 75 cents over FY2023 to FY2025 remain the same.
Tng’s new target price is based on 14.6 times Venture’s FY2025 P/E and its 15-year average but was lowered due to a lower EPS estimate for FY2025. — Felicia Tan
ComfortDelGro
Price target:
DBS Group Research ‘buy’ $1.67
Anticipating further metro deals
DBS Group Research is keeping its “buy” call and $1.67 target price for ComfortDelGro C52 following news that the land transport operator has won a contract via a joint venture to operate the Stockholm metro for 11 years. This marks ComfortDelGro’s third overseas rail operation win following Auckland and Paris.
Besides bus, taxi and train operations in Singapore, ComfortDelGro owns bus and taxi businesses in other markets such as the UK, China and Australia.
“We believe with this win in the pocket, it will improve its credibility as a global rail operator and in turn success in securing future rail contracts,” says DBS in its Jan 24 note.
According to ComfortDelGro on Jan 24, Connecting Stockholm AB (CSAB), its joint venture with the Go-Ahead Group, won a contract to operate and maintain the Stockholm Metro.
CSAB was picked over the current operator MTR Nordic and another competing bid from a joint venture by SMRT and its French partner Transdev Group.
DBS notes that Stockholm Metro is a profitable and stable business. While current operator MTR Nordic reported negative ebitda in 2022, the losses were mostly from its other rail operations in Stockholm.
In its annual and interim reports, MTR highlighted that Stockholm Metro reported strong operational performance through the pandemic and continues to perform as of 1H2023.
Assuming most of the profitability is derived from the Stockholm Metro, low interest and depreciation costs and a 21% corporate tax rate, DBS estimates CSAB could achieve between $2.7 million and $14.7 million pro-rated net earnings. The contract starts next May, with annualised earnings at $4 million to $22.1 million.
Given ComfortDelGro’s 45% share ownership, DBS estimates the earnings contribution from this new venture to be between $1.2 million and $6.6 million, which represents about 0.5% to 2.8% of its FY2025 ending December 2025 earnings estimate. — The Edge Singapore
Wilmar International
Price target:
UOB Kay Hian ‘hold’ $3.35
Earnings estimate held
UOB Kay Hian is keeping its “hold” call on Wilmar International F34 but cutting its target price from $3.80 to $3.35 after applying a lower valuation multiple.
The cut was due to short-term negative sentiment expected over its recent alleged involvement with a palm oil fraud case in China, which Wilmar and its China-listed subsidiary Yihai Kerry Arawana (YKA) had denied on Jan 12.
According to analysts Leow Huey Chuen and Jacquelyn Yow Hui Li in a Jan 23 note, they say that the alleged fraud in China will only have a “marginal financial impact” on the company but may raise “concerns on governance”.
As described by UOB Kay Hian, the investigations involved two other entities, Anhui Whywin International Co and Yunnan Huijia Import & Export Co. However, Liu Degang, a former general manager of Guangzhou Yihai, a unit of YKA, was alleged to have received bribes.
Guangzhou Yihai found out on Jan 8 about Liu’s impending charge for assisting in an offence through a call from the local prosecutor’s office.
YKA then issued its statement on Jan 12 according to China listing rules, which require the disclosure of all criminal charges against YKA or its subsidiaries.
The analysts flag that Guangzhou Yihai’s involvement was mainly as a transit storage provider and denied any knowledge of fraudulent activities.
“Despite this, short-term negative sentiment on the company’s share price is anticipated, given its association with this ongoing pending alleged corruption case,” state Leow and Yow.
Meanwhile, the UOB Kay Hian analysts are projecting the company to report a core net profit of between US$320 million ($429 million) and US$350 million for its 4QFY2023 ended December 2023, bringing full-year earnings to between US$1.2 billion and US$1.23 billion.
“Its operations in China have shown some positive developments; however, these improvements have not been substantial enough to offset the challenges stemming from the palm refining business,” the analysts note.
The UOB Kay Hian analysts have lowered their valuation multiple from 25x to 18x, deriving the new target price of $3.35. — The Edge Singapore
Sanli Environmental
Price target:
SAC Capital ‘unrated’
Niche expertise in big potential market
Sanli Environmental has shown its niche expertise in a potentially big industry. Given the trajectory of contracts won, the company might be able to double its earnings in the coming two or three years, says SAC Capital’s Matthias Chan.
In his unrated note on Jan 24, Chan points out that Sanli Environmental 1E3 is the only engineering company involved in the engineering, procurement and construction (EPC) of the network of water pumping systems for the land reclamation project at Pulau Tekong.
The reclamation, as Chan notes, is via an alternative method of using polders, which is deemed a breakthrough and is setting the way for how Singapore will reclaim land in the future.
Specifically, the recently announced Long Island along mainland Singapore’s East Coast is one such mega project requiring relevant engineering expertise.
Besides expanding available land, the Long Island project is also part of a $100 billion coastal protection plan to help Singapore ward off rising sea levels given ongoing global warming.
“Based on similar past projects, it is evident that very niche technical expertise is necessary to fulfil the criteria needed to execute the coastal protection plan.
“From our observations, typically only three service providers vie for such projects including Sanli Environmental,” says Chan.
The company also stumbled on a “magnesium mine” while working on a water treatment project with PUB.
As Chan describes it, while doing so, Sanli discovered the benefits of magnesium hydroxide slurry to environmental protection, especially the effort to reduce sulphur emissions from ships.
“Sanli is devoting resources to this new niche business engine and we will not be surprised if contracts are forthcoming,” he adds.
Chan says by extrapolating Sanli’s revenue of about $100 million in FY2023 ended March 2023, its revenue and net profit could double within three years if it won contracts for coastal protection and water/wastewater projects.
Ignoring economies of scale and conservatively ascribing FY2023’s net margin of 4% to the next few years, Sanli’s earnings for FY2025 and FY2026 could come closer to $9 million, based on an undemanding forward P/E of 3x, says Chan.
On Jan 22, the environmental engineering company announced contract wins which are expected to raise its order book to some $335.9 million to be fulfilled over the next three years. — The Edge Singapore
