APAC Realty
Price target:
DBS Group Research “buy” 74 cents
Buy for ride on buoyant property market
APAC Realty is riding on the buoyant property market, and has its 1QFY2021 results to show for it, says DBS Group Research analyst Ling Lee Keng.
In a May 14 note, Ling is maintaining her “buy” call on the company, with a raised target price of 74 cents from 61 cents previously.
“We project the transaction value for Singapore’s overall property market to grow by a strong 27% in FY2021F and another 3% in FY2022F. This is revised up from our previous assumption of 6.5% in FY2021F and 6.6% in FY2022F, after 14% growth in FY2020,” writes Ling.
The positive market sentiment on the back of the low-interest rate environment, healthy supply of projects, expectations of a gradual economic recovery and healthy housing demand outweighs the Covid-19 impact, notes Ling.
APAC Realty’s total revenue for 1QFY2021 was up 70% y-o-y to $153.1 million. Net profit surged 114% y-o-y to $7.5 million, accounting for 40% of forecast and 44% of consensus, “way above expectations”, says Ling. New homes revenue jumped 133% to $54.3 million while resale and rental revenue gained 49% to $96.4 million.
“The buoyant property market was partly driven by positive market sentiment, on the back of the low-interest rate environment and expectations of a gradual economic recovery, despite the Covid-19 pandemic,” says Ling.
APAC Realty is one of the leading players in the real estate brokerage industry in Asia. APAC Realty operates three main business segments: the real estate brokerage services; franchise agreements; and training, valuation and other ancillary services.
Ling notes that ERA has secured marketing roles for 23 projects for 2021, with a total of 8,745 units. Though lower than 24 projects in 2020 and 43 in 2019, supply is still healthy, he adds.
Overall market share for ERA in terms of transaction volume in 1Q2021 increased slightly to 28.2%, from 27.5% in 1QFY2020. New home sales segment fared well, with market share improving to 32.2% from 29.6% in 1QFY2020.
“On the back of higher transaction value assumption, we have raised FY2021F/FY2022F earnings by 38%/31%,” says Ling. — Jovi Ho
EC World REIT
Price target:
RHB “trading buy” 83 cents
Upgrade on potential takeover offer
RHB Group Research analyst Vijay Natarajan has upgraded his rating for EC World REIT from ‘neutral’ to ‘trading buy’ after the manager of the REIT announced on May 17 that it has been approached by its sponsor-led consortium for the potential transaction involving all its properties.
Natarajan believes a takeover could be on the cards. “[EC World REIT’s] high [forecast] FY2021 ending December dividend yield of 7.6%, coupled with a logistics-focused portfolio, makes it an ideal acquisition target for funds looking for stable recurring income,” he says in a May 18 research note.
He notes that the REIT’s sponsor Forchn International, which holds a 43.6% stake, is leading talks on behalf of a consortium of purchasers, which may lead to the divestment of its assets.
The announcement comes after the REIT reported 1Q21 numbers that slightly outperformed Natarajan’s estimates, with distribution per unit (DPU) climbing 32% y-o-oy, mainly due to China’s renminbi strengthening.
Natarajan points out that the potential offer does not come as a complete surprise, as asset managers and private equity funds worldwide are on the lookout for high yield assets to grow their portfolios, with ultra-low interest rates providing tailwinds.
“Recent local examples include ARA Asset Management buying a 50% stake in the trustee-manager of Dasin Retail Trust (DASIN SP, NR) as well as a 5% stake in the trust, and the privatisation of Soilbuild REIT by Blackstone-led consortium,” he notes.
Separately, Natarajan notes that the REIT’s Hengde Logistics phase-2 lease was renewed at an 8.8% lower effective rental rate, which was below expectations and is expected to result in a 0.8% reduction in overall revenue. He also highlights that occupancy at Wuhan Meiluote dipped 5.2 percentage points q-o-q to 81.3% on the non-renewal of short-term leases signed last year.
On the flipside, no significant impact is expected from the Chongxian Port Investment incident, which involved the displacement and collapse of a berth.
Natarajan’s target price for EC World REIT has been raised from 76 cents to 83 cents, reflecting raised DPU forecasts for FY2021– FY2023 by 1%–3% following tweaked interest costs and occupancy assumptions. “We also trim our cost of equity assumption by 30 basis points to 8.8%,” he adds. — Atiqah Mokhtar
Singapore Telecommunications
Price target:
CGS-CIMB “add” $3.10
Maybank Kim Eng “buy” $2.88
RHB “buy” $3.10
FY2022 a new dawn for Singtel
After a roller-coaster year, Singapore Telecommunications (Singtel) is expected to post a net exceptional loss of $1.21 billion for its upcoming results for FY2021 ended March— which will be released on May 27 — due to impairments from its investments in Amobee and Trustwave, as well as impairments and write-downs from Optus.
Despite Singtel’s negative guidance on its upcoming earnings, analysts are still upbeat on the stock and are confident that the worst could be over.
CGS-CIMB Research has kept its “add” call on Singtel with an unchanged target price of $3.10, as analyst Foong Choong Chen believes that Singtel is able to start FY2022 on a clean slate.
“We are not too concerned with the above-mentioned items as they are mainly non-cash one-off charges, which should not impact Singtel’s underlying net profit. While the book values of Amobee and Global Cyber Security Business (GCSB) have been lowered, our SOP [sum-of-the-parts] valuation for Singtel is unaffected, as we have never factored them in, to be conservative,” says Foong.
“The charges also appear to be a kitchen-sinking exercise to clear the deck before Singtel’s new group CEO, Yuen Kuan Moon (appointed on Jan 1), steers the group into FY2022,” he adds.
On a positive note, Singtel says it has embarked on a strategic review to consider options to sharpen its focus and ensure Amobee and GCSB are positioned for growth, which may include a full/partial divestment or business combinations with other industry players.
“We believe this indicates that the new management team might take a more proactive approach towards monetising these investments in the coming 12–24 months (either via IPOs, outright sales or partial divestments to illuminate their values),” adds Foong.
Meanwhile, Maybank Kim Eng is keeping its “buy” recommendation on Singtel with a target price of $2.88.
“The share price may experience some weakness in view of the exceptional losses announced. That said, it is all set for Singtel CEO Yuen’s announcement of its long-term strategic direction, alongside with its results release in approximately two weeks’ time,” says analyst Kareen Chan, who sees deep value in Singtel.
The analyst also notes that the market is ascribing zero value to Singtel’s Singapore and Australia operations, while the stock offers a 5.3% FY2022 yield.
“Overall, the impairment exercise is part of Singtel’s strategic review to clean up its digital assets and focus on growth thereafter, in our view. The exceptional charges are mainly noncash, so they do not derail our DCF-based valuation of Singtel’s core business. Its long-term growth strategy is likely to be revealed during results in approximately two weeks’ time. We think NCS could be one of the focus areas, as the company is now an autonomous unit, which reports directly to Singtel’s CEO,” says Chan.
Similarly, RHB Group Research sees this development as timely considering the operational and industry challenges plaguing Singtel’s digital/adjacent assets, especially over the past two years.
“This looks to be a kitchen-sinking exercise by the new leadership...to start with a clean slate via the recalibration of group strategy,” says the RHB Research Team, while noting that the pandemic has impeded the group’s ability to scale both Amobee and Trustwave.
To that end, the research team recommends investors to use the share price pullback opportunity to “buy” and “accumulate” Singtel, which remains RHB’s preferred stock pick. — Samantha Chiew
Sunpower Group
Price target:
DBS Group Research “hold” 92 cents
Downgrade following recent gains
DBS Group Research analysts Woon Bing Yong and Ling Lee Keng have downgraded Sunpower Group to “hold” from “buy” with an unchanged target price of 92 cents (ex-special dividend target price of 68 cents).
“Sunpower is currently trading at a forward P/E of 10.7 times while our target price implies a forward P/E of 11.9 times which is between Sunpower’s five-year +1 standard deviation and mean forward P/E,” they write in a May 18 report.
Since the analysts’ previous upgrade on the counter, Sunpower’s share price has gained over 40% and upside from Woon and Ling’s estimated target price may be capped in the near term, as the counter awaits new catalysts.
While Sunpower’s top line is expected to grow steadily, Green Investment’s (GI) ebitda margin and performance for the 1HFY2021 may be weighed down by a surge in thermal coal price as management has opted to partially share the higher costs with its customers.
Even though the manufacturing & services (M&S) segment saw revenue improve 12.5% y-o-y to RMB465.2 million ($95.9 million), with its order book reaching a record high of RMB9.2 billion in the 4QFY2020, the sale of Sunpower’s M&S looks to be on track and has received shareholders’ approval.
About 96.5% of the consideration has been escrowed with RMB1.3 billion allocated for paying a dividend of around 23.6 cents per share, representing a yield of around 28%.
Sunpower’s 1QFY2021 revenue grew 31.2% y-o-y to RMB882.8 million, led by GI revenue growth. GI revenue continues growth momentum, rising 61.2% y-o-y to RMB417.6 million as Shantou Project Phase 1 began contribution. GI revenue was also helped by an expansion in the customer base for operational projects. As a result, GI ebitda grew 46.0% y-o-y to RMB115.2 million.
Thus, the expected slower growth without the large order book of the M&S segment may be supported by the ramp-up in GI segment operations. However, a key catalyst to watch out for would include the potential acquisition of a new plant as the group has yet to attain its target of investing RMB2.5 billion in GI equity.
That said, the downgrade to “hold” and maintenance of discounted cash flow (DCF)-based target price of 92 cents is a conservative view due to the group’s high debt levels. Though, the analysts note that no immediate liquidity issues are foreseen as Sunpower still has committed facilities to drawdown.
Woon and Ling also note possible risks to the views they provided such as, “unfavourable changes in the regulatory environment; steep rise in coal prices above price caps; resurgence of Covid-19; [as well as] the soft Chinese economy”. — Vivian Yee
Silverlake Axis
Price target
CGS-CIMB “buy” 31 cents
DBS Group Research “buy” 33 cents
Analysts stay positive while awaiting big contract wins
Analysts from CGS-CIMB Research and DBS Group Research have kept “buy” on Silverlake Axis, despite lower-than-expected net profit reported for 3QFY2021 and 9MFY2021.
The financial software provider reported net profit of RM38.7 million ($12.5 million) for the 3QFY2021 ended March and net profit of RM106.2 million for the 9MFY2021, both of which stood below expectations.
On this, CGS-CIMB’s Ong Khang Chuen and Andrea Choong have lowered their target price to 31 cents from 33 cents, still pegged to 14.2 times P/E, and 0.75 standard deviation below Silverlake Axis’ 10-year historical average.
Ong and Choong have also cut their earnings per share (EPS) estimates for the FY2021 to FY2023 by 5.7% to 9.1% as they factor in a slower pace of project completion.
DBS’s Ling Lee Keng has also lowered her target price to 33 cents from 36 cents previously, which is pegged to Silverlake Axis’ average P/E of 18 times on FY2022 earnings.
In comparison, global peers are trading at average forward P/E multiples of 25.9 times and 22.9 times over the next two years. Ling has similarly reduced her earnings estimates for the FY2021 and FY2022 by 11% and 15% to account for lower revenue projections.
That said, Ling deems the stock’s valuations as “attractive” as it is trading at 13.8 times and 13.4 times on FY2021 and FY2022 earnings respectively, below its two-year average forward P/E of 18 times and at a 50% discount to its global peers.
“A 40% payout supports [a] dividend yield of 3%,” she says.
The analysts from both CGS-CIMB and DBS remain positive on the counter due to its positive order win updates.
Silverlake Axis shared that it has secured RM74 million worth of deals in the 3QFY2021, bringing year-to-date wins to RM225 million, compared to the RM220 million in FY2020.
“Product strategy has demonstrated some early success, with the booking of [the] first DPS Digital upgrade contract
(Silverlake Axis has announced end-of-life for one of its existing products by end-2023, which opens up order opportunities of RM100 million to RM150 million),” write Ong and Choong in a May 12 report.
Mobius, the company’s new cloud-based core banking system, has seen active enquiries, with its first order win from a tier-one bank in the region.
Silverlake Axis is also engaged with several banking prospects in Malaysia, which could “open up [the] potential for future order wins”, say Ong and Choong.
For DBS’s Ling, she likes Silverlake for its “high recurring revenue contribution of at least 60% of total, and impressive gross margin of 60%. In 9MFY2021, recurring revenue formed 83% of total revenue”.
Potential catalysts, according to Ong and Choong, include major core banking contract wins, though they expect a continued recovery in the company’s earnings in the coming quarter, riding on a stronger order backlog.
Ling expects smaller contracts to “fill the gap” while waiting for larger order wins to come in.
“We remain optimistic on Silverlake Axis’ business, given its market leader position in the core banking solutions segment. Digitalisation has now become a necessity instead of something good to have. The maintenance & enhancement and InsurTech divisions are expected to continue expanding to generate a healthy increase in recurring revenues,” she says. — Felicia Tan
