Frasers Centrepoint Trust
Price targets:
RHB Bank Singapore ‘neutral’ $2.15
DBS Group Research ‘buy’ $2.60
Citi Research ‘buy’ $2.51
Right moves with gearing to be lowered
RHB Bank Singapore’s Vijay Natarajan has maintained his “neutral” call on Frasers Centrepoint Trust J69U (FCT) but with a slightly raised target price of $2.15 from $2.13.
FCT, as part of its portfolio pruning, cut its stake in Malaysia-listed Hektar REIT. This divestment follows its recent sale of Changi City Point for $338 million announced on Aug 30.
The way Natarajan sees it, the management is making the right moves as it is “further crystalising” its strategy of recycling non-core assets to reduce gearing. “This allows FCT to position itself for the right opportunities to increase stakes in newer dominant malls,” writes the analyst in a Sept 26 note.
On 22, FCT announced the divestment of 143.9 million Hektar REIT units, equal to 29%, for RM128.1 million ($37.3 million). This will leave FCT with just 10.6 million units, which will be sold off at a later date.
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At RM0.89, the selling price is at a 48.3% premium to Hektar’s Sept 22 closing price but a 27% discount to its book value and a 10% discount to FCT’s carrying value. FCT first bought into Hektar back in May 2007 when the latter went IPO. From the sale, FCT will be booking net proceeds of $37.1 million and together with proceeds from Changi City Point, bring its gearing to below 37% level.
With this, Natarajan believes FCT will have a debt headroom to add a 10% stake in Nex mall from 25.5% now, which will cost around $210 million, without tapping into the equity market.
Further down the road, the analyst believes that FCT could potentially divest its stakes in Century Square mall and Central Plaza office.
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Meanwhile, FCT is seeing some operational improvements. Natarajan, citing RHB’s economists, says retail sales momentum is expected to pick up in 4Q2023, aided by seasonal events, resilient domestic demand and front-loading of consumer demand in anticipation of a GST rate hike from 8% to 9% in January 2024.
This trend will help lift tenant sales at FCT’s malls, which were already 16% higher on average above pre-pandemic levels, and, thereby, help FCT achieve low- to mid-single-digit positive rent reversions.
Natarajan’s new target is derived after taking into account a 1% dip in distribution per unit for FY2024 and FY2025, interest costs and lower cost of equity assumptions by 5 bps after factoring in a healthier balance sheet. He notes that at the current unit price of 0.9x book value and 6% yield, FCT’s valuation is not compelling and therefore his “neutral” call. “We continue to recommend unitholders to buy on dips.”
In contrast to RHB, DBS Group Research and Citibank are more bullish on this counter. “We see management’s laser-like focus and strong commitment to focus its efforts on managing and acquisition of dominant suburban retail properties within Singapore’s retail landscape to reap long-term benefits for unitholders,” says DBS, with a “buy” call and $2.60 target price.
Citibank has also kept its “buy” with an unchanged target price of $2.51, given how FCT will now lower its gearing while positioning itself for rental upside. — The Edge Singapore
UMS Holdings
Price target:
Maybank Securities ‘buy’ $1.44
Upgrade on brighter prospects
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Maybank Securities analyst Jarick Seet has upgraded UMS to “buy” from “hold” previously as he sees brighter prospects for the company.
Seet’s report, dated Sept 25, comes after UMS’s key client, Applied Materials (AMAT) raised its revenue and profit guidance for 4QFY2023.
“UMS should benefit as AMAT’s inventory levels should be depleted at a faster rate, increasing the chances of a rebound in components orders in FY2024 ending December 2024,” writes Seet who has also increased his target price to $1.44 from $1.16 previously.
The company should also benefit from a renewable item in its integrated system contract with its key customer till end-2025 as well as from an in-principle agreement with a new customer. The latter is for a three-year contract with a renewal option. Seet believes that the new customer is LAM Research.
“UMS conservatively expects $30 million in contributions in FY2024 and $300 million top-line contributions per annum in the next three to five years. If all goes well, FY2024 could potentially be a good year for UMS,” says the analyst.
Meanwhile, UMS’s 2HFY2023 is likely to be weak, which is similar to that of its 1HFY2023 performance, as its key customer is unlikely to ramp up its performance this year.
“As its future looks more secure, UMS should benefit from a recovery in the semiconductor industry in FY2024. Dividends were raised by 20% to 1.2 cents for 2QFY2023, which is positive for shareholders and we can expect a yield of 4.5% for FY2024,” says Seet, whose new target price is based on a higher FY2024 P/E of 11x, up from 9x previously. — Felicia Tan
Grand Venture Technology
Price target:
CGS-CIMB Research ‘reduce’ 51 cents
Gradual recovery seen
William Tng of CGS-CIMB Research, in his Sept 26 note, has reiterated his “reduce” call on Grand Venture Technology JLB (GVT), given limited visibility of an early recovery to be enjoyed by the electronics manufacturing industry.
GVT reiterates that the industry remains affected by geopolitical tensions and weakness in the global economy.
“The semiconductor recovery could be gradual and the pace of orders from new front-end customers could be slow in FY2024,” says Tng.
Nonetheless, GVT is optimistic that there are some signs of an easing of excess inventory and expects order momentum to pick up towards the year-end and into the coming FY2024, says Tng.
In addition, GVT maintains that the mid- and long-term outlooks of the semiconductor industry is strong, led by growing investment in AI and its applications.
“Hence, GVT continues to grow its capabilities, expand production capacity, and enhance its service offerings to be ready for the next industry uptick,” says Tng, adding that the company is making progress to bring on board frontend semiconductor customers in the metrology, inspection, etch, and wafer deposition segments of the semiconductor industry.
A new plant dedicated to front-end customers is on track to be ready by the end of the year and production equipment has been installed.
Meanwhile, GVT sees “stable” orders for its other businesses such as life sciences, medical, electronics and aerospace.
However, Tng prefers to maintain his “reduce” call on the stock, along with a target price of 51 cents. He notes that GVT now trades at 12.5x FY2024 earnings while he values the stock at 11.3x earnings, which is at 0.5 standard deviations below its three-year average given limited visibility of an early recovery.
Tng warns that possible de-rating catalysts might include a severe drop in customer orders if the world slips into a recession and higher-than-expected spending for long-term growth.
Upside risks, on the other hand, will be potential new customer wins with significant purchase orders and accretive M&As, resulting in better earnings and quicker-than-expected return of customer demand. — The Edge Singapore
Keppel REIT
Price target:
CGS-CIMB Research ‘add’ $1.14
Downside factored in
CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong have maintained their “add” call and $1.14 target price on Keppel REIT.
While the REIT’s office portfolio might see some pressures because of changing working habits, the analysts, in their Sept 25 note, hold the view that with FY2023 yield already at 6.8%, much of the downside has already been factored in.
At a recent roadshow organised by CGS-CIMB, Keppel REIT’s management remains the most upbeat about its Singapore portfolio.
“Keppel REIT allayed investors’ concerns over the structural change in office take-up due to the hybrid work-from-home trend by sharing that its Singapore properties do not have any shadow space,” state Lock and Ong.
According to the analysts, signing rents for Singapore properties are at $12 psf to $15 psf. As such, the REIT will likely enjoy positive rental reversions in the second half of this year, based on the average expiring rents of $11.55 psf in 2023, $11.06 psf in 2024 and $11.11psf in 2025.
Separately, Keppel REIT expects the occupancy rates of its Australian properties to improve in 2HFY2023 too.
In addition to a new government tenant at 8 Chifley Square and a new banking sector tenant at Blue & William, Keppel REIT expects leasing interest and committed occupancy in its Australia portfolio to continue to improve towards the end of FY2023. In addition, rents at some of its Sydney properties have started to strengthen while tenant incentives have compressed marginally.
In Japan, the backfilling of space by an energy sector tenant has lifted occupancy at its KR Ginza II property to 75%. Office rents in South Korea’s continuing to trend up as well.
Keppel REIT maintains that potential acquisitions “remain challenging” in the near-term with negative spreads between cap rates and funding costs in the majority of its geographic footprint. The exception is Japan.
Thus, to deliver unitholder value, management indicated that it would focus on growing DPU and closing the wide 32% gap between share price and NAV of $1.31 as at June 30. To this end, the REIT had bought back 19.65 million units at an average of 87.5 cents and cancelled these units, equivalent to 0.5% of the total in 1HFY2023.
“Management maintains its flexibility in utilising share buybacks and capital distributions as part of its capital management strategy as well as managing its gearing level,” the analysts note.
Meanwhile, average funding costs, at current levels, could trend closer to mid-3%, up from 2.84% at the end of 1HFY2023, suggest Lock and Ong.
Potential re-rating catalysts include the redeployment of capital proceeds to new accretive acquisitions and recovery of demand for office space to pre-Covid levels.
On the other hand, downside risks include longer-than-expected frictional vacancy from tenant movements and reduced appetite for its office space due to a hybrid work environment. — The Edge Singapore
Valuetronics
Price target:
PhillipCapital ‘buy’ 61 cents
Turnaround seen
PhillipCapital analyst Paul Chew has initiated coverage on Valuetronics BN2 , an electronics manufacturing services (EMS) provider, with a “buy” call and a target price of 61 cents on expectations of a turnaround following five years of revenue decline.
The company’s revenue has dropped 29% to HK$2 billion ($350 million) from FY2018’s HK$2.85 billion when US customers started using suppliers outside China because of the trade war, forcing Valuetronics to spend HK$200 million to build a new plant in Vietnam.
Subsequently, when the pandemic hit, the company faced component shortages and other woes. However, the major headwinds are deemed behind and the company is “poised for growth in the coming years”, as margins improve from higher industrial and commercial electronics (ICE) contribution, weaker RMB and more stable component prices and depreciation,” says Chew.
With the new plant in Vietnam, Valuetronics has been able to secure four new customers that will contribute to its revenue in FY2024 and FY2025.
“Customers are not willing to keep manufacturing solely in China. This is because of higher tariffs in the US, and customers wanting to de-risk due to the escalating geopolitical tensions,” Chew points out.
As at Chew’s report dated Sept 22, shares in Valuetronics are trading at 52.5 cents, deemed attractive at 9.6x P/E. The company’s net cash balance sheet of HK$1 billion is also something Chew is positive about.
Furthermore, it has committed to a share buy-back programme worth HK$250 million. Since last February, it has spent HK$68 million to buy 22.5 million shares, It also has HK$182 million to buy another 60 million shares at the current price levels,” says Chew, whose target price is based on the company’s 11x FY2024 earnings, in line with industry valuations. — Felicia Tan
Nanofilm Technologies International
Price target:
Citi Research “sell” 85 cents
Uncertain demand recovery
Citi Research analyst Jame Osman has maintained “sell” on Nanofilm Technologies International MZH with a target price of 85 cents on the back of uncertain demand recovery as well as margin pressure from the company’s capacity expansion plans.
In his Sept 25 report, Osman notes that Nanofilm’s share price has declined about 30% ytd, following weaker-than-expected 1HFY2023.
In 2HFY2023, Citi forecasts a 29% y-o-y decline in Nanofilm’s revenue. While this still implies a h-o-h recovery, the analyst believes the overall demand levels would remain subdued.
This is due to lower smartphones and wearables shipment volume of its key Customer Z as well as lower customer capital expenditure (capex) spend, which is impacting its industrial equipment business unit sales.
The supply chain relocation strategies of its key customer could also constrain a more favourable recovery pace until Nanofilm’s reallocated new capacity comes on stream, Osman says. Additionally, a meaningful contribution from new customers such as ApexTech is only likely from 2HFY2024. “Nevertheless, we expect a return to profitability in 2HFY2023 due to higher contribution of consumer electronics, communication and computer (3C) customer mix,” says Osman.
To align itself with its key Customer Z’s supply chain relocation, Citi expects Nanofilm to prioritise and accelerate the expansion of its Vietnam facility by 1Q2024 while it seeks factory space in India. The company is also repurposing and reallocating the coating equipment from its Shanghai plant to optimise utilisation. Osman’s target price of 85 cents implies a FY2024 P/E of 27x versus an EPS CAGR of –2.4% over FY2022–FY2025.
“Within our Singapore tech coverage universe, we prefer companies such as Venture Corp with a relatively more diversified customer base, and in our view better positioned to benefit from the structural supply chain diversification efforts of global customers,” says Osman. — Khairani Afifi Noordin
Dyna-Mac Holdings
Price target:
OCBC Investment Research ‘buy’ 50.5 cents
Recent drop a ‘buying opportunity’
Ada Lim of OCBC Investment Research has reiterated her “buy” call and 50.5 cents target price for Dyna-Mac Holdings NO4 . In her Sept 22 note, Lim notes that although the topside module builder’s share price has retraced from a recent peak of 44 cents on Aug 10, the share price has doubled ytd. Nonetheless, Lim sees further upside given a stronger-than-expected upcycle and potential catalysts ahead for Dyna-Mac, which is net cash.
Last month, Dyna-Mac announced a partnership with fellow listed O&M player Kim Heng 5G2 to use the latter’s yard space to fulfil its growing order book. By doing so, Dyna-Mac can take on more projects while minimising some volatility in terms of costs. Dyna-Mac, Lim recalls, had already announced plans to secure additional space from JTC.
While Dyna-Mac has chosen to stay focused on its niche of building topside modules for the rigs, the company has already taken steps to “future-proof” its business too.
Specifically, the company is partnering with BW Offshore Holdings so that the two companies can leverage each other’s technical know-how and expertise to jointly pursue carbon capture and storage (CCS) projects in Australia and other markets.
Overall, she believes that given the growing demand for energy, especially in Asia, the long-term fundamentals for the offshore oil and gas (O&G) industry remain sound.
Furthermore, there’s near near-term lift from catch-up spending by the industry that has held back from investing in capacity amid the previous slump in energy prices.
The stock is now trading at a forward P/E of 15.5x, which is slightly more than one standard deviation below the five-year historical average of 23.4x – suggesting that current valuations remain undemanding, adds Lim. — The Edge Singapore
Banyan Tree Holdings
Price target:
KGI Securities ‘buy’ 41.5 cents
Recovery ongoing
KGI Securities has reiterated its ‘buy’ call and 41.5 cents target price on luxury resorts operator Banyan Tree Holdings B58 , on the premise that tourism recovery is ongoing.
In 1HFY2023 ended June, the company reported a core operating profit of $18.7 million, up from $11.1 million recorded in the year-earlier 1HFY2022. Revenue in the same period was up 21% y-o-y to $143.7 million, led by higher RevPar of 64%.
In a recent development, Thailand, in a bid to draw more visitors to help offset weakness in its export sectors, will temporarily waive tourist visa requirements for visitors from China and Kazakhstan from Sept 25 to Feb 29 next year.
“The tourism industry is optimistic that the visa-free scheme will be a success and boost tourism spending in Thailand. This would also benefit businesses such as Banyan Tree, which has multiple properties in the country,” states KGI.
Separately, Banyan Tree, Ennismore and Dubai Holding have partnered to open a new Banyan Tree hotel in Dubai, replacing the existing Caesars Palace Dubai on Bluewaters Island. This new hotel, with 179 rooms, will be run jointly by Banyan Tree and Ennismore and will open in November.
According to KGI, this is the first of many hotel and brand development projects that Accor (a strategic partner of Banyan Tree) and Dubai Holding are working on.
Company chairman Ho Kwon Ping has indicated that while China’s mass market is taking longer to recover, the impact is relatively small on his company given its premium positioning.
“He is also confident that the Chinese real estate market will not collapse, as the banking system is strong. Additionally, he mentioned that Banyan Tree’s exposure to the Chinese real estate bubble is not large due to the sale of a few hotels in China before the bubble,” adds KGI. — The Edge Singapore
