Grab Holdings
Price target:
DBS Group Research “buy” US$9
Multi-sector leadership but competition looming
DBS Group Research has initiated “buy” on Grab Holdings with a 12-month target price of US$9 ($12.19), representing a 25% upside to its last-traded price of US$7.22 on Jan 3. The company has a December year end.
The target price also translates to 6.5 times of FY2023’s adjusted revenue. “We assign a 30% premium to Grab for its multi-sector leadership, cross-selling synergies and higher growth potential compared to DoorDash, Uber and PayPal in their respective sectors,” writes analyst Sachin Mittal on Jan 4.
“We assign 7.8 times enterprise value (EV) to FY2023 adjusted revenue for delivery, 3.2 times for mobility and 7.8 times for FinTech & others, Grab’s net cash is [around] US$7.5 billion,” he adds.
Mittal has also given Grab a bear target price of US$6, in the event of rising competition and macro weakness.
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The bear target price is based on five times of FY2023’s adjusted revenue, says Mittal.
“This scenario assumes 20% lower FY2023 adjusted revenue than our base case, due to GoTo becoming a bigger threat in Indonesia, Shopee across FinTech in Southeast Asia and adverse impact of lockdowns on the mobility business,” he adds.
At present, Grab has a mobility market share of around 80% across Southeast Asia, which exceeds Uber’s share of 69% in the US. The company’s 50% market share in food delivery is also comparable to its closest competitor, Doordash’s share in the US.
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Meanwhile, Grab’s FinTech transaction processing volume (TPV) stood 29% lower than its competitor Sea in 3QFY2021.
The way Mittal sees it, “rising fintech competition could delay group ebitda breakeven to FY2024 versus its own projections of a FY2023 breakeven”.
In terms of its mobility and delivery business, Grab enjoys a less lucrative margin potential compared to its e-commerce business, which suggests a slight valuation discount to its e-commerce peers. “[The] e-commerce ecosystem is five times the combined size of food delivery & mobility; batch processing makes e-commerce delivery networks more efficient than quick delivery businesses; e-commerce merchants advertise on the platform, while Grab incurs sales and marketing costs for its drivers & merchants,” says Mittal.
Grab does offer higher growth compared to its Internet peers, with an annual adjusted revenue growth of 39% over FY2021–2023, which is similar to 41% growth at Sea.
The rate is also higher than 24% at DoorDash and 36% at Uber. “Grab is trading at 5 times EV to FY2023 adjusted revenue compared to six times for Sea and Doordash. We expect both Grab and Sea to re-rate to reflect their exceptional growth potential,” he adds. — Felicia Tan
Marco Polo Marine
Price target:
SAC Capital ‘buy’ 3.2 cents
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Seeking out more windfarm contracts
SAC Capital has initiated coverage on integrated marine logistics company Marco Polo Marine with a “buy” call and target price of 3.2 cents.
This is up 5 cents from the counter’s price of 2.7 cents on Jan 3, analyst Lim Shu Rong writes in a report.
His target of 3.2 cents is pegged to eight times FY2022 enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio. This is the median for the offshore sector and close to that of ASL Marine, Marco Polo Marine’s closest peer.
Lim’s move comes as the company seeks out more opportunities in the Taiwan windfarm market. For instance, Marco Polo Marine is looking to increase the number of vessels chartered to Taiwan from two to four by the end of the year. This is in line with Taiwan’s efforts to ramp up its offshore wind capacity to 15GW by 2035.
For instance, Marco Polo Marine is looking to increase the number of vessels chartered to Taiwan from two to four by the end of the year. This is in line with Taiwan’s efforts to ramp up its offshore wind capacity to 15GW by 2035.
The strict vessel requirements and higher barriers to entry will give Marco Polo Marine an advantage over its competitors, notes Lim.
He adds that the company’s reflagging exercise will give it an edge in scoring more wind farm projects, which offer 15% to 20% higher margins than the oil & gas projects it had traditionally focused on. Meanwhile, Lim expects Marco Polo Marine to enjoy higher charter and utilisation rates. This follows competing interests for offshore service vessels (OSV) from offshore renewables and decommissioning projects.
“We see further upside to charter rates and utilisation rate with more investments in the pipeline,” says Lim.
He adds that favourable rates will further boost charter revenue and margin after close to 50% of the company’s vessels go for charter renewal by 1H2022. The company has a September financial close. However, Lim warns that Marco Polo Marine may have slower growth in its chartering revenue in 1H2022. This comes as the vessels which were previously working in the Taiwan wind farm are off-chartered till February due to the monsoon season.
“The vessels are due to return to work in February 2022 and [the company will have to] play catch
up in the second half of 2022, with its two additional vessels planned to be deployed to service Taiwan wind farms,” explains Lim.
In any case, the analyst expects Marco Polo Marine to take on more contracts once the expansion of its dry dock is completed by January.
Currently, the utilisation rate of its three drydocks is at 86%. The expansion will bring a further expansion of around 20%.
Going forward, Lim believes the company is in good stead given its net cash position of $16.1 million despite having taken on a temporary bridging loan of $5 million. — Amala Balakrishner
CDL Hospitality Trusts
Price target:
UOB Kay Hian “buy” $1.42
Benefitting from the reopening
UOB Kay Hian has upgraded its recommendation on CDL Hospitality Trusts (CDLHT) to “buy” with a higher target price of $1.42 from $1.24 previously.
The higher target price is based on a diviidend discount model (DDM), where the cost of equity makes up 6.5% and terminal growth makes up 1.8%, says analyst Jonathan Koh in a Jan 4 report.
“CDLHT trades at price-to-net asset value (P/NAV) of 0.93 times, which is 0.3 standard deviation (s.d.) below long-term mean,” he adds. Koh is positive on the REIT as he sees it benefitting from the reopening, which is slated to resume in 2H2022.
While Singapore would have to tide through a new wave of Omicron infections in 1Q2022, Koh expects that the government would reopen borders with expansion of capacity for existing vaccinated travel lanes (VTLs) and the introduction of new VTLs to resume in 2H2022.
“The anticipated recovery in the hospitality industry in Singapore has been delayed and postponed to 2H2022,” he adds.
In Singapore, the REIT has enjoyed contributions from W Hotel, one of its hotels under its Singapore portfolio. The hotel has been a popular destination for staycations due to its expansive view of the marina and sea front. In addition, “Sentosa Island provides Singaporeans with the closest semblance to an overseas holiday”, notes Koh.
“We estimate that W Hotel’s revenue per average room (RevPAR) has rebounded 28% q-o-q to $221 in 3QFY2021 ended Sept 30. We expect further upside with RevPAR increasing 27% q-o-q to $280 in 4QFY2021, driven by staycation demand,” he adds.
That said, the REIT’s other hotels in Singapore may face a “bumpy transition” on the path towards the country’s reopening.
“CDLHT has five hotels under government contracts to serve as dedicated isolation facilities. Self-isolation and recovery at home has become the default arrangement, including those infected with the Omicron variant and their close contacts. Thus, the government might terminate the contracts for some of the dedicated isolation facilities,” says Koh.
“The affected hotels have to switch to serving transient corporate and leisure travellers and staycation demand. Nevertheless, there is downside protection as the five hotels are under master leases, which provide minimum fixed rents totalling $31.4 million per year (80% of revenue from the five hotels in 2020),” he adds.
In New Zealand, the REIT is also benefiting from stable contributions from Grand Millennium Auckland, which has served as a managed isolation facility since 2QFY2020.
The contract from the government is expected to continue into 1QFY2022.
In addition, the hotel is the largest in Auckland, and is centrally located within the city’s CBD. As such, it contributed a “sizeable” 29.6% of CDLHT’s net property income (NPI) in 3QFY2021.
New Zealand’s government has also changed its approach — from zero-tolerance to living with Covid-19 as an endemic. The lockdown in Auckland ended on Dec 3, 2021; fully-vaccinated travellers from abroad would be able to visit the country from April 30, with a mandatory seven-day home isolation period.
In the UK, the REIT is anticipating a rapid recovery in 2022 after being hit by the wave of Omicron infections in mid-December 2021.
Since Aug 2, 2021, the country has welcomed fully-vaccinated international travellers from the US and European Union (EU) member states without quarantine, although it was plagued by the rising number of cases from the Omicron variant later in the year.
“From Dec 7, 2021, the British government has imposed new measures requiring travellers to self-isolate until they receive negative results for PCR test on day two after arrival. Hotels were affected by cancellation of bookings. We expect confidence to be gradually restored after Europe weathers the new wave of Omicron variant infections in 1QFY2022. Recovery should resume in 2QFY2022, driven by domestic and intra-regional corporate and leisure travel,” writes Koh.
The REIT’s expanded scope is also another plus to Koh. The REIT revised its principal investment strategy to include adjacent accommodation and lodging assets, such as rental housing, co-living, student accommodation and senior housing.
“These adjacent assets provide stable rental income streams, which are less susceptible to economic cycles. They typically have a longer length of stay ranging from a few months to one to two years,” he writes. — Felicia Tan
Kimly
Price target:
CGS-CIMB “buy” 56 cents
Prime heartlands gem
With the privatisation offer of food court Koufu further reducing the number of listed F&B companies, Kimly will increasingly stand out, given its position as a “prime heartlands F&B gem,” according to CGS-CIMB analysts.
To recap, Koufu received from founder and chairman Pang Lim and his wife Ng Hoon Tien an all cash 77 cent per share offer to take the company private. The offer price is a 15.8% premium to its last traded price, implying a valuation of 16 times FY2022 estimated earnings. Kimly has a September financial year end.
Reasons for the offer were: Koufu no longer needs public funding, its shares are thinly traded and as a private entity the Pangs will have more flexibility in both strategy and operations. It can also save on compliance and listing costs.
Lead analyst Kenneth Tan believes that with an attractive price that is close to Koufu’s all-time high since listing, the offer is “highly likely” to go through, joining Breadtalk and Neo Group which were delisted in 2020 and 2021 respectively.
With Koufu out of the way, Tan sees this as a positive for Kimly. Kimly is currently trading at an undemanding valuation of about 13 times 2022 PE (–1 SD from five-year historical mean), a notable discount to Koufu’s privatisation valuation of 16 times PE.
Tan has reiterated his “buy” call on Kimly with a target price of 56 cents, while keeping the stock as his top sector pick, in view of the group’s favourable growth prospects.
Meanwhile, Kimly continues to benefit from structural trends of hybrid work arrangements becoming increasingly prevalent (which supports footfall at heartland outlets) and growing demand for online food delivery.
“We also expect sequential earnings recovery in 1HFY2022 as footfall recovers upon the easing of dine-in measures locally since November 2021 (currently at five-pax cap). Kimly is also backed by net cash of $71 million as at end of FY2021 (14% of current market cap), which we think should contribute to continued outlet expansion of about three outlets per year, and sustainable dividend yield of 4%,” adds Tan.— Samantha Chiew
CapitaLand Investment
Price target:
DBS Group Research “buy” $4
‘Born to fly’
DBS Group Research analysts Derek Tan and Rachel Tan have re-initiated coverage on CapitaLand Investment (CLI) with “buy” rating and $4 target price, offering a 20% upside.
The analysts expect the catalysts emerging from the launch of new fund products and REIT acquisitions, given CLI’s aim to grow funds under management (FUM) to $100 billion by 2024, up 19% from 2021, and a re- bound in operational performance from its lodging business. They estimate CLI to generate a three-year net profit compound annual growth rate of 12% between FY2021–FY2024.
In addition, CLI, as a leading Asian real estate manager, is seen to have the muscle to acquire across business cycles and across different asset classes. “With diverse real estate strategies ranging from opportunistic, value-add to core investments, we see CLI leveraging on opportunities during market upcycles and downcycles.”
“Its REITs and private funds can be active across all real estate cycles,” they continue.
S-REITs are well positioned for growth, according to the analysts, with CLI’s REITs under management are among the largest S-REITs that enjoy strong liquidity and trade at a condu- cive cost of capital, which positions them for accretive acquisitions and AUM growth. “We estimate that the REITs will on average acquire up to $4 billion of new properties per annum from Sponsors, third parties, or from CapitaLand Development,” say the analysts.
Moreover, CLI is said to be growing its private equity business as well in the form of M&A or new fund products that may be launched in the coming years, they add.
The analysts also expect the lodging business to return to the black as international borders reopen as well. This is in light of Ascott Limited’s global footprint is well placed to leverage on multi-year recovery of the hospitality sector in coming years. “On top of robust growth in its operational footprint to 160,000 units by 2023, we see a turnaround in cash flows, as re-opening of international borders is expected to drive the lodging business back to profitability,” say the analysts.— Chloe Lim
