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Broker's Digest: Grand Venture Technology, FLCT, banks, Koufu, Kimly

The Edge Singapore
The Edge Singapore • 8 min read
Broker's Digest: Grand Venture Technology, FLCT, banks, Koufu, Kimly
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Grand Venture Technology
Price target:
CGS-CIMB “add” $1.12

‘New chapter of growth’ unfolding

CGS-CIMB analyst William Tng is optimistic on Grand Venture Technology following the release of its 1QFY2021 ended March business update.

Noting it is the first voluntary update that Grand Venture Technology has provided since its listing in January 2019, Tng highlights the company’s 465% y-o-y growth in net profit to $3.3 million, representing 41.1% of Tng’s fullyear estimates.

The stronger net profit followed revenue growth of 59% y-o-y on the back of better performance of its semiconductor segment (+68.5%), life sciences segment (+38.4%) and the electronics, medical & others segment (+42.2%).

He believes that “a new chapter of growth is unfolding” for the group, with efforts to onboard new customers and products in the last two years starting to show fruit.

To that end, Tng has raised his FY2021 and FY2023 revenue estimates by between 38.5% and 42.4% to reflect the group’s new customers and products as well as its progression to more assembly work. Consequently, Tng’s EPS forecasts for the corresponding period are raised by between 81% and 97.5%, resulting in a higher Gordon Growth-derived P/BV multiple of 5.37 times, up from 3.31 times previously.

“Our target price, based on FY2021 book value per share of 20.9 cents, is raised to $1.12, versus 60.5 cents previously,” he says.

M&A opportunities also remain on the horizon for the group. “With $23.5 million in net proceeds from its March placement to Novo Tellus, the group will continue to seek growth via M&As and increase its competencies in advanced manufacturing techniques,” he notes.

While accretive M&As and stronger results are expected to be re-rating catalysts, Tng notes that key risks include potential work stoppages at factories due to the Covid-19 pandemic. — Atiqah Mokhtar

Frasers Logistics & Commercial Trust
Price target:
CGS-CIMB “add” $1.57

Acquisition of Europe properties a positive

CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei are upbeat on Frasers Logistics & Commercial Trust’s (FLCT) recently announced acquisition of six properties in Europe for a total of $548.7 million.

The analysts note that the portfolio, encompassing a total net lettable area of 123,328 sq m, is 97.4% occupied with a weighted average lease to expiry (WALE) of 9.1 years. They also point out that the UK properties come with a 24-month rental guarantee of GBP3.9 million (7.3 million) for existing vacant spaces.

Lock and Eing point out that the acquisition will enable FLCT to further capitalise on the robust European logistics sector. “Moreover, purchase of the UK properties, Blythe Valley Park (BVP) and Connexion, also marks the trust’s entry into the UK logistics segment. BVP is an integrated logistics and business park with an established and well-connected mixed-use campus for the new economy sectors,” they write in a May 24 research note.

Post-acquisition, FLCT’s portfolio will comprise 58% of logistics and industrial assets, while portfolio occupancy will be 96.8% with a WALE of five years.

They also highlight that the acquisitions will be distribution per unit (DPU) and NAV accretive. “Based on an initial NPI yield of 5.2%, the acquisitions are DPU (+1.8% on a proforma basis) and NAV (+0.9% on a proforma basis) accretive,” they note.

They also estimate that FLCT’s gearing will remain low at 36.2% post-acquisition, which is being financed by debt as well as a private placement to raise a maximum of $335.8 million.

Lock and Eing continue to like FLCT’s visible inorganic growth potential and income resilience, backed by a long WALE.

To that end, they are reiterating their “add” rating for the stock with an unchanged target price of $1.57. — Atiqah Mokhtar

Banks
Price target:
CGS-CIMB:
DBS “add” $32.64
UOB “add” $28.84
OCBC “add” $13.75

Weathering through the uncertainties; UOB top pick

CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee have kept “overweight” on the Singapore banking sector, with “add” calls for all three banks, DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB).

Choong and Lim have given target prices of $32.64, $13.75 and $28.84 on DBS, OCBC and UOB respectively.

In their May 19 report, Choong and Lim say they see the banks weathering through the uncertainties, with FY2021 net profit on course to recover to pre-Covid-19 levels. That said, the tighter movement restrictions, if prolonged, pose key risks to economic recovery, in their view. Choong and Lim say that the banks’ credit costs could rise q-o-q amid vastly lower costs in the 1QFY2021 ended March, but are likely to remain within guidance. “For context, loans under moratorium have reduced to [around] 1%–6% of group loans in 1QFY2021, compared to 10%–15% at its peak in 2QFY2020. In tandem, impairment provisions totalled 24–29 basis points (bps) for OCBC and UOB, and just 1bp for DBS in 1QFY2021 given its model-driven impairment writeback,” they write.

“We understand that Singapore banks seek further asset quality stabilisation, particularly for exposures under extended relief, and a more reassuring pace of economic recovery before considering any writebacks of management overlay,” they add.

On this, Choong and Lim believe that Singapore banks are likely to take on a “more conservative” stance with slightly higher general provisions in the 2QFY2021 given the recent movement restrictions, although full-year impairments will remain within the banks’ guidance.

To the analysts, UOB is their preferred sector pick due to a more stable earnings trend coming off record treasury market income across the sector. This is followed by DBS, then OCBC.

“Trading at 1.0 times FY2021 P/BV, UOB may close the valuation gap against peers as Covid-19 infections in regional economies start easing, raising the pace of business transactions as the economies reopen,” they say. — Felicia Tan

Koufu
Price target:
PhillipCapital “neutral” 64 cents

Downgrade on slower than expected recovery

PhillipCapital analyst Terence Chua has downgraded Koufu to “neutral” from “accumulate” with a lower target price of 64 cents from 68 cents previously, following the group’s operational update on the impact of Singapore’s move to Phase Two (heightened alert) measures.

The new target price is still based on 18.5 times FY2021 earnings ended December, which is around the average of its peers, says Chua in a May 24 report.

To Chua, the downgrade comes as the group faces a “speed bump” on its road to recovery.

“In light of the slower than expected recovery in consumption, we lower our revenue estimates for FY2021 and FY2022 by 1.8% and 1.9% respectively. Consequently, profits are reduced by 6.1% and 8.0% from negative operating leverage and the delay in completion of its integrated facility,” he writes.

In his report, Chua noted that the group should receive some $600,000 in government grants on the back of jobs support scheme (JSS) grants being increased to 50% from 10%.

The added amount, says Chua, would lift the total amount of grants received to $1.6 million in FY2021.

The group also should see marginal improvements in Macau after the special administrative region reopened its borders to foreigners via mainland China, which saw higher footfalls in malls and food courts during the recent Labour Day holidays in May.

“All of Koufu’s food courts at the University of Macau, Nova City and Cotai Sands remained operational, though footfall and revenue were lower than pre-Covid levels. The negative impact has been mitigated partially by rental waivers and rebates from landlords,” he says.

However, the group’s operations in food courts, coffee shops and restaurants in Singapore have been hurt by lower footfalls following the Singapore government’s tighter restrictions.

The construction of the group’s integrated facility operations has also been delayed to the 3QFY2021 from 2QFY2021 due to Covid-19 measures in both Singapore and Malaysia, where certain materials are sourced.

The group had obtained its TOP in April. It will be occupying 75% of the facility’s total GFA, with the remaining 25% fully tenanted out. — Felicia Tan

Kimly
Price target:
RHB “buy” 42 cents

Defensive business model and positive prospects ahead

RHB Group Research analyst Jarrick Seet has maintained his “buy” call on Kimly with an unchanged target price of 42 cents, representing a 20% upside on the counter’s last closed share price.

To Seet, Kimly is likely to be the beneficiary of continued rental and worker subsidies on the back of the implementation of the Phase Two (heightened alert) measures in Singapore.

During this period, the coffee shop operator may see an increased demand for food takeaway and delivery services as dining-in is not allowed and as people return to work from home practices. These, says Seet, should boost Kimly’s net profit margin. To be sure, Kimly experienced a “superb” 1HFY2021 ended March where revenue and patmi grew by 14.2% y-o-y and 106.2% y-o-y to $122.6 million and $21.7 million respectively, due to higher contributions from its food and food court management divisions.

The company also aims to continue improving its cost structure, while negotiating to lower rental rates from landlords, which should help margins, says Seet in his report dated May 24.

On this, Seet estimates that Kimly’s PBT should increase by $9 million from the FY2022 onwards as its acquisition of Tenderfresh is expected to be completed in the next five to six months. The timeline translates to profits from the new business only being recorded by FY2022 onwards.

In addition, the acquisition comes with an earn-out clause at a PBT of $9 million, which Kimly’s management says it is confident of achieving. This should add about $5.5 million to its net profit from FY2022, says Seet.

Overall, Seet expects Kimly’s business to remain strong amid this pandemic, and that it will likely continue to reward shareholders with a “handsome” dividend yield of 6% for FY2021. However, Seet notes that “downside risks to our call include a rise in outlet rental rates, and labour shortages”. — Vivian Yee

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