IHH Healthcare
Price targets:
UOB Kay Hian ‘hold’ RM6.50
CGS-CIMB Research ‘add’ RM7.70
Room for growth ahead
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UOB Kay Hian’s Philip Wong has kept his “hold” call and RM6.40 ($1.84) target price for IHH Healthcare Q0F , which is dual listed on both the Bursa and Singapore Exchange S68 .
The company, which runs hospitals and clinics across the region, recently reported its 3QFY2023 ended September earnings which came in within expectations.
In 3QFY2023, IHH reported a core profit of RM352 million, up 11.9% y-o-y and 12% q-o-q. This brings 9MFY2023 core earnings to RM998 million, down 4.1% y-o-y.
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A key driver was Singapore where revenue was up 14.9% y-o-y. While patient numbers were “flattish”, up just 1% y-o-y, each patient paid a bill that is on average up 17% y-o-y. With sustained margins, earnings for Singapore were up 14.2% y-o-y.
“Positively, nursing strength is at full force while new ambulatory care centres should supplement some growth heading into 2024,” states Wong in his Dec 1 note.
In Malaysia, another key market, revenue was by 18% y-o-y, with volume up 11% y-o-y while “revenue intensity” was up 6% y-o-y.
While the company managed growth in its operations in Turkey, the weaker lira ate into the margins of Acibadem, IHH’s Turkish unit.
“Acibadem continues to strive for a more diversified revenue base given its economic circumstance, now with 58% of revenue being derived from domestic patients,” says Wong. India, another key market, generated a revenue growth of 11% y-o-y.
“Higher insurance penetration and increasing income are structural trends that will support long-term growth,” says Ong.
He has kept his “hold” call and RM6.40 target price, which implies 39.7x FY2024 earnings, or close to –1 s.d. (standard deviation) of its five-year mean P/E.
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“While valuations appear decent relative to its historical valuations, it is not as attractive vs other similarly profiled large defensive stocks. While the nature of its operations is defensive, certain regions in which IHH operates can be tumultuous. Furthermore, valuations have factored in an earnings recovery in 2024. As such, we have a ‘hold’ recommendation,” says Ong.
Tay Wee Kuang of CGS-CIMB Research has similarly kept his call, although he is more bullish with his recommendation to “add” with an RM7.70 target price.
Tay believes that IHH has room to improve its ebitda with several growth strategies in place, including in Singapore and Hong Kong where IHH is looking to grow its ambulatory care offerings and improve primary care penetration. By doing so, IHH can make space for “higher revenue intensity treatments”, says Tay.
Meanwhile, IHH, which had plans to divest its loss-making China operations, which consists of two hospitals and four clinics, has a change of heart under new CEO Dr Prem Kumar Nair, who took on this role on Oct 1 following the resignation of Dr Kelvin Loh, who went to join AIA as group chief healthcare officer.
As Tay puts it, IHH sees an opportunity to run its China operations as an ecosystem with referrals across primary care, outpatient and inpatient care that could lead to a turnaround of its business.
“We note that this is a shift from its plans to divest its China operations previously, and would likely lead to drawn-out gestational losses, albeit at a minimal impact to the group as a whole, in our view,” he adds.
Tay believes that IHH is on track to reach his core patmi estimate of RM1.78 billion for the whole of FY2023 and generate EPS of 17.6%.
For him, re-rating catalysts include achieving double-digit ROE and approval for IHH to commence its mandatory open offer for an additional stake in Fortis.
Downside risks, on the other hand, are margin compression from rising inflation, as well as outsized losses of its gestating assets, especially with management’s rethinking of its divestment plans in China. — The Edge Singapore
Frasers Logistics & Commercial Trust
Price target:
Citi Research ‘buy’ $1.24
Softer UK market
Citi Research analyst Brandon Lee has kept “buy” on Frasers Logistics & Commercial Trust BUOU (FLCT) with a lower target price of $1.24 from $1.48 previously.
To reflect revised foreign exchange assumptions, lower occupancies mainly in UK business parks and higher debt cost, Lee has cut his FY2024 and FY2025 distribution per unit (DPU) estimates by 8.4% to 6.88 cents and 7.16 cents respectively. The analyst has also introduced a DPU estimate of 7.55 cents for FY2026.
Lee also highlights several risks specific to the trust that could affect the achievement of Citi’s target price. First is the cap rate cycle with industrial cap rates now lower than pre-financial crisis levels and foreign capital consisting of a significant portion of transactional activity, a key risk for the sector is the diminishing relative attractiveness of industrial yields.
There are also concentration risks. FLCT’s top tenants account for about a quarter of its gross rental income. With the top 10 tenants each accounting for between 1% to 5% of its gross rents, the fallout of anyone would have a more noticeable impact on FLCT’s distributions.
Additionally, unfavourable exchange rate movements beyond that horizon could adversely affect the actualised value of FLCT’s distributable income to investors. Lastly, the lack of clear synergies with its office and business park acquisitions could result in higher trading yields, Lee notes. — Khairani Afifi Noordin
Boustead Singapore
Price target:
CGS-CIMB Research ‘add’ $1.40
Strong order book momentum
Ong Khang Chuen of CGS-CIMB Research has reiterated his “add” call on Boustead Singapore F9D after its 1HFY2024 ended September earnings that came in at “slightly” above expectations.
In 1HFY2024, Boustead Singapore, with all-around growth from its business units, reported a core patmi of $26 million, up 90% y-o-y and up 44% over 2HFY2023.
The company’s energy engineering business reported revenue of $88 million, up 130% y-o-y; its real estate business was up 45% y-o-y to $170 million and geospatial was up 23% y-o-y to $105 million.
Ong, citing the management, expects the company to maintain its strong order backlog to sustain revenue momentum in the current 2HFY2024.
He notes that the company is riding the favourable conditions in the global energy sector. For one, it has been awarded new engineering contracts and major order variations worth $110 million, which helped maintain its order book at $152 million as at the end of 1HFY2024, versus $154 million as at the end of FY2023.
Boustead Singapore is privatising its separately-listed unit Boustead Projects with a revised offer of $1.18, up 24%.
“We see the offer as earnings accretive,” says Ong, who expects the company to report earnings growth for the whole of FY2024.
Ong has kept his target price at $1.40, which is based on a sum-of-parts methodology.
Ong believes that at 7.7x FY2024 earnings now, Boustead Singapore is trading at an undemanding valuation, especially so given its significant net cash of 35 cents per share, equivalent to 42% of the company’s market cap.
Potential rerating catalysts, according to Ong, include further energy segment order wins and M&A execution. Downside risks include weaker margins on cost escalation, and a weaker macro environment hurting order wins in its real estate segment. — The Edge Singapore
BRC Asia
Price targets:
DBS Group Research ‘buy’ $2
PhillipCapital ‘buy’ $1.99
Steady outlook
Analysts from DBS Group Research have kept their “buy” call but with a raised target price of $2 from $1.89 previously for steel supplier BRC Asia BEC given its steady outlook and leading market position.
Given the company’s “dominant” market share of 60%–70%, it is seen as well positioned to ride the growth of the industry.
“According to our checks, customers with big projects are more inclined to choose BRC because of its ability to handle large-scale projects,” write analysts Lee Eun Young and Amanda Tan in their Dec 6 note.
“This places the group in a good position to benefit from the upcoming ramp-up of HDB projects and other major projects such as the Changi Airport Terminal 5 and expansion of the integrated resorts.”
Citing official projections, construction demand is seen to be held at $25 billion to $32 billion per year between 2024 and 2027.
“Despite external headwinds, Singapore’s healthy economic fundamentals should continue to attract investments. Hence, private sector construction demand should likely remain stable,” the analysts say.
“With steady construction demand, we expect construction output and consequently demand for BRC’s solutions to remain firm in the medium term,” they note, adding that key projects in the pipeline include the Cross Island MRT line and Downtown Line extension.
BRC Asia’s “strong” order book of $1.3 billion and accelerating site progress will be key drivers for the current FY2024.
Over the past year, the construction tempo in Singapore slowed because of a slew of fatal accidents to observe the so-called “heightened safety period” or HSP, which ended in May.
Since then, the company has already observed a general acceleration in the progress of local construction after the HSP.
“However, intermittent periods of downtime due to safety concerns and resource constraints will remain. Additionally, higher electricity, manpower, and financing costs could exert some pressure on margins,” according to Lee and Tan.
Separately, Peggy Mak of PhillipCapital has kept her “buy” call and $1.99 target price on BRC Asia.
In her Dec 6 note, Mak expects that the company’s average selling price has bottomed and will remain stable. She estimates demand volume to increase by 20% this current FY2024 in line with a pick up in construction activities. — The Edge Singapore
Starhill Global REIT
Price target:
RHB Bank Singapore ‘buy’ 58 cents
Anchor tenant’s lease renewed
RHB Bank Singapore’s Vijay Natarajan has kept his “buy” call on Starhill Global REIT P40U with a higher target price of 58 cents from 56 cents. This comes after it renewed a long-term lease with its anchor tenant on what has been seen as favourable terms.
Toshin, which operates the Takashimaya department store within Ngee Ann City, a key asset of the REIT, has signed a new 12-year master lease starting from June 2025.
Upon expiry on June 2037, there is an option for either party to renew for six years and thereafter, at the option of Toshin, extend for another three years. Toshin contributes 24% of the gross rent to the REIT.
Under the terms of the new leasing agreement, the base rent for the first three years will be higher of either 1% above existing base rents and the prevailing annual rental value at the start of the lease as agreed by both parties.
If this fails, the base rent shall be based on average market rental values determined by three valuers but not exceeding 125% of the first option.
The annual fixed rent will be subject to review every three years during the lease term and comes with downside protection, similar to the existing agreement.
In addition, Toshin has agreed to a profit-sharing agreement based on an annual turnover if revenue and profit margin thresholds are met.
On the other hand, as part of the master lease agreement, the REIT will contribute up to $5.2 million to Toshin for asset enhancements, which, in Natarajan’s view, is “reasonable”.
“Based on our discussions and anecdotal evidence, the favourable new lease comes amid a strong rebound in tenant sales across the Toshin space in Ngee Ann City on the back of revamped concepts and the return of tourists. We also expect the deal to provide a valuation uplift for the largest asset in Starhill Global REIT’s portfolio,” he says.
The REIT’s portfolio occupancy rose to 98.4%, up 0.7ppt q-o-q as at 1QFY2024 ended September, aided by occupancy uplift for its Australian assets. Natarajan also notes that tenant sales at Wisma Atria, another mall owned by the REIT, are up 15% y-o-y in the latest quarter.
Coupled with the next phase of asset enhancements expected to be completed by March 2024, the REIT should be able to eke out more positive rent reversions.
Natarajan has raised his FY2026 DPU (distribution per unit) by 3% and FY2027 DPU by 5% to factor in the new master lease structure and to also lower his interest cost estimates. — The Edge Singapore
Mapletree Pan Asia Commercial Trust
Price target:
UOB Kay Hian ‘buy’ $1.68
Mixed outlook
UOB Kay Hian analyst Jonathan Koh has maintained his “buy” call on Mapletree Pan Asia Commercial Trust N2IU (MPACT) although he sees a mixed outlook for the REIT’s core retail assets, VivoCity and Festival Walk in Hong Kong.
“While VivoCity has benefitted from the return of tourists, Festival Walk has not,” Koh writes. The former has been going from strength to strength with continual enhancements; VivoCity saw q-o-q growth in its rental reversion of 14.2% for the 2QFY2024. Its occupancy also improved q-o-q to 100% during the same period.
“In comparison, Festival Walk has seen a relatively muted recovery. The mall has continued to see negative rental reversion at –9.5% as at the 1HFY2024 while its tenant retention is “sub-optimal” at 57.5% during the same period. That said, Festival Walk was able to attract new tenants to maintain its 100% occupancy,” says Koh.
MPACT, which also owns office and business park properties in Singapore such as Mapletree Business City (MBC), mTower and Mapletree Anson were “resilient” although the REIT’s management cautioned weaknesses overseas in Shanghai, China, and Chiba, Japan.
While Koh sees that MPACT provides stability from diversification in its geographical presence on the whole, the analyst has cut his FY2025 distribution per unit (DPU) estimates by 6.6%. This is due to lower contributions from China and further depreciation of the Chinese yuan (CNY) and Japanese yen (JPY) of 4% and 10% y-o-y respectively against the Singapore dollar (SGD).
“We estimate revaluation losses of $204 million from MPACT’s China properties at end-FY2024, assuming: cap rate expansion of 25 basis points (bps), occupancy further declining to 85% (2QFY2024: 88.9%), and CNY depreciating 4% against SGD. We expect the lower portfolio valuation to cause aggregate leverage to increase by 1.0 percentage points to 41.7%,” he writes.
Based on his estimates, MPACT is trading at an FY2025 distribution yield of 6.3% and P/NAV of 0.79x. His target price has been lowered to $1.68 from $1.80 previously, based on a cost of equity (COE) of 7.25% and terminal growth of 2.2%. — Felicia Tan
Kimly Group
Price target:
CGS-CIMB Research ‘hold’ 36 cents
Margins pressure to remain
CGS-CIMB Research’s Kenneth Tan and Ong Khang Chuen have kept their “hold” call on coffeeshop operator Kimly 1D0 Group, following its 2HFY2023 earnings ended September.
The core net profit of $18 million for the six months ended Sept was above their expectation, thanks to resilient outlet management margins.
This brings Kimly’s FY2023 core earnings to $34 million, up 16% y-o-y. A dividend of 1.68 cents has been declared, held steady from the previous year.
In FY2023, Kimly closed four outlets but opened three new ones. Tan and Ong, citing the management, expect Kimly to try and open three to five new outlets in the current FY2024.
“However, we see the potential for some store closures should rental reversions from private landlords, which make up 56% of leases as at end-FY2023, to be too significant and if Kimly finds it difficult to pass on higher costs to tenants,” the analysts state.
In addition, Kimly has flagged it is facing higher labour costs due to the national Progressive Wage Credit Scheme. Some of its suppliers have already adjusted prices upwards ahead of the next 1% GST hike next month.
Under a conservative forecast, they expect Kimly to open just one outlet in the current FY2024 and two, net, in the coming FY2025.
“Kimly has been raising rental rates and food prices to pass on the cost pressures but remains cautious in managing the pace of price hikes to ensure a healthy level of earnings for its food stall tenants, and that food prices stay affordable given the cost-conscious nature of its customers,” say Tan and Ong.
However, with a view that margin pressure will persist going forward, the analysts have slightly trimmed their target price from 37 cents to 36 cents.
The new target price, pegged to 13x current FY2024 earnings, is a lower multiple than the 15x used previously. — The Edge Singapore
