IREIT Global
Price target:
DBS Group Research ‘hold’ 45 cents
Vacancy woes ahead
DBS Group Research analysts Dale Lai and Derek Tan have downgraded IREIT Global to “hold” from “buy” after the REIT’s distribution per unit (DPU) for the 1HFY2023 ended June 30 fell by 23.8% y-o-y to 0.93 euro cents (1.37 cents).
The lower DPU, which was mainly due to the vacancy at the REIT’s Darmstadt campus, a four-month rent-free period at Bonn Campus, as well as its enlarged unit base, stood below Lai and Tan’s estimates.
“With the non-renewal at Darmstadt, there will be a near-to-medium-term impact on earnings. Moreover, the slowdown in the office leasing market may lead to prolonged vacancies at some of these assets,” write the analysts, who have also lowered their target price to 45 cents from 60 cents previously.
“Another potential risk with the slowdown in the European market is a valuation cap rate expansion,” they add. “So far, IREIT’s portfolio has experienced a 50 basis point (bps) expansion in cap rates, and further expansion could be expected in the coming quarters.”
To this end, any further significant cap rate expansion could put pressure on the REIT’s gearing and a prolonged slowdown in the European office leasing market could lead to slower backfilling and a downside to earnings, the analysts warn.
However, they are still upbeat about the REIT’s “well-diversified” portfolio across Western Europe. Once IREIT’s acquisition of the 17 retail assets in France is completed, its assets under management (AUM) will increase to EUR1 billion.
Following the acquisition, the REIT’s portfolio will lower its exposure to the office sector and further diversify its key tenant, geographical, lease expiry, and sector concentration risks. It will also have a total of 54 assets located across Germany, France, and Spain that consist of office and retail assets with a relatively long weighted average lease expiry (WALE) of around five years. As most of the leases are pegged to annual consumer price index (CPI) indexation, this will help drive some organic income growth, note the analysts. — Felicia Tan
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Dyna-Mac Holdings
Price target:
Maybank Securities ‘buy’ 51 cents
OCBC Investment Research ‘buy’ 50.5 cents
Riding upcycle, eyeing M&A
Jarick Seet of Maybank Securities, in his Aug 8 note, has maintained his “buy” call on Dyna-Mac Holdings, along with a raised target price of 51 cents, from 40 cents previously. Ada Lim of OCBC Investment Research has similarly raised her target price from 41.5 cents to 50.5 cents.
On Aug 7, the company reported a strong set of numbers for its 1HFY2023 ended June 30. Earnings increased by 218% y-o-y to $10.2 million, on the back of a 47% y-o-y increase in revenue to $182.3 million.
Riding on the resurgence of the overall oil and gas sector, the company, which is known for building topside modules for oil rigs, was able to improve its gross margins to 13.5% from 10.1%.
In a sign of better prospects ahead, it is securing new land from JTC so that it can expand its capacity by up to 40%. Dyna-Mac plans to use the new space to provide additional fabrication capacity for current and future projects.
The company is also exploring M&A opportunities and hopes to acquire similar industry businesses with recurring revenues.
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“We remain confident of Dyna-Mac’s outlook,” writes Seet, noting that the company has built up an order book of $542.7 million.
His new target price of 51 cents is pegged to 20x forward FY2024 earnings, which is an increase of 8% from his earlier projection.
“We expect continued gains on better utilisation as well as improved pricing of contracts. With utilisation now close to full, we believe this is a good sign for its financial performance in the second half of the current FY2023. Traditionally, the second half has also always been stronger than the first half,” adds Seet.
The analyst also notes that Dyna-Mac, holding net cash of $128.5 million, is keen to acquire new businesses so that it can lift its recurring revenue stream and not be as reliant on project-based earnings.
“We believe this direction will be positive for shareholders as it will add more certainty to earnings and cash flows, especially during downturns.
“We also maintain a bullish long-term outlook for Dyna-Mac which we believe is a key beneficiary of this multi-year upcycle seen to last from 2022 to 2026,” says Seet.
Dyna-Mac closed at 41 cents on Aug 7, down 1.2% for the day, but up 115.8% year to date. — The Edge Singapore
Oversea-Chinese Banking Corporation
Price targets:
CGS-CIMB Research ‘add’ $14
PhillipCapital Research ‘buy’ $14.96
RHB Bank Singapore ‘neutral’ $13.70
DBS Group Research ‘hold’ $13.70
Citi Research ‘neutral’ $12.70
Mixed sentiments from analysts
As the net interest margins (NIM) enjoyed by banks are expected to moderate in the coming quarters, attention has shifted towards return on equity (ROE).
Analysts are taking a shine towards Oversea-Chinese Banking Corporation (OCBC) following its results briefing for 1HFY2023 ended June on Aug 4 after CEO Helen Wong outlined further details on the bank’s strategy to achieve $3 billion in incremental revenue from 2023 to 2025. Wong says 70% of the $3 billion target should be driven by organic growth pillars like wealth and trade while new economy and sustainability will make up the rest.
OCBC guides for the project revenue inflow in FY2023, FY2024 and FY2025 to be $500 million, $1 billion and $1.5 billion.
OCBC’s base case expects 12%–13% ROE by FY2025, tapering off from its expected 14% in FY2023. This assumes that its current growth trajectory is maintained while interest rates start declining by some 1.5% from 2024 and mark-to-market losses in fair value through other comprehensive income (FVOCI) will reverse as interest rates taper off.
CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee say the ROE clarity from Wong’s comments is welcome. Following the results briefing, they maintain “add” on OCBC in an Aug 5 note, with a higher target price of $14 from $13.50 previously.
OCBC’s 2QFY2023 earnings “look decent” to them. “Although there was a boost from insurance income, likely at a new normal level following the adoption of IFRS17 accounting standard and trading income, these were negated by more management overlays in 2QFY2023.”
Choong and Lim estimate OCBC’s management overlays at some $1 billion in total.
OCBC reported an exit NIM of 2.26% at end-June on par with its 2QFY2023 quarterly NIM.
OCBC’s leaders expect that NIM holds at current levels in 2HFY2023 as yield support from the recent Fed rate hike should be offset by still-high funding costs.
With 1HFY2023 NIM at 2.27%, Choong and Lim think management’s NIM guidance of it being above 2.2% in FY2023F “is a tad conservative”. “We raise our FY2023-FY2025 NIM to 2.14%-2.27%, from 1.99%-2.17%, to factor in the improved margin outlook.”
PhillipCapital Research analyst Glenn Thum is even more optimistic about OCBC after 2QFY2023 earnings of $1.71 billion came in “slightly above” his estimates.
Thum is keeping his “buy” call and $14.96 target price on OCBC, the highest among houses here. He says: “We raise FY2023 earnings by 4% as we increase net interest income (NII) estimates for FY2023 due to higher NIMs and lower expenses, offset by lower fee income estimates.”
Thum has also raised his FY2023 dividend per share (DPS) forecast to 85 cents from 80 cents.
To Thum, OCBC’s share price catalysts include continued interest income growth and fee income recovery as economic conditions improve.
Meanwhile, RHB Bank Singapore analysts remain “neutral” on OCBC with a higher target price of $13.70 from $13.20 previously. The RHB analysts note that OCBC is “charting a path towards sustaining higher ROEs” but China’s macroeconomic softness and NIM headwinds in the near term will likely cap OCBC’s share price performance.
The analysts from DBS Group Research too have a target price of $13.70 on OCBC, up from $13 previously. In an Aug 7 note, DBS’s Lim Rui Wen and Tabitha Foo maintain “hold” on OCBC.
“We believe this is a fair valuation, as we see limited catalysts ahead for OCBC’s share price with rising asset quality risks. We believe the market has largely priced in the positives from upside to NIMs in 2HFY2023 and the downside to OCBC’s share price will be supported by its strong provisions buffer of 131% and potential excess capital of more than $2 billion during FY2023.”
Citi Research’s July 19 forecast of 40 cents interim dividend proved accurate. Further upside to OCBC’s payout ratio going forward depends on the bank’s capital position, notes Citi Research analyst Tan Yong Hong.
In FY2022 ended December, OCBC had a payout ratio of 53%. After OCBC pays out the 40 cents interim dividend on Aug 15, its CET-1 ratio of 14.6% will remain above its 14.0% target, adds Tan.
However, Tan maintains “neutral” on OCBC in an Aug 4 note, with a target price of $12.70 representing a 2.6% downside to its closing price on Aug 3. — Jovi Ho
Venture Corporation
Price targets:
CGS-CIMB Research ‘add’ $16.80
Citi Research ‘buy’ $17.60
DBS Group Research ‘hold’ $15.40
In it for the long-term
Analysts from CGS-CIMB Research and Citi Investment Research have maintained their “add” and “buy” calls on Venture Corp with lower target prices of $16.80 and $17.60, down from $18.11 and $19.00, respectively.
In his Aug 4 report, William Tng of CGS-CIMB says that Venture’s 1HFY2023 ended June results “disappointed”, with revenue declining 11.9% y-o-y to $1,582.2 million and net profit falling 19.7% y-o-y to $140 million.
He notes that the decline in 1HFY2023 was due to a higher revenue base set in 1HFY2022, softening demand and ongoing inventory destocking from the company’s customers. Meanwhile, Tng adds that 1HFY2023 net profit margin of 8.8% was still within the 8% to 10% range that Venture’s management believes is a “reasonable target”.
His target price of $16.80 has been reduced to reflect the ongoing weakness in demand. The analyst has also lowered his FY2024 earnings per share (EPS) forecast to $1.10 from $1.20 previously. Still, given Venture’s 5.22% dividend yield and potential for EPS growth resumption in FY2024 and FY2025, Tng is keeping “add” on the stock.
Similarly, Citi’s James Osman believes that despite Venture’s likely “subdued” near-term performance, its longer-term structural thesis remains intact. On the company’s underperformance for 2QFY2023, Osman says he “overestimated” the resilience of Venture’s diversified customer base as well as the pace of supply chain de-risking trends positively impacting electronics manufacturing services (EMS) players. “Nevertheless, we believe demand has bottomed, although uncertainty lingers.”
The analyst has cut his FY2023 to FY2025 EPS forecasts by 11% after “tempering” his revenue forecasts for Venture and lowering his target price accordingly to $17.60. Despite near-term uncertainty, Osman says Venture remains a beneficiary of supply chain relocation trends while the company has made headway to diversify its customer base into growth domains.
Meanwhile, DBS Group Research’s analyst Ling Lee Keng has maintained her “hold” recommendation with a lower target price of $15.40, down from $16.40 previously.
Ling has rolled over her target price of $15.40 on a reduced 13.5x FY2024 earnings forecast. “In the longer term, we remain positive on Venture’s ability to monetise its unique offerings and differentiating capabilities when the global economies recover,” she says. — Bryan Wu
StarHub
Price targets:
CGS-CIMB Research ‘hold’ $1.15
Maybank Securities ‘hold’ $1.08
Awaiting Dare+ to bear fruit
Following StarHub’s latest 1HFY2023 ended June results, analysts are keeping “hold” on the stock as they wait to see its business transformation bear fruit. “We expect earnings growth to remain weighted by the ramp-up in transformation costs,” write CGS-CIMB Research analysts Kenneth Tan and Lim Siew Khee. They have a “hold” call and a $1.15 target price on StarHub.
The analysts note that StarHub’s management has raised its FY2023 service ebitda margin guidance to about 22% from 20% given two factors.
“The group expects to incur lower Dare+ transformation costs in FY2023 of $120 million (from $155 million previously) due largely to cost rationalisation; StarHub has incurred $30 million year-to-date, indicating costs to be backloaded into 2HFY2023 and possibly into FY2024, in our view,” say Tan and Lim.
The analysts expect StarHub’s 2HFY2023 core net profit to trend sequentially lower to $41 million, a decline of 47% h-o-h. “While we see a positive outlook for its other enterprise businesses (Ensign, JOS Malaysia, Strateq), we expect near-term slowdown for D’Crypt and JOS Singapore as the group works through their transient issues,” they say.
Maybank Securities is also keeping its “hold” recommendation but with a lower target price of $1.08 from $1.10, despite ebitda of $117 million and patmi of $38 million exceeding expectations.
“We tweak our FY2023/FY2024 earnings forecasts by –3.8%/–3.1%, as guided, delayed project recognition for D’Crypt and JOS SG would likely dent service revenue for FY2023, affecting profitability. We also think that bulk of investment in the 2HFY2023 could drag service ebitda margin lower to 19%,” says analyst Kelvin Tan in his Aug 4 report.
Aside from the revenue improvement across all segments, Tan notes that postpaid average revenue per user (ARPU) rose 10% y-o-y on higher roaming and value-added services (VAS) revenue due to travel recovery. Contributions from consolidation of MyRepublic’s broadband business in Singapore and Premier League subscriptions lifted revenue from Broadband (+7.6% y-o-y) and Entertainment (+18.2% y-o-y) in 1HFY2023, respectively. “We foresee further earnings and cost synergies in FY2023 and beyond,” says Tan, who is also cautious about the group’s ebitda margin.
Tan also expects ebitda for FY2024 to return to about $500 million, similar to the pre-Dare+ period in FY2021 on easing costs and reaping benefits from DARE+ investments. — Nicole Lim & Samantha Chiew
