Japfa
Price target:
CGS-CIMB “add” $1.22
UOB Kay Hian “buy” $1.17
Spreading its eggs in several baskets
Analysts are upbeat on Japfa following its 1QFY2021 ended March results, which saw a 37% y-o-y increase in earnings to US$35.5 million ($47.5 million) due to growth across all segments.
Revenue for the period gained 16% y-o-y to US$1.1 billion while operating profit surged 78% to US$149.8 million. This was led by significantly higher profit from the group’s poultry business in Indonesia, driven by higher feed margins as Japfa managed to pass the higher cost of raw materials to consumers and prices of Indonesia’s day-old chick (DOC) and live bird segments recovered.
That, along with continued healthy profits from its Animal Protein Other (APO) division (11.3% y-o-y growth to US$20.7 million) and Dairy (12.3% y-o-y growth to US$26.5 million) segments, brought core net profit for 1QFY2021 to US$67.9 million, 36.1% higher than the previous year.
CGS-CIMB Research is maintaining its “add” call on Japfa with a higher target price of $1.22 from $1.18 previously.
Through channel checks, prices are still intact for Japfa. Average Indonesia DOC/live bird prices are at about IDR8,000/ IDR23,000 ($0.56/$2.13) levels in April, compared to Japfa’s guided average March prices of about IDR7,000/IDR20,000. Meanwhile, Vietnam’s average swine prices remain at VND72,000/ kg–VND74,000/kg ($4.17/kg–$4.28/kg) levels in April, compared to VND75,000/kg–VND78,000/kg in March.
In China, average raw milk prices remained at about RMB4.24/ kg–RMB4.27/kg ($0.876/kg–$0.882/kg) levels in April, versus average March levels of RMB4.29/kg.
Japfa has also been able to grow its Vietnam swine fattening sales volumes by 33% y-o-y in 1QFY2021 (as previous swine breeding stock replenishing efforts start to take shape) and the group hopes to maintain that y-o-y growth for the rest of FY2021
Analyst Cezzane See says, “While the sustained high swine and raw milk prices continue to bode well for the near-term outlook of Japfa’s APO and dairy segments, we think that the consistent poultry segment culling by the Indonesian government signals a turn in the segment’s prospects for FY2021.”
Hence, See has raised FY2021–FY2022 margins for Japfa’s Indonesian business, which consequently raises FY2021/2022 net profits by 14.5%/3.7%, respectively. “We continue to be positive on Japfa as it reaps the benefits of its diversification strategy,” she adds.
UOB Kay Hian too is keeping its “buy” call on Japfa with a target price of $1.17. Analyst John Cheong notes that the group’s 1QFY2021 results came in better than expected, forming 31% of full-year forecast.
The turnaround in the Indonesia poultry segment was the reason for the group’s improvement in results. Core patmi from PT Japfa TBK grew 189% y-o-y to US$31.9 million. The segment — which was a drag on earnings in 2020 — has benefitted from the government’s recent culling initiatives to stabilise poultry prices.
Management has also shared that feed margins for both poultry and aquaculture remain healthy despite a rise in raw materials costs at a global level.
Cheong is positive on the group’s outlook, especially for its APO and dairy segments. “Japfa’s Vietnam business continues to deliver a strong performance, making the most of its long-term strategy in swine breeding amid persistent high swine fattening prices due to the supply shortage caused by African Swine Fever (ASF) in the market,” he says, noting that APO revenue and operating profit rose 24.7% and 11.8% y-o-y respectively.
This was driven by higher fattening volumes resulting from Japfa’s ability to quickly replenish its swine stock coupled with continued elevated swine fattening ASPs.
For its dairy business, revenue increased 6.9% y-o-y to US$128.9 million and operating profit grew 12.4% y-o-y to US$26.5 million on the back of higher sales volumes and ASPs for both dairy and beef businesses.
Shares in Japfa closed flat at 92 cents on May 3, giving it a FY2021 price-to-book ratio of 0.9 times and a dividend yield of 1.1%, according to UOB Kay Hian’s estimates. — Samantha Chiew
Cromwell European REIT
Price target:
DBS Group Research “buy” EUR3.00 (adjusted to reflect stock consolidation)
Higher price target as iron ore prices soar
DBS Group Research analysts Dale Lai, Rachel Tan and Derek Tan have reinitiated coverage on Cromwell European REIT (CEREIT) at “buy” with a target price of EUR3.00 ($4.81) as they view the REIT as a play for the fast-growing logistics sector.
The target price is based on a discounted cash flow (DCF) model with a weighted average cost of capital (WACC) of 5.7%, and implies a target yield of 5.9% and a price-to-net asset value (P/NAV) multiple of 1.18 times.
CEREIT is the first Singapore REIT (S-REIT) with a diversified pan-European portfolio comprising office, industrial and logistics assets valued at around EUR2.3 billion.
Its 107 properties are located in major gateway cities in countries including the Netherlands, Italy, France, Poland and Denmark.
Since its listing in November 2017, the REIT’s portfolio has grown by around 70% from EUR1.35 billion.
“The REIT has been an active asset recycler, driving portfolio yields and optimising returns to unitholders. With attractive yields north of 7.5%, coupled with potential inclusion to the EPRA NAREIT, we see multiple re-rating catalysts for the stock,” writes the team in a May 3 report.
One of the potential catalysts identified by the team is the enlarged free float market cap and trading liquidity to lead the charge for inclusion into the EPRA/NAREIT Developed Asia index.
The REIT has also weathered the Covid-19 pandemic well, with “resilient occupancies” and achieving positive rental reversions.
The REIT currently has a weighted average lease expiry (WALE) of 4.9 years with strong visibility on distributions.
With that, the team anticipates an improvement in operational metrics as the economy recovers from the Covid-19 pandemic. “We remain excited about management’s pivot into the logistics sector which accounted for 35% of assets as of December 2020,” it writes.
“The REIT continues to increase exposure in this fast-growing subsector and targets to increase its portfolio exposure to 50% in the medium term. This strategy, in our view, will drive a further compression in yields for the stock,” adds the team. — Felicia Tan
Far East Hospitality Trust
Price target:
CGS-CIMB “add” 74.5 cents
OCBC “hold” 66 cents
Master lease income to sustain FY21
CGS-CIMB Research and OCBC Investment Research expect master lease income to continue to underpin Far East Hospitality Trust’s (FEHT) performance for the rest of the year after it gave a business update for its 1QFY2021 ended March.
CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee say that FEHT’s 1QFY2021 distributable income of $12.5 million (–1% y-o-y) was in line with their estimates, supported by fixed rent.
The analysts note that while revenue for the period fell by 7% y-o-y to $21.3 million due to weaker performance from serviced residences, lower finance expenses and REIT manager fees kept distributable income relatively flat.
They highlight that serviced residences’ revenue per average unit (RevPAU) declined 21% y-o-y, driven by lower occupancy and lower average daily rate (ADR) caused by dwindling longstay and foreign worker guests as well as lower contribution from leisure guests.
For the hotel portfolio, Eing and Lock point out that despite higher occupancy (+10.8 percentage points y-o-y), ADR was 54% lower as most of the hotels were under government contracts or bookings for foreign workers that commanded lower rates. Consequently, revenue per average room (RevPAR) declined 46% y-o-y.
They expect the hotel segment to continue being largely supported by government contracts and master lease income in FY2021. For serviced residences, they note that the segment could potentially hit just fixed rent should borders remain closed for another quarter.
“We expect a stable performance in FY2021, supported by master lease income and lower finance costs,” they conclude. They are maintaining their “add” rating for FEHT with an unchanged target price of 74.5 cents.
Meanwhile, OCBC’s Chu Peng views the serviced residence portfolio as more resilient than hotels despite its weaker y-o-y performance, given that it remained above fixed rent for the 1QFY2021.
Similar to Eing and Lock, Chu believes the hotel segment will continue seeing mainly fixed rent in the coming quarters, as it will take time to vaccinate the population and resume international travel. She has a “hold” call and 66 cents target price on this counter.
She notes that six out of FEHT’s nine hotels are currently on government isolation businesses with existing contracts expiring in mid-May, which is likely to be extended further based on management’s expectation.
“We understand that FEHT needs to receive at least $150 ADR and occupancy rate of 80% for hotels to receive variable income,” she points out.— Atiqah Mokhtar
Mapletree Industrial Trust
Price target:
CGS-CIMB “add” $3.05
DBS Group Research “buy” $3.25
Another “robust” quarter
Analysts are positive on Mapletree Industrial Trust (MINT) as the REIT posted a 2.5% higher DPU of 12.55 cents for the FY2020/FY2021 ended March.
CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei have upgraded their call to “add” from “hold” with a slightly higher target price of $3.05 from $3.03 as MINT’s full-year DPU beat their estimates at 102.7% of its FY2021 forecast.
They have also raised their DPU estimates for the FY2022–FY2023 by 0.76%–0.85% with the contributions from MINT’s newly-acquired data centre and office in Virginia, US.
“With expectations of gradually improving Singapore operations and following the recent share price dip, we upgrade our rating to ‘add’ on valuation grounds,” they write.
DBS Group Research analysts Derek Tan and Dale Lai have kept their “buy” call on MINT with an unchanged target price of $3.25, as they view the REIT’s “certainty of growth” as a “welcome trait”.
“We like its improved earnings visibility of 4.0% compound annual growth rate (CAGR) and capacity to further grow in the data centre space will keep valuations at a premium,” they write.
The analysts from DBS also see the REIT as a fast-emerging data centre play, as it continues to pivot its exposure towards more data centres.
MINT, which is currently trading at P/NAV of 1.9 times and forward yield of 4.0%, is continuing to trade closer to its data centre peer, KDC REIT, which is trading at 2.1 times P/NAV with yields of 3.8%.
On this, Tan and Lai view MINT as having an “attractive land bank” in Singapore. — Felicia Tan
Micro-Mechanics
Price target:
PhillipCapital “neutral” $3.02
3Q21 falls below expectations
Despite a record 3QFY2021 ended March for Micro-Mechanics (Holdings), PhillipCapital analyst Paul Chew is maintaining his “neutral” rating for the counter after 9MFY2021 revenue and net profit came below his forecasts for the year at 77% and 64% respectively.
Chew believes that semiconductor supply disruption, particularly in Taiwan and the US, resulted in the lower-than-expected revenue of $17.7 million for the 3QFY2021. “Countries with more automobile exposure suffered from disruption in chip supply,” he notes in a May 2 research note.
In addition, the gross margin of 53.9% for the period was also below his estimates. “We had expected record revenue and increased product complexity to lift margins, mirroring its FY2017– FY2018 upcycle when margins were 57% and capacity utilisation [was at] 60%. Current utilisation is only 56%,” he explains.
Chew anticipates the semiconductor industry upcycle to continue, noting that Micro-Mechanics may have upside from its US operations and penetration of front-end semiconductor equipment.
“Increased complexity of semiconductors from collapsing geometries and more advanced materials to handling wafer dies will further consolidate the supply chain and reduce current competition,” he notes.
Chew has lowered his FY2021 earnings forecast by 10% and gross margins from 56.5% to 55% to incorporate higher operating expenses. Consequently, his target price for Micro-Mechanics is now $3.02 from $3.35 previously. He notes that the target price translates to a P/E (ex-cash) of 21 times, which is in line with peers. — Atiqah Mokhtar
Venture Corp
Price target:
CGS-CIMB “add” $22.51
DBS Group Research “buy” $22.70
UOB Kay Hian “buy” $23.47 PhillipCapital “neutral” $19.20
1Q numbers below expectations
As Venture Corporation reported net profit of $65.3 million and revenue of $686.7 million for the 1QFY2021 ended March on April 30, analysts from CGS-CIMB Research, DBS Group Research and UOB Kay Hian have kept “add” or “buy” on the group, with the exception of PhillipCapital, which has maintained its “neutral” call.
The slight increase in revenue of 2% y-o-y during the quarter, which was held back by the ongoing component shortage in the electronics manufacturing industry, largely missed analysts’ expectations, except for UOB Kay Hian, which deemed it in line with its FY2021 estimates.
Based on the group’s 1Q update, CGS-CIMB analyst William Tng has reduced his target price on Venture to $22.51 from $24.84 previously, as he cuts his revenue forecasts for FY2021 to FY2023 by 3% to 5% and his earnings estimates by 7% to 10%.
The cuts in both revenue and earnings estimates are due to the potential impact arising from the shortages in components, says Tng.
“To better appreciate the long-term valuation of Venture, we switch our target P/E multiple to 17.1 times (0.5 standard deviation or s.d. above its 20-year average of 15.1 times). Previously, we ascribed a target P/E multiple of 18.5 times (0.5 s.d. above its 14-year average of 15 times). Rolling over to FY2022, our target prices are cut to $22.51,” he writes.
DBS analyst Ling Lee Keng has also reduced her target price on Venture Corp to $22.70 from $24.30 on the back of its lower-than-expected earnings.
The new target price is pegged to 20.5 times P/E on FY2021 earnings, 2 s.d. of its five-year average P/E.
Ling has also cut her earnings estimates for the FY2021 and FY2022 by 8% each due to the chip shortage.
That said, she still views the group as a “quality tech blue chip” despite the supply disruptions.
Venture has guided for a q-o-q improvement in figures for the 2QFY2021, leading to a stronger 2HFY2021.
“[Venture’s] 1QFY2021 performance was affected by supply disruptions for parts and components. Otherwise, Venture saw broad-based strength across the group’s diverse technology domains,” she writes.
As it is, Ling notes that Venture has a strong net cash position to support a repeat of its dividend of 75 cents in the FY2021, which works out to an “attractive yield” of 4%.
On this, Ling says she “remains positive on Venture’s ability to continue investing to enhance its differentiating capabilities within its ecosystems of interest in the longer term”.
PhillipCapital analyst Paul Chew has kept his target price at $19.20 as Venture’s profit growth stood below his forecast of +17%.
“We had expected a stronger rebound from last year’s low base caused by pandemic disruptions,” he says.
That said, Chew has left his forecasts unchanged, as he is optimistic that there will be stronger revenue momentum from Venture in the coming quarters.
UOB Kay Hian analyst John Cheong has also maintained his target price of $23.47.
Unlike the other three brokerages, Cheong views Venture’s 1QFY2021 earnings as “in line”, accounting for 19% of his FY2021 estimates.
“We expect a sequential improvement, similar to the trend in 2020 as Venture works on fulfilling orders,” he writes.
“At current price, Venture offers an attractive dividend yield of 3.7%,” he adds. — Felicia Tan
