Japfa
Price target:
CGS-CIMB Research ‘add’ 28 cents
FY2023 to end in the black
CGS-CIMB Research analyst Tay Wee Kuang has upgraded his call on Japfa UD2 to “add” from “reduce” with a higher target price of 28 cents from 20 cents.
Tay’s report on Nov 2 comes after Japfa reported a core net profit of US$32.4 million ($44.2 million) in 3QFY2023 ended Sept 30. This was ahead of Tay’s previous forecast of a net profit of US$34.8 million in 2HFY2023.
In 3QFY2023, Japfa’s gross margins also improved by 4.7 percentage points y-o-y and 4.2 percentage points q-o-q to 16.8%, thanks to higher selling prices and lower cost of feed.
“Although Indonesia saw higher domestic corn prices year to date, management shared that in 3QFY2023, Japfa benefitted from the lagged effect of lower domestic corn prices from previous quarters,” says Tay.
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Despite easing average selling prices (ASP) with a decline in Vietnam swine prices quarter to date (qtd), Japfa should remain profitable in the 4QFY2023, says Tay. In 3QFY2023, Japfa recorded better ASP on a q-o-q across its segments, although Vietnam swine prices fell by 12.1% qtd. Japfa’s management says that better cost efficiencies should continue to put the company’s Animal Protein Others (APO) segment in the black.
“We think APO’s turnaround remains shaky given the uncertain outlook for Vietnam’s economy,” Tay writes.
Overall, Tay is upbeat that Japfa could finish FY2023 in the black with earnings of US$5.8 million (from an earlier projection of a US$13.9 million loss) despite likely margin pressures in the 4QFY2023. His new target price of 28 cents is pegged to 0.5x Japfa’s FY2024 P/BV or –0.5 standard deviations (s.d.) from its 10-year average. — Felicia Tan
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HRnetGroup
Price target:
RHB Bank Singapore ‘buy’ 91 cents
3Q2023 unemployment remains stable
RHB Bank Singapore analyst Alfie Yeo has maintained a “buy” on HRnetGroup with a target price of 91 cents on the back of a more compelling valuation.
Citing the Ministry of Manpower’s Labour Market Advance Release for the quarter, Yeo points out that total employment numbers continued to increase while retrenchment and unemployed residents rose, dragged mainly by the wholesale trade sector.
Overall unemployment remained low at 2%, Yeo adds. Resident employment growth was driven by financial services and professional services as well as the health and social services sectors, while non-resident employment growth was led by retail trade, F&B services, administration and support services and construction.
Yeo describes the latest data as a mixed bag. This year, unemployment remained stable at 1.8% to 2%, well below the 2013–2022 average of 2.4%. Overall unemployment of 2% was also consistent with July and August, Yeo notes.
“Even though retrenchment trended higher, total employment increased, albeit slightly lower than 2Q2023’s numbers. Our economists expect Singapore’s GDP growth to accelerate from 1.5% this year before posting a 3% GDP growth in 2024, with China’s GDP forecast to accelerate from 2022’s 3% to 4% and 4.5% in 2023 and 2024,”
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As RHB is neutral on the latest data, Yeo is not changing his earnings estimates. His two-year FY2023 to FY2025 earnings growth CAGR estimate remains at 5% as RHB is positive on a hiring recovery from next year onwards on the back of accelerating economic growth. — Khairani Afifi Noordin
Keppel Infrastructure Trust
Price target:
DBS Group Research ‘buy’ 57 cents
Special distribution by new CEO
DBS Group Research has maintained its “buy” call and 57 cents target price on Keppel Infrastructure Trust A7RU (KIT) after it “surprised” investors with a special distribution.
Besides a regular quarterly distribution per unit of 0.97 cents, KIT plans to pay a special distribution of 2.33 cents, which brings the total for 3QFY2023 to 3.3 cents, equivalent to a “handy” 7.5% yield just for the quarter. This also brings 9MFY2023 DPU to 5.23S cents and likely full-year 2023 distribution to 6.2 cents, equivalent to a yield of 14% at the current unit price.
In contrast, KIT paid 3.82 cents last year, slightly above the stable baseline DPU of 3.72 cents per year KIT paid from FY2015 to FY2020.
According to KIT, the special distribution is driven by higher ebitda from KIT’s management of Ixom and CityEnergy, which enabled management to upsize credit facilities on refinancing and share part of these capital optimisation proceeds with unitholders.
On Nov 2, KIT reported a distributable income of $266.1 million in 9MFY2023, up 93% y-o-y. The big gain was due to “capital optimisation” proceeds of $131.2 million in 3QFY2023.
According to KIT, the capital optimisation activity concluded this year has yielded $273 million in funds. Out of this, $142 million has been earlier used to pay down bridging loans taken to fund acquisitions completed in FY2022 with the remaining $131 million now being used to fund the special distribution for unitholders.
The special distribution came just over a month after Kevin Neo took over as the CEO of the trust’s manager on Oct 1. Neo joined KIT in 2016 as a vice-president and became the deputy CEO in June before the current top job.
DBS notes that KIT has thus far enjoyed a “fruitful” overall 9MFY2023, driven by acquisitions done in FY2022. “Under the new management team, we could be in for more excitement hereon, evidenced by moves to reward unitholders better based on strength in underlying portfolio earnings and valuations,” says DBS.
While this level of special distributions cannot be expected regularly, the management, according to DBS, has indicated that this is not a one-off and efforts will be made to share the proceeds of “capital optimisation” with unitholders from time to time. “This means there could be an upside to our base case distribution forecasts hereon,” says DBS.
DBS points out that KIT’s unit price has dropped from 52 cents to 44 cents over the past quarter, in line with the overall downward pressure on the REIT sector because of rates staying higher for longer.
“Unlike many S-REITs, KIT has limited exposure to economic cycles, counterparty issues, energy inflation or interest rate increases, so we believe share price has been over-penalised and represents a great opportunity to accumulate, given a more dynamic management stance towards DPU growth,” says DBS. — The Edge Singapore
Frencken Group
Price target:
Maybank Securities ‘buy’ $1.27
Cycle turning
Jarick Seet of Maybank Securities has kept his ‘buy’ call and $1.27 target price on Frencken Group E28 on expectations that the upcoming 3QFY2023 ended September results should further signal that the worst is over in this current cycle.
Thanks to higher utilisation and better margins, Seet projects Frencken to report earnings of $6.2 million, up 8.8% q-o-q, and revenue of $186 million, up 3.3% q-o-q for the coming 3QFY2023.
In his Nov 2 report, Seet notes that Qualcomm, a key player in semiconductors, has just reported better-than-expected 4Q earnings and has given a much stronger forecast, pointing towards the sector’s potential recovery next year.
Frencken’s own key customer, ASML, which builds vital machinery for the semiconductor sector, is expecting flat growth in FY2024.
Nonetheless, Seet believes that Frencken’s factory in Malaysia should still benefit from higher utilisation as ASML shifts some production from Europe to Malaysia, giving Frencken additional revenue share over a Europe-based competitor.
Seet, citing the management, expects higher revenue from the semiconductor industry for 2HFY2023 over the preceding half year.
“We believe key customers have seen their inventory levels dwindle at a faster rate than expected, prompting them to raise their orders,” says Seet.
“Frencken should continue to gradually improve in subsequent quarters and we see significant upside, especially if the semi-conductor recovery materialises,” says Seet, adding that Frencken is his top pick among the stocks he covers in the tech sector. — The Edge Singapore
