Lendlease Global Commercial REIT
Price target:
PhillipCapital “buy” 70 cents
Both organic and inorganic growth
PhillipCapital Research analyst Liu Miaomiao sees both organic and inorganic growth opportunities for Lendlease Global Commercial REIT (LREIT), as the house reinitiates coverage of the REIT on April 24.
Liu resumes coverage of LREIT with “buy” and a target price of 91 cents, which represents an upside of 36.9% against its last traded price of 70 cents on April 21.
Along the Orchard Road shopping belt, LREIT is expecting its new tenant Live Nation to be fully renovated at the end of 2024. With a capacity of more than 2,000 concertgoers per event, four events per day translate to generate an additional footfall of 1 million per year, which is 2.5% of shopping mall 313@somerset’s footfall.
“We expect a 30% decrease in capex due to Live Nation taking most of the space on Grange Road. LREIT is also actively managing its operating expenses by switching the utility contract to a lower-cost government contract,” writes Liu.
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Liu expects more than 90% of the tenants, except money changers and gadget stores, to benefit from the concerts.
Staying on organic growth, LREIT is also gradually deploying its additional plot ratio of 10,200 sq ft, or 3.4% of the total net lettable area (NLA) of 313@somerset. “If LREIT is to deploy the entire 10,200 sq ft, we believe the plan is to convert Level 7/Level 6 (currently a car park) into retail and expand higher-yielding floors, such as Level 1.”
With the additional plot ratio and the presence of Live Nation, Liu expects the net property income (NPI) of 313@somerset to increase by 2%.
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Meanwhile, LREIT’s Jem property sees office occupancy staying at 100%, and it is fully leased to the Ministry of National Development. Tenant sales in Jem were up for 20% y-o-y due to the resilience from necessity spending and an increased footfall, adds Liu. “We expect higher rental reversion due to the current low occupancy cost.”
For LREIT’s Sky Complex Milan in Italy, Liu expects an annual rental escalation of 5.7% based on 75% of March consumer price index (CPI) growth. Master tenant Sky Italia’s lease ends in May 2032, with a physical occupancy rate at 70% currently.
The current market rental rate is EUR300–EUR320 per sq m per month ($440.57–$469.94). However, Sky Italia is renting at EUR188/sq m. “As such, we believe there is an upside in rental reversion upon lease expiry.”
On inorganic growth opportunities, LREIT is estimated to have a debt headroom of $207 million after capping earring at 45%, which allows for piecemeal acquisitions of a small stake in PLQ Mall or Parkway Parade (PP) as Singapore remains its focus.
“We believe LREIT can acquire 6.2% of PLQ Mall or 14.7% of PP, assuming the cap rate for PLQ Mall and PP is 4.5%,” writes Liu.
Liu expects LREIT to declare FY2023/2024 distributions per unit (DPU) of between 4.63 and 4.78 cents. — Jovi Ho
Sin Heng Heavy Machinery
Price target:
UOB Kay Hian “unrated”
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Set to gain from better construction demand
Heavy lifting services provider Sin Heng Heavy Machinery is well-positioned to benefit from the improved construction demand especially in the public sector, UOB Kay Hian analysts highlight in an unrated report.
Boasting 50 years of track record, Sin Heng has been listed on the Singapore Exchange since 2010. As one of the leading heavy lifting service providers in Singapore, the company provides rental and trading of cranes and aerial lifts, as well as sales and distribution of spare parts.
Serving customers from various industries such as infrastructure, construction and oil and gas, the majority of Sin Heng’s orderbook is from the Land Transport Authority and Public Utilities Board, UOBKH points out.
Some of these projects allow cranes to work longer hours, increasing the profitability of the cranes. To top it off, these government contracts are longer term and provide good orderbook visibility, the analysts say.
Additionally, similar to 2022’s projection, the Building and Construction Authority expects total construction demand in 2023 to range from $27 billion to $32 billion. This will be mainly driven by the public sector, which is projected to contribute roughly 60% of the demand, UOBKH highlights.
“The government’s deep pipeline of projects — comprising a ramp-up in supply of Build-To-Order flats, construction of industrial and institutional buildings as well as MRT lines — sets an optimistic tone for Sin Heng,” they add.
The major infrastructure projects include the Cross Island Line (Phases 2 and 3), Downtown Line Extension to Sungei Kadut, Brickland North South Line station, Toa Payoh Integrated Development and Woodlands Checkpoint redevelopment. These projects are set to be completed within the decade of 2030, pointing to escalated long-term demand for Sin Heng’s services, UOB says.
As at end-2022, Sin Heng was in a strong net cash position of $30.4 million despite a 62.7% increase y-o-y in capital expenditure to $22.4 million which incurred during the year.
The company had also recently proposed a first and final dividend of 1 cent per share and a special dividend of 2.5 cents per share, bringing the total dividend to 3.5 cents per share. This represents an attractive 8% dividend yield which appears sustainable moving forward with its strong net cash position, UOB notes.
The analysts highlight that Sin Heng is currently trading at around 0.5x 2022 P/B, which is a discount of around 50% versus its peers’ average of 2022 P/B of 1x. — Khairani Afifi Noordin
Venture Corp
Price target:
Maybank Securities “hold” $17.32
Cloudier outlook ahead, dividends to be maintained
Maybank Securities analyst Jarick Seet has downgraded Venture Corporation to “hold” from “buy”, citing a darkening global economic outlook which has intensified over the last two years.
The picture ahead has prompted Venture Corp’s management to brace for what it calls a “challenging year” ahead.In contrast, Seet prefers Aztech Global, which benefits from “strong orders” from an unnamed key customer. He rates the counter a “buy” and has a price target of $1.02.
For the current FY2023 and coming FY2024, Seet has cut his earnings estimates for Venture by 10.3% and 10.2% respectively. He has also lowered his valuation multiple from 16x to 15x, leading to a revised target price of $17.32, down from $20.20.
Nonetheless, Seet, in his April 25 note, maintains that Venture Corp’s long term prospects remain sound and that he is confident the company can maintain its “excellent execution track record” even in tough times.
The company is likely to report its 1QFY2023 ended March on May 5. Seet expects the numbers to be “muted”, with top line and bottom line drop of 5.1% and 6.5% to $843.9 million and $78.5 million.
The following product segments are likely to be weaker: networking and communications, computer peripherals, data storage, retail store solutions and industrial products as well as its printing and imaging.
On the other hand, demand from test and measurements as well as medical and life sciences are likely to have remained strong.
Despite what is likely to be a tough year, Seet believes that the debt-free company, with $813 million of net cash, will uphold its dividend payout.
For FY2022, Venture will be paying 75 cents. “We expect dividends to be maintained at this level, representing a yield of 4.3% for FY23E despite projecting a weaker year,” says Seet. “It has always emphasised sustainable dividends in both good and bad times,” adds Seet. — The Edge Singapore
Uni-Asia Group
Price target:
SAC Capital “buy” $1.20
Undervalued shipper with “positive dynamics”
SAC Capital analysts Nicole Lim and Matthias Chan have initiated a “buy” call on Uni-Asia Group with a target price of $1.20, representing an upside of around 20% from its current share price of $1.01.
The target price is based on Uni-Asia’s estimated FY2023 P/E of 3.3x and a 20% discount to the industry average, based on the group’s smaller market capitalisation and operations.
To Lim and Chan, the group is set to benefit from the growing shipping market, with “positive dynamics” between supply and demand on the back of the continued need for dry bulk and squeeze in global fleet growth.
“A recovery is expected in 2H2023 with China’s reopening posing as a tailwind. Uni-Asia’s chartering business should fare well defensively before rebounding in FY2024,” write Lim and Chan in their April 18 report.
The group’s property projects in Japan are also set to gain from the stable demand. Japan has one of the highest inheritance taxes globally so many individuals buy properties to lower their taxable amount.
“[In Japan], properties developed for sale are completed within two years and fully sold within a year, with land purchased cheaply. This should continue into the near term as demand remains buoyant and Uni-Asia continues to search for opportunities for redevelopment,” note Lim and Chan.
Finally, the analysts like Uni-Asia’s healthy balance sheet, with 80% of its total assets backed by physical assets such as property, plant and equipment (PPE), investment properties and cash, adding that the market value of the total ships within Uni-Asia’s assets stood at US$190 million (or US$2.42 per share) minimally.
Including the group’s investment properties and cash as at end-December 2022, its net asset value (NAV) of US$1.92 per share would imply a discount of over 50% to its real assets held.
In the same period, the group’s operating cash flow, at US$37.4 million, is sufficient to repay its borrowings and pay out dividends, the analysts add.
Furthermore, its low gearing of 17.0% indicates that the group has a headroom of around US$50 million to expand its operations. The sum, which is around the value of three similar ships in its portfolio, means the group could potentially up its fleet size by 33%.
Uni-Asia, which have made steady dividend payouts since the FY2012, even during its down years, is another positive in Lim and Chan’s book. During the FY2022, the group recorded its highest-ever payout of 14.5 cents, indicating a yield of 14.5% to its share price.
Amid the positives, a subdued reopening of China’s economy, a slowdown of global growth, as well as volatility in foreign exchange (forex) and interest rates are some risks to the re-rating of Uni-Asia’s shares. — Felicia Tan
First REIT
Price target:
OCBC “buy” 31 cents
A ’potential defensive addition’
OCBC Investment Research (OIR) analyst Ada Lim has initiated a “buy” on First REIT with a fair value estimate of 31 cents, representing an implied P/B of 1.0x.
In her report dated April 21, Lim listed several positives for the Singapore-listed healthcare REIT, which includes its relatively long weighted average lease expiry (WALE) of 12.5 years, which provides strong cash flow visibility.
The REIT’s built-in rental escalation clauses in its well-structured master leases also provide potential for rental growth and upside sharing with its tenants, adds Lim.
In addition, the REIT’s turnaround strategy is well underway with its risk profile improving as it seeks to diversify its business across tenants and geographies. It should also enjoy healthy demand from structural megatrends such as an ageing population and increasing demand for quality healthcare.
The effects of the REIT’s 2.0 growth strategy are also beginning to show in its financial performance. For the FY2022 ended Dec 31, 2022, First REIT’s rental income grew by 8.7% y-o-y to $111.3 million while net property income (NPI) rose by 8.3% y-o-y to $108.6 million.
During the year, the REIT’s distributable income rose by 24.4% y-o-y to $52.4 million while its distribution per unit (DPU) rose by 1.15% y-o-y to 2.64 cents. Its FY2022 DPU represents a distribution yield of 10.2% based on its unit price of 26 cents.
At its current unit prices, First REIT’s valuations are undemanding, trading at a P/B of 0.8x, less than 1 standard deviation (s.d.) above its historical average of 0.68x.
However, Lim notes that the REIT’s historical P/B has been depressed since its previous sponsor and largest tenant’s near default in FY2020.
“Based on our fair value, we expect First REIT to return an attractive distribution yield of 9.1% in FY2023,” she says.
“Taken together with the defensive nature of its portfolio, we believe that overall valuations are undemanding,” she adds. — Felicia Tan
Centurion Corp
Price target:
RHB “buy” 51 cents
Support from economies reopening
RHB Group Research analyst Alfie Yeo has maintained his “buy” call on Centurion Corp, with an unchanged target price of 51 cents as he remains upbeat on the company’s prospect as economies reopen post Covid-19. Yeo’s target price is pegged to 7.5 times Centurion’s estimated earnings for the current FY2023 ending December 2023.
In his April 25 report, Yeo notes that the resumption of foreign labour-reliant industries in Singapore and Malaysia is driving increased demand for related worker accommodation, while the purpose-built student accommodation (PBSA) markets of the UK and Australia will benefit from the return of local and foreign students once borders reopen and on-site lessons resume.
For FY2022 ended Dec 2022, Centurion reported a core net profit of $56 million, up 5% y-o-y, on the back of a 26% jump in revenue to $180 million. The results are in line with Yeo’s forecast.
This revenue growth was led by a recovery in the company’s occupancies post-Covid-19 pandemic, and across all markets, says Yeo, adding that Centurion was able to hold its operating margin steady.
A final dividend of 0.5 cents was declared, bringing the total dividend for the year to 1 cent, representing a dividend payout ratio of 15% of core earnings.
Yeo expects a positive outlook for 2023, with growth to be driven by an increase in bed supply in Malaysia, and better occupancies in the PBSA segment.
“Even though occupancy rates normalised in Singapore and Malaysia, Singapore continues to see demand for foreign workers outstripping supply for dormitories, while Malaysia continues to see increasing foreign worker numbers, with the legislative requirement to be housed in purpose-built dormitories,” writes Yeo.
“These developments in Singapore and Malaysia both bode well for Centurion. It has also secured a 10-year management contract for 2,196 beds in Westlite Cemerlang in Johor from 3QFY2023,” says Yeo.
In its PBSA segment of the UK and Australia, Yeo notes that occupancy rates have improved but have yet to reach pre-Covid-19 occupancy levels. However, as more countries lift Covid-19 restrictions this year, Yeo expects occupancy rates in these regions to improve. — Nicole Lim
DFI Retail Group
Price target:
DBS Group Research “buy” US$3.80
North Asia reopening play
DBS Group Research analysts have reiterated their “buy” rating for DFI Retail Group with an unchanged target price of US$3.80 ($5.08), considering its “dominant market positions” in North and Southeast Asia.
The analysts’ target price is pegged to –1 standard deviation (s.d.) of the group’s 10-year historical P/E valuation (pre-Covid) of 20.3x on blended earnings of FY2023 and FY2024.
Within the group are various business segments such as grocery, health and beauty, convenience stores, home furnishings and restaurants. Health & beauty continues to be the group’s key growth driver, note analysts Andy Sim and Chee Zheng Feng.
In their report dated April 24, the analysts conducted a theoretical analysis to identify the intrinsic value of individual business segments within DFI as standalone entities, given the recent “flurry” of companies restructuring and breaking up to create shareholder value.
“Our theoretical analysis and valuation of each respective individual business segment, based on a set of peers, suggests a total sum-of-the-parts (SOTP) value of US$5.5 billion (US$4.10/ share) to US$8.7 billion (US$6.41/share), indicating some 30% to 110% upside to the current share price,” explain the analysts.
Their base case valuations of DFI’s food, health and beauty, home furnishings and the group’s 50% owned restaurant business segments are US$2.1 billion, US$2.2 billion, US$940 million and US$1.3 billion, respectively.
Coupled with DFI’s listed equity shareholdings in Yonghui and Robinsons Retail valued at a market price of US$1.2 billion, the DBS base case valuation stands at US$7.0 billion or US$5.16 per share, reflecting around 65% in upside.
They note: “Even our conservative SOTP estimate is 8% above our target price of US$3.80, which is based on our thesis of an earnings inflexion point and post-Covid recovery for DFI in its operations, particularly in North Asia.”
According to the analysts, North Asia’s reopening will be key to driving recovery in the health and beauty, convenience store and restaurant business segments, which were all badly hit by Covid-19 restrictions. For the respective segments, FY2022 operating profits came in at 32%, 62% and 46% of pre-Covid levels.
“With North Asia reopening, we believe FY2023 will be an inflexion point, with a multi-year recovery in these business segments extending into FY2024 and beyond,” they say.
On the other hand, a lacklustre post-reopening recovery and continued significant losses at Yonghui remains a key risk for DFI.
In their report, the analysts see further re-rating upside for the group with value-unlocking initiatives. — Bryan Wu
