Samudera Shipping Line
Price target:
UOB Kay Hian "unrated"
Gainer from favourable freight rates
UOB Kay Hian (UOB KH) Research believes Samudera Shipping Line is worth a closer look given its current valuations and container freight rates hitting a multi-year high since 2H2020.
In an unrated report dated April 5, UOB KH’s Singapore research team highlights that Samudera is trading at 6.5 times its core P/E for FY2020 ended December 2020 and 0.6 times its P/B for the same period. In comparison, its peers are trading at an average P/E and P/B of 12.1 times and 3.1 times. This, therefore, represents a discount of 46% and 82% respectively.
“In addition, Samudera has been consistently paying a dividend well above its payout policy of at least 20%, even during 2016 when it was loss-making. For FY2020, Samudera offers a respectable dividend yield of 3.8%,” the team adds.
The team notes that the container shipping operator, which operates a fleet of 27 vessels including 24 container ships across Asia, has benefited from favourable freight rates driven by e-commerce demand caused by Covid-19 lockdowns and supply disruptions due to port congestion and labour shortages.
“According to Howe Robinson Partners, vessels of all sizes are now seeing multi-year high rates, with their December 2020 report showing an increase of over 50% in the index from their previous quarterly report,” the team writes.
The better freight rates contributed to Samudera’s core net profit for FY2020 growing 330% y-o-y to US$26 million ($34.93 million), after excluding a US$10 million impairment charge.The team also points out that the better performance improved Samudera’s balance sheet. Samudera’s net cash position grew 143% y-o-y US$51 million in FY2020, which makes up around 50% of its market cap.
“Historically, Samudera has a weak balance sheet. However, it started reducing its debt in 2017 to refocus its business, by disposing of its non-container ship vessels. As a result, Samudera turned into a net cash position for the first time in 2019,” the team writes.
The team says that the container freight rate remains at a favourable level as of 1Q2021, especially given the Suez Canal incident in March which could force ship operators to look for alternative supply chain solutions, thus presenting opportunities for Samudera. — The Edge Singapore
Raffles Medical Group
Price target:
RHB “buy” $1.29
Return to business as usual
RHB Group Research analyst Shekhar Jaiswal has upgraded Raffles Medical to “buy” from “neutral” with a higher target price of $1.29 from 91 cents previously.
The upgrade comes amid anticipation that the private medical provider will return to business as usual.
Jaiswal expects the group to deliver over 25% in profit growth over the next two years from its Singapore patient load returning to pre-pandemic levels in 2021 as well as revenue support from the vaccination drive. However, foreign patient demand, says Jaiswal, is likely to return only in 2022.
“Our 2021 forecasts factor in a gradual reduction in government support, and likely higher staff costs, in response to the government raising salaries for healthcare workers,” he writes in an April 7 report.
In addition, Jaiswal foresees the group’s hospitals in China to achieve breakeven in ebitda within three to four years.
“The Chongqing hospital, which commenced operations in 2019, saw improvements in patient load in 2HFY2020 ended December 2020, and Raffles Medical expects operations to ramp up over the next two years. It expects the hospital to achieve ebitda breakeven in 2022,” he says.
“The hospital receives a higher number of local patients as it is registered with Chongqing’s social health insurance, Yibao. Last year, its outpatient clinic in Beijing was upgraded to a hospital, and its Shanghai hospital is set to open in 2QFY2021. We expect the Shanghai hospital to achieve ebitda breakeven in three years.”
Raffles Medical is also looking to optimise its capital structure and raise debt to support further growth, which Jaiswal views as positive.
The group will consolidate its interim and final dividends into a single annual dividend of up to 50% of its average sustainable profits. While Raffles Medical will retain the 2020 dividend of 2.5 cents a share and will remove the option for scrip dividends in 2021.
“We believe valuations are compelling, given the strong (over 25%) profit growth expected during the forecast period,” Jaiswal writes. — Felicia Tan
Multi-Chem
Price target:
CGS-CIMB “unrated”
Regional cybersecurity distribution footprint
CGS-CIMB Research analyst William Tng has undertaken a preliminary assessment of Multi-Chem in an unrated report dated April 5.
In the report, Tng notes that Multi-Chem primarily distributes and offers training for security products via its subsidiary M.Tech Group. The IT security business accounted for 99.5% of the group’s FY2020 ended December 2020 revenue.
Products are distributed across 29 cities in 15 countries, including Singapore, Australia, Greater China (including Hong Kong and Taiwan), India, Indonesia, Japan, Korea, Malaysia, Myanmar, New Zealand, the Philippines, Sri Lanka, Thailand, the United Kingdom and Vietnam.
M.Tech Group also provides IT training in Singapore for products from companies like Allot, Check Point and Symantec.
Tng notes that Multi-Chem reported revenue growth of 5% y-o-y to $479.7 million, which management attributes to an increase in customer demand arising from the increased reliance on digital technologies during the Covid-19 pandemic.
Net profit for the period came in at $17.8 million, while net cash stood at $77.8 million. FY2020 DPS was maintained at 6.6 cents.
Looking ahead, Tng says management is focusing on its best-ofbreed products and will continue to look out for opportunities for regional expansion to drive growth. The company will also continue promoting the M.Tech brand name and intends to work closely with key partners to further promote their products.
From a valuation standpoint, Tng states that Mult-Chem trades at a historical FY2020 P/E of 7.1 times and P/BV of 1.10 times.
The group has been in a net cash position between FY2016 to FY2020, while dividend yields have ranged from 3.2% to 4.7% over the same period.Net cash per share as of end-December 2020 was 86.4 cents, 61.7% of its closing price of $1.40 on April 1. — Atiqah Mokhtar
iX Biopharma
Price target:
PhillipCapital “buy” 44.5 cents
Upbeat on growth prospects following China agreement
iX Biopharma remains a “buy” for PhillipCapital analyst Tay Wee Kuang, who has an unchanged target price of 44.5 cents, as the speciality pharmaceutical company enters into an agreement to expand its presence in China.
The agreement was signed with China Resources Pharmaceutical Commercial Group Co (CRPCG), a subsidiary of Hong Kong-listed China Resources Pharmaceutical Group on April 6.
Under the deal, CRPCG and iX Biopharma will work together to commercialise iX Biopharma’s entire specialty pharmaceutical and nutraceutical portfolio in China.
CRPCG’s parent company, China Resources Pharmaceutical Group is the second-largest pharmaceutical manufacturer and one of the three biggest drug distributors by revenue in China.
While the extent of the cooperation has not been fleshed out yet, Tay sees the collaboration as a positive as it will provide iX Biopharma an important gateway to the Chinese market.
“Due to the agreement’s non-exclusivity, iX can continue to look for partnership opportunities to expand its market presence there,” he writes in an April 8 report.
As the distribution specifics have not been decided yet, the analyst has kept his forecasts unchanged.
“Stock catalysts [are] expected from potential out-licensing deals and [we expect a] six-fold increase in production capacity by FY2022,” he says.
“We remain confident in the growth prospects of the company. Partnership with one of the leading pharmaceutical groups in the competitive Chinese market is testament to the value iX is able to bring to the industry,” he adds. — Felicia Tan
Hong Leong Asia
Price target:
CGS-CIMB “add” $1.18
Multi-pronged growth in action
Positive prospects for Hong Leong Asia’s (HLA) diesel engine and building materials businesses have prompted CGS-CIMB Research analyst Ong Khang Chuen to initiate coverage with an “add” rating and target price of $1.18.
HLA, which is the trade and industry arm of Hong Leong Group, has three key business segments — diesel engines, rigid plastic packaging and building materials.
Ong’s target price is derived from a sum-of-parts valuation to reflect the three businesses, with a 10% discount applied. The target price translates to 11.2 times earnings in FY2022 ending December 2022.
Ong is forecasting HLA’s NPAT to grow 54% y-o-y in FY2021, driven by its China diesel engine business riding on strong truck sales and policy tailwinds, as well as construction activity recovery in Singapore.
For its diesel engine business, HLA’s subsidiary China Yuchai is the country’s third-largest diesel engine manufacturer with 9.8% of market share in 2020 based on units sold in the commercial vehicle industry.
Ong expects HLA’s profit from diesel engines to hit 30.8% growth y-o-y in FY2021, underpinned by strong growth in commercial vehicle sales, with total truck sales reported for the first two months of 2021 showing an 81% y-o-y increase.
In addition, Ong expects further tailwinds on pre-buying ahead of the nationwide implementation of National VI engine standards in July, an infrastructure boom in China following a ramp-up in government spending, as well as stricter enforcement to prevent overloading of trucks.
For its building materials business, HLA is one of the largest suppliers of building materials to the construction industry of Singapore as of end-FY2020 via its wholly-owned subsidiaries Island Concrete and HL Building Materials.
Ong views that HLA will benefit from the resumption of construction activities in Singapore post-Covid-19 lockdown, with management noting that HLA’s ready-mixed concrete (RMC) volume output has recovered to 80%–85% of pre-Covid levels while its precast concrete plants are currently running at optimal utilisation rate.
“We forecast 72% growth in HLA’s building materials segment PBT to $21.9 million in FY2021. Given the rising adoption of prefab methods in the construction industry in Singapore, we forecast segment profit to achieve 38% CAGR over FY2020 to FY2023,” Ong says.
Ong also notes that a potential secondary listing of China Yuchai could be a re-rating catalyst, given that China Yuchai is trading at 5.6 times FY2022 earnings, a 60% discount versus peers.
“Amid the backdrop of rising Sino-US tensions and tightening of regulations against US-listed Chinese companies, we see potential for China Yuchai to pursue a dual listing in Hong Kong or China,” he says. “Assuming a narrowing in discount vs. peers to 30% (9.9 times P/E), our target price for HLA would rise to $1.33,” he adds. — Atiqah Mokhtar
