Broker's Digest: Sasseur REIT, HRnetGroup, Grand Venture Technology, Food Empire

Analysts remain confident in Sasseur REIT following its recent 1HFY2022 ended June results announcement, which saw distribution per unit (DPU) grow by 1.1% y-o-y to 3.410 cents, from 3.373 cents a year ago. This growth is the REIT’s highest 1H period DPU in four years.

However, 2QFY2022’s DPU was 1.6% lower y-o-y at 1.588 cents, due to the impact of widespread Covid-19 lockdowns in a few major Chinese cities from mid-March to end-May, as well as restrictions on intercity travels weighing on consumer sentiments, leading to lower y-o-y shopper traffic and sales in 2QYF2022 at most of the REIT’s outlets.

Ongoing restrictions in China aside, Maybank Securities is keeping its “buy” recommendation with an unchanged target price of $1.08. Analyst Chua Su Tye says: “Sasseur REIT’s 1HFY2022 DPU rose 1.1% y-o-y, underpinned by a 1.6% y-o-y rise in entrusted management agreement (EMA) rental income. While sales weakened in 2QFY2022, occupancies were resilient from asset enhancement initiatives (AEIs) and active leasing.”

“We expect sales momentum to gain pace with June’s recovery and to strengthen into the seasonally stronger 2HFY2022,” adds Chua, while anticipating a boost from anniversary events in September and increased consumer spending in the fall and winter months.

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Meanwhile, portfolio occupancy rose to 96% in 2QFY2022 from 95.4% in 1QFY2022, led by improvements at Chongqing Bishan post-AEI, and Hefei on the back of active leasing, while the Chongqing Liangjiang Outlet stayed fully occupied.

“Its weighted average leasing lease expiry (WALE) remains tight at 2.5 years by net lettable area (NLA) (one year by gross revenue), and we see low leasing risk, with expiring leases for FY2022 having been reduced to about 49% (from about 64% in 1QFY2022), and of which about 93% have already been pre-committed,” says Chua.

While results were overall in line with Chua’s and consensus estimates, he sees catalysts from better-than-expected sales growth and DPU upside from potential acquisitions, backed by a strong balance sheet and visible sponsor pipeline. He also notes that the REIT’s gearing of 26.5% is the lowest among peers, while $943 million in debt headroom at a 50% limit could support future deals.

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Similarly, CGS-CIMB Research has given Sasseur REIT an “add” rating, with a target price of $1.06. Analyst Lock Mun Yee likes that the REIT’s leasing traction is intact despite macroeconomic uncertainties, a short portfolio WALE of 1.1 years, and 63.6% of leases by gross rental income (GRI) expiring in FY2022.

Still, tenant sentiment appeared upbeat as 14.7% of GRI has been de-risked as of 1HFY2022, with pre-commitments received for 92.6% of the remaining 48.9%. Portfolio occupancy improved q-o-q from 95.4% to 96.0% due to higher occupancy at Bishan and Hefei, which offset a 0.7 percentage points (ppt) occupancy decline at Kunming. Occupancy at Liangjiang remained high at 100%.

The REIT’s debt expiry will see about $511 million or 100% of loans maturing in May 2023. “We understand management is negotiating with new and existing lenders to refinance the loans into two maturity dates, thereby diversifying its loan maturity profile,” notes Lock.

Offshore loans account for 47% of borrowings, of which 40% (or about 19% of total borrowings) are hedged on fixed rates. Management does not intend to hedge the onshore RMB-denominated loans, given the supportive monetary policy in China, which could see interest rates declining in the near term.

“Sasseur REIT has identified potential acquisition targets within its sponsor portfolio to drive inorganic growth. Given the REIT’s debt headroom, any potential fundraising is unlikely to be sizeable in our view,” says Lock.

DBS Group Research analysts Geraldine Wong and Derek Tan maintained their “buy” call on Sasseur REIT with a lowered target price of $1.10, from $1.15. They write: “Sasseur REIT’s trading pattern is tied closely to China’s lockdowns and re-opening. We think we have seen the worst of this in 2QFY2022. Sasseur offers an effective forward yield of 9%.

They also like the REIT’s unique EMA structure as it has proven its benefit on 1HFY2022 earnings amid China’s prolonged lockdown in 2QFY2022. They note that the EMA structure has sheltered the 13.9% decline in tenant sales in 2QFY2022 amid close to two months of lockdown in China.

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“We think the worst is over, as tenant sales reversed its declining trend sharply in June, and we expect the momentum to continue into 3QFY2022. We expect variable rents to stage a sharp recovery in 2HFY2022 and flow through the variable portion of EMA rents which contribute about 30% to the top line,” say the analysts.

Meanwhile, Sasseur REIT is negotiating to refinance about $510 million worth of debt in March 2023. Ongoing efforts to strengthen its balance sheet will be crucial to building up acquisitions and take the REIT closer to delivering its first acquisition since IPO.

The analysts also note that Xi’an mall is a prominent acquisition candidate that could stand alongside Chongqing mall as Sasseur REIT’s portfolio titans. Xi’an mall is one of the best-ranked malls by tenant sales within sponsor Sasseur Group. — Samantha Chiew

HRnetGroup
Price target:
Maybank Securities ‘buy’ $1.07
CGS-CIMB Research ‘add’ $1.08
PhillipCapital ‘buy’ $1.18

Catalyst from the tight labour market, robust North Asia performance

Analysts from Maybank Securities, CGS-CIMB Research, and PhillipCapital have maintained their “buy” calls for HRnetGroup (HRnet) after the group’s net profit for the 1HFY2022 ended June stood in line with their expectations.

HRnet’s 1HFY2022 underlying net profit after tax, excluding the profit and loss impact of its investments in mainly human resources marketable securities, jumped 36% y-o-y to $42.6 million. This is due to the robust operating performance of flexible staffing and professional recruitment in its key markets.

Maybank’s Eric Ong, whose unchanged target price of $1.07 is based on 15x FY2023 P/E, writes: “Overall, 1HFY2022 net profit was in line with market expectations, and our FY2022 to FY2024 EPS forecasts are largely unchanged. The group declared a maiden interim DPS of 2.13 cents, representing 50% of its core earnings.”

Meanwhile, CGS-CIMB analyst Kenneth Tan says HRnet’s 1HFY2022 revenue growth of 14% y-o-y was due to higher permanent recruitment and flexible staffing contribution. This growth rose by 21% and 8% y-o-y, respectively, for average revenue per hire, sparked by ongoing salary increments across the region.

Tan has lowered his target price to $1.08 from $1.15, with “slower-than-expected” earnings growth. He also believes employers could slow the hiring of full-time staff. Accordingly, he has lowered his FY2023 to FY2024 gross profit forecast by 0.4% to 3.8% while increasing the proportion of “lower-margin” flexible staffing contribution and factoring in higher staff expenses. Positively, Tan also notes that North Asia’s performance “surprised” despite tight pandemic restrictions, with a 44% 1HFY2022 gross profit contribution to HRnet from North Asia— namely China, Hong Kong and Taiwan — at $41 million, up 24% y-o-y.

Maybank’s Ong says that growth in North Asia “continues to impress”, noting that geographically, revenue from North Asia continued to increase by 28.4% y-o-y, accounting for around 30% of HRnet’s 1HFY2022 topline. Across all of HRnet’s operating regions, the highest contributing sectors in 1HFY2022 in terms of revenue percentage were healthcare, tech, and finance at 22%, 19%, and 18%, respectively.

Finally, PhillipCapital’s Paul Chew has kept his target price of $1.18. “The target price is a huge discount to global peers. We excluded the cash from valuations as peers have the leverage to operate the business,” he writes.

Looking ahead, Chew remains buoyant on HRnet’s prospects. “In Singapore, we expect the high job vacancy rates and re-opening of borders to drive revenue growth. For instance, there has been a decline in Covid-19 related vaccination roles replaced by other non-Covid-19 medical needs as foreign tourists and elective procedures return.”

“The sustainability of growth in North Asia can improve if lockdowns ease,” he adds, noting HRnet’s ability to move into the faster-growing segments of the economy. “Despite the slower economic growth and lockdown in North Asia in 1HFY2022, revenues expanded 28% y-o-y in 1HFY2022. HRnet capitalised on the strong demand from semiconductor headcount by local and multinational companies.” — Bryan Wu

Grand Venture Technology
Price target:
CGS-CIMB Research ‘add’ 85 cents

Target price slashed as 1HFY2022 were below expectations

With 1HFY2022 net profit 21% below expectations, CGS-CIMB Research analyst William Tng has cut his target price for Grand Venture Technology by 34%. The homegrown precision manufacturing solutions provider posted a net profit of $7.1 million for the 1HFY2022 ended June, down 16.2% y-o-y. The net profit was 21% below Tng’s $9 million forecast. Meanwhile, revenue increased by 25.3% y-o-y to $67.0 million due to higher sales across the group’s three segments.

In an Aug 11 note, Tng is maintaining “add” on Grand Venture Technology with a lower target price of 85 cents from $1.29, amid the group cutting its interim distribution in 1HFY2022.

Established in Singapore in 2012, Grand Venture Technology is a manufacturing solutions and services provider for semiconductors, analytical life sciences, electronics and other industries. The company operates out of its facilities in Singapore, Malaysia (Penang) and China (Suzhou).

“Although management sees robust demand across all its business segments in 2HFY2022, it is mindful that the headwinds faced by some of its back-end semiconductor customers may cap the group’s growth in the near-term,” writes Tng.

The group hopes to mitigate this with its expansion into the front-end semiconductor business. Grand Venture Technology updated that engagement with prospective customers is “progressing well”, says Tng. He adds that onboarding these new customers is expected to mitigate the softening demand situation from back-end semiconductor customers.

In the life sciences segment, the company expects demand to remain resilient given the typically long life cycles of the customers’ products, writes Tng. “Grand Venture Technology is also addressing the rising cost environment via further automation and passing on some cost increases to customers.” The analyst is cutting his FY2022 to FY2024 EPS forecasts by 31.4% to 34.7% as the company navigates the “difficult operating environment”. — Jovi Ho

Food Empire
Price target:
RHB Group Research ‘buy’ 95 cents

Surprise 1H results for F&B manufacturer

RHB Group Research analyst Jarick Seet has kept his “buy” call on Food Empire with a target price of 95 cents, as the company reported patmi or earnings of US$27.1 million ($37.4 million) for the 1HFY2022 ended June, 134.4% higher y-o-y.

Despite the ongoing conflict in Ukraine, the higher earnings have proven Food Empire’s doubters wrong, writes Seet. In addition, the higher yields have validated the company’s diversified revenue streams and “resilient business model”.

As the analyst expects the company to continue doing well despite the war in Ukraine, he has raised his FY2022 patmi estimates by 30%. However, the analyst has noted the conflict’s risk and lowered his pegged target price P/E to 10x from 13x.

“Food Empire has managed to diversify its revenue stream from Russia over the years, and revenue from other markets is now more than 50% of the total revenue (as of 1HFY2022), even while it continues to see growth from its Russian market,” Seet continues.

“We believe that Food Empire’s business will remain resilient in its core markets — the demand for instant mix coffee remains sturdy, even with an ongoing war. It gives Food Empire an advantage, as foreign competitors are leaving such markets — which would benefit the remaining players. These include Food Empire, which has the largest share of these markets,” he adds.

During the 1HFY2022, Food Empire’s net profit margin had improved 7.6 ppt y-o-y to 15.3% after raising the prices of its products and mitigating actions taken to counter the rise in raw materials as freight costs. Following the stabilised margins, Seet sees management likely intensify its marketing efforts to grow its revenue in specific markets. At its current levels, Seet believes “way too cheap at current levels”, as the counter is trading at 6x FY2022 P/E. — Felicia Tan