Sea
Price target:
UOB Kay Hian ‘buy’ US$94.34
Citi Research ‘buy’ $110
CGS-CIMB Research ‘add’ US$105
Higher target price on strong 4QFY2022 earnings
Analysts are remaining positive on Sea’s prospects after the tech company’s net profit and ebitda for the 4QFY2022 ended Dec 31, 2022, surpassed the market’s expectations.
UOB Kay Hian analysts John Cheong, Jacquelyn Yow and Heidi Mo have upgraded their call to “buy” with a higher target price of US$94.34 ($127.20) from US$58.77 after Sea’s 4QFY2022 results came in “way above” their expectations, as well as that of the consensus.
“We attributed the strong earnings in 4QFY2022 to its cost efficiency where Sea had cut its sales and marketing expenses by 42% q-o-q and 61% y-o-y in 4QFY2022 alone,” the analysts write.
“Although there could be near-term fluctuations in the performance of Sea, management remains confident in its long-term growth potential,” they add.
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“The strong net profit growth in FY2023 would be mainly driven by strong cost efficiency and higher transaction fee for its e-commerce segment, higher contribution from its value-added service in logistics, and higher contribution from its digital financial services (DFS) segment,” the analysts write.
“Based on our channel checks, we understand that Sea has been working on streamlining and expanding its own logistic services,” they add.
As such, they have upped their FY2023 earnings estimates to US$935 million from their previous estimate of a US$1.6 billion loss. The new earnings estimate factors in lower sales and marketing expenses, higher transaction fees for the e-commerce segment, and better contribution from Sea’s DFS segment.
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Citi Research analyst Alicia Yap has kept her “buy” call on Sea with a higher target price of US$110 from US$105 previously as Sea turned net profit- and ebitda-positive in the 4QFY2022. Sea’s total generally accepted accounting principles (GAAP) revenue for the 4QFY2022 also beat her expectations by 12%.
“While most investors and analysts had expected overall loss to be narrowed by a large margin, we view the significant turn to net profit- and ebitda-profitable in 4QFY2022 as a big surprise,” writes Yap.
“GAAP revenue for digital entertainment came in significantly above expectation (though our GAAP revenue estimates were already higher than [the] street’s), which were 46% higher than our estimates,” she adds.
Sea’s e-commerce revenue stood in line with her estimates, although order numbers and gross merchandise value came in lower than expected. Sea’s DFS segment and Shopee also came in ebitda-positive, which was earlier than expected, notes Yap.
CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have also kept their “add” call on Sea with a higher target price of US$105 from US$85 previously after Sea saw a “rapid turnaround” for the 4QFY2022.
The target price increase in Ong and Tan’s March 7 report comes just five days after their previous increase to US$85 from US$75 in their March 2 report. At the time, the analysts expected Sea to report a “better-than-expected” ebitda for the 4QFY2022 with significantly narrower losses during the quarter.
“With Sea turning profitable in 4QFY2022, we believe it is on a stronger footing to capture longer-term tailwinds from Asean digitalisation,” the analysts write in their March 7 report.
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That said, given the macro headwinds, the company’s key focus for FY2023 is to drive “sustainable topline growth,” they note.
“For Shopee, its priority is to solidify efficiency gains and optimise cost structure to lower cost to serve — management believes this is key to further expand its reach to underserved buyers and sellers and enable longer-term total addressable market growth,” according to the analysts.
"Meanwhile, Sea plans to further enhance SeaMoney offerings ([with the] launch of Insurtech and WealthTech) while deepening the penetration of its consumer credit products. Lastly for gaming, while near-term challenges remain, Sea plans to focus on core games and promising projects to improve margins in FY2023,” they add. — Felicia Tan
Venture Corp V03
Price targets:
CGS-CIMB Research ‘add’ $20.10
DBS Group Research ‘buy’ $20.10
Maybank Securities ‘buy’ $20.20
RHB Group Research ‘buy’ $22.00
Positive long-term outlook despite near-term headwinds
Analysts are all remaining positive on Venture Corp as the company’s results for the FY2022 ended Dec 31, 2022, exceeded the expectations of the consensus.
CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call with an unchanged target price of $20.10 as Venture Corp’s FY2022 results came “in line” with their expectations at 103% of their full-year forecasts.
“We note that FY2022 results bring Venture’s performance benchmark back to the pre-pandemic levels,” write Tng and Tan. “Profitability-wise, Venture’s pre-tax and net profit margin were relatively stable at 11.6%/9.6% in FY2022 versus 11.6%/10.0% in FY2021.”
In their report, the analysts note Venture’s concern for the short-term future on the back of the uncertain global macroeconomic and geopolitical environment. However, they are positive on the company’s longer-term prospects with its strategy to continue its sharp focus on deepening its partnerships with customers to create outstanding innovative products and services. They are also positive about Venture’s strategy to scale up its businesses.
DBS Group Research analyst Ling Lee Keng, who retained her “buy” call, also kept her target price unchanged at $20.10. Venture Corp’s FY2022 revenue and net profit came in above her expectations.
“The revenue growth reflects robust customer demand in several technology domains and new product introductions during the year. Healthcare and wellness, life sciences and genomics, and test and measurement instrumentation technology domains were significant contributors to the overall performance,” she writes, adding that the group’s FY2022 results reflected a “commendable” net margin of 9.6% despite the challenging environment and inflationary pressures.
Ling also sees near-term pressures due to the macroeconomic slowdown that has affected demand though Venture could be less affected than its peers, given its exposure to higher-end consumer products where demand is less volatile.
Furthermore, Venture’s products, especially in life sciences, healthcare and wellness, and medical, also have a longer shelf life, Ling adds.
“Going forward, Venture will continue to invest in the development of new differentiating capabilities in multiple technology domains to pave the way for future growth. Key areas of focus include domains with structural long-term growth potential such as life sciences, medical and healthcare,” she writes.
In the meantime, the analyst has lowered her earnings estimates for the FY2023 and FY2024 by 4% each to account for the cautious near-term outlook. “With its diversified product mix and blue-chip customers base, Venture is in a sweet spot to capture new opportunities in emerging technology domains,” says the analyst.
Maybank Securities analyst Jarick Seet has kept his “buy” call with an unchanged target price of $20.20 as Venture’s revenue and earnings for the 4QFY2022 exceeded his estimates, while the 75-cent dividend was in line with Seet’s expectations.
As Venture expects FY2023 to be a challenging year due to the macro headwinds, Seet has cut his FY2023 and FY2024 earnings by 7% and 11% respectively to reflect the slower growth expected.
However, he believes in the longer-term outlook for the company. “[Venture’s] management remains confident of its long-term prospects and continues to deepen its partnership with customers to create outstanding innovative products and to scale up its businesses,” he notes.
To this end, Venture remains one of Seet’s preferred picks for the Singapore technology sector due to its “excellent execution track record even in tough times”.
RHB Group Research analyst Alfie Yeo has also kept his “buy” call but with a lower target price of $22 from $23.30 previously. Yeo is the only analyst to tweak his target price. Like the rest of his peers, Venture’s FY2022 earnings came within Yeo’s full-year estimates. As such, his earnings forecasts for FY2023-FY2024 are “marginally unchanged”.
“[However], we did trim [our] FY2024 earnings [estimate] by about 5% to $433 million, and moderated its expected growth rate from to 8% y-o-y from 13% y-o-y,” he writes.
“Our higher revenue estimate stems from better-than-expected revenue traction and customer demand, while our margin assumptions have been pared down to higher operating costs, i.e. near the current run rate,” he adds.
As Venture’s FY2022 earnings normalised to pre-pandemic levels, Yeo is remaining “upbeat” on the company’s prospects. “Management’s strategy to offer differing solutions remains intact,” he says. — Felicia Tan
UMS Holdings 558
Price target:
UOB Kay Hian ‘hold’ $1.10
Maybank Securities ‘hold’ $1.11
Bullish view but lower target price on slowdown in sales
With the industry slowing and thereby affecting sales, analysts have trimmed their target prices on UMS Holdings, even though they have kept a bullish longer-term view on the stock.
UMS, on Feb 28, reported record earnings of $98 million for FY2022 ended Dec 31, 2022, which was still slightly short of some analysts’ estimates.
In his March 2 note, UOB Kay Hian’s John Cheong notes that the company has “turned cautious” in its outlook, with near-term demand to soften in the face of an economic slowdown and rising inflation.
“On the flip side, UMS’ orderbook remains healthy, and it will continue to expand capacity to meet customer demands,” writes Cheong, who is keeping his “hold” call on the stock but has trimmed his FY2023 earnings forecast by 29% and has reduced his target price to $1.10 from $1.32.
Citing UMS’s management, Jarick Seet of Maybank Securities has pencilled in a rebound in the second half of the current FY2023.
“Despite a weaker short-term outlook, we remain optimistic that its longer-term prospects are unchanged, especially as it has gained a new large customer, which should provide growth over the next few years,” writes Seet in his March 1 report.
For now, Seet advises investors to maintain “hold”, and enjoy the yield of 5.6% in the meantime, while waiting for an industry recovery. Seet has also cut his target price on the counter to $1.11 from $1.33.
Within the local tech sector, Seet’s preference is for Venture Corp, which has a more “resilient” earnings base versus UMS. — The Edge Singapore
DFI Retail Group Holdings D01
Price target:
Citi Research ‘neutral’ US$3.16
RHB Group Research ‘neutral’ US$3.09
DBS Group Research ‘buy’ US$3.80
Weak FY2022 but recovery intact
Analysts from Citi Research and RHB Group Research have maintained their “neutral” position on DFI Retail Group Holdings with higher respective target prices of US$3.16 ($4.25) and US$3.09, from US$2.36 and US$2.71 previously.
In their report dated March 7, Citi’s Tiffany Feng, Wei Xiaopo and Brian Cho say that although DFI’s core net profits for FY2022 ended Dec 31, 2022, slumped by 72% y-o-y due to its investments in e-commerce and digital innovation as well as lower government grants and rent concessions, they believe DFI is still poised for recovery. The results were below the analysts’ expectations.
“Despite the weak results, we think the recovery outlook [for DFI] remains unchanged, which will be driven by the turnaround of convenience store units and restaurant joint ventures, as well as narrowing losses from Yonghui,” say the analysts.
They note that DFI’s management expects an improved overall performance in FY2023, with “encouraging performances” already shown in 2HFY2022 and 1QFY2023, while China’s reopening, market normalisation and continuous investment in both online and offline businesses should also boost the company’s earnings.
Still, DFI says it remains cautious amid inflationary pressure and uncertain consumer sentiment, and has guided that its FY2023 results will depend largely on the recovery of Mannings and Maxim in Hong Kong and an improved performance by its associate Yonghui.
The Citi analysts have cut their FY2023 and FY2024 net profits by 12% and 24% respectively, mainly to reflect lower operating profit margin (OPM) assumptions, given continuous investment in digital and e-commerce spaces and inflationary pressure.
The team at RHB Group Research has similarly raised its target price to reflect the current improved operating environment. According to the analysts, DFI’s current valuation, which is trading 1.5 standard deviations (s.d.) over its five-year mean, is “not attractive” and could have priced in most of the positives.
Following DFI’s FY2022 earnings results that came in below their expectations on weaker-than-expected margins, they expect recovery prospects to improve following the lifting of pandemic restrictions and China’s economy reopening.
“However, we remain cautious as headwinds, including inflationary pressure, rising interest rates and a potential global economic slowdown could pose earnings downside risks,” adds RHB.
Meanwhile, DBS Group Research analyst Andy Sim has reiterated his “buy” call on DFI with a lower target price of US$3.80 from US$3.90 previously.
He expects North Asia’s reopening to drive recovery in the health and beauty, convenience store and restaurant business segments, which were badly hit by Covid-19 restrictions, with operating profits at 32%, 62% and 46% of pre-Covid levels as of FY2022. “With North Asia reopening, we believe we would see a multi-year recovery in these business segments with expectation of full recovery in FY2025,” says Sim.
The return of Chinese tourists, who are the largest consumers of H&B products in Hong Kong, will also drive DFI’s rerating. Sim estimates that they spend some US$3.5 billion on cosmetic products a year, which are of higher quality and cheaper in Hong Kong than in China, and that DFI is well-positioned to benefit from Chinese tourist inflow, given its dominant physical Mannings store network.
“We believe there is substantial profitability upside, given that the segment generated US$94 million operating profit in FY2022, a far cry from its peak of US$330 million pre-Covid and political unrest,” he says.
Sim believes investors are underestimating the strength of DFI’s recovery and that the stock will re-rate upon the sequential delivery of earnings improvements. He also expects continued digital investment costs in the near term and tailwinds from the China reopening. — Bryan Wu
Japfa UD2
Price target:
CGS-CIMB Research ‘reduce’ 24 cents
UOB Kay Hian ‘hold’ 23 cents
Lower chances for quick recovery
Analysts have downgraded Japfa following weaker-than-expected earnings due to surging costs. Coupled with prospects of a prolonged industry downturn, investors ought to brace themselves for lower chances of a quick recovery.
For its 4QFY2022 ended Dec 31, 2022, Japfa reported a core net loss of US$31.1 million ($41.9 million). While its China dairy business reported a profit, its chicken farming business in Indonesia made a loss and its pig farming business in Vietnam suffered too.
“The deterioration in profitability was a confluence of factors, including weak average selling prices for poultry and swine that have not kept up with the rise in raw materials across Japfa’s protein business, as well as the spread of African Swine Fever affecting its swine fattening operations in Vietnam in FY2022,” write CGS-CIMB Research analyst Tay Wee Kuang in his March 3 report.
According to Japfa, the swine flu caused a direct hit of US$20 million.
Meanwhile, the chicken farming part of the business faces an oversupply situation, which Japfa attributes to inflationary pressures which are curbing consumer demand in Indonesia.
The sluggish prices will only recover in the second half of this year, says Tay, who has lowered his call from “add” to “reduce” and cut his target price from 42 cents to 24 cents.
UOB Kay Hian analysts John Cheong and Heidi Mo, in their March 7 report, assume that the pig farming business in Vietnam will continue to suffer from weak selling prices and margins, as feed prices remain high.
“We believe there will be limited near-term catalysts until the average selling prices of Indonesia poultry and Vietnam swine recover more significantly,” they say, while keeping their “hold” call but with a lowered target price of 23 cents. — The Edge Singapore
HRnetGroup CHZ
Price targets:
RHB Group Research ‘buy’ $1
DBS Group Research ‘buy’ $1.07
Maybank Securities ‘buy’ $1.04
Target prices down on near-term headwinds
Analysts kept their “buy” calls on HRnetGroup but lowered their target prices after its earnings for FY2022 ended Dec 31, 2022, stood at $67.5 million, up 3.1% y-o-y. Its revenue for the year grew by 3.6% y-o-y to $611.8 million.
RHB Group Research analyst Alfie Yeo has kept his “buy” call on HRnetGroup, but with a slightly reduced target price of $1 from $1.01.
Yeo, in his March 7 report, points out that HRnetGroup’s earnings and revenue stood slightly below his expectations, because of lower contribution from the professional recruitment segment. Contributions from the flexible staffing grew healthily, with demand especially coming from the retail, healthcare and hospitality industries in markets such as Taiwan, China and Singapore.
Yeo’s price target is based on 14x FY2023 earnings estimate, which has been reduced by between 7% and 8%. The stock is now trading at 13x. Despite the lower earnings forecast, the stock’s earnings per share is seen to drop by a smaller magnitude because of the company’s share buybacks.
The company has declared a final dividend of 1.87 cents, bringing the full-year dividend to 4 cents, translating into a payout ratio of 60%.
DBS Group Research’s Andy Sim has also kept his “buy” call with a lower target price of $1.07, from $1.08 previously.
Though HRnetGroup’s earnings and revenue for FY2022 stood in line with Sim’s expectations, he has lowered his earnings estimates for FY2023 and FY2024 by 2% and 3% respectively. “[This is] as higher margin Covid-related revenue scales back, offset partially by expectations of higher professional recruitment fees on wage growth,” he writes.
“Our target price is based on 11.5x FY2023 earnings, which is close to the mean ex-cash P/E of the company’s peers,” he adds.
In his report, Sim remains positive on the company’s prospects, with Singapore’s labour market remaining “tight” and the market likely to stay “resilient” in 2023.
Finally, Maybank Securities analyst Eric Ong has kept his “buy” call with a target price of $1.04, down from $1.07 previously. Despite the cautious market, Ong notes that there are “pockets of opportunities” for the company, China’s reopening being one of them.
“Following the abandonment of its zero-Covid policy and the re-opening of its economy in early 2023, hopes are building that China can stage a strong rebound. In fact, the Chinese government is aiming to boost domestic consumption and woo more foreign investors this year as it seeks to revive the country’s Covid-hit economy. As such, management believes labour demand is likely to rise, from manufacturing to retail, F&B as well as in the travel-related hotel and hospitality sectors,” he writes.
Ong also notes HRnetGroup’s “rock-solid” balance sheet and sees room for the company to further increase its payout ratio. “[This is] especially given its asset-light business model,” Ong writes, adding that he sees the valuation of 8x ex-cash P/E as attractive.
That said, Ong has lowered his forecasts for FY2023 and FY2024 by 3% to 5% on lower placement volumes. — The Edge Singapore
