Broker's Digest: SPH, Genting Singapore, OCBC, Parkway Life REIT, UMS Holdings

CGS-CIMB Research is upgrading its call on Parkway Life REIT (PREIT) to “add” from “hold” with a higher target price of $4.80 from $4.11 previously.

In a May 10 report, lead analyst Lock Mun Yee says: “We revisit our DPU [distribution per unit] projections for PREIT in view of the upcoming review of its Singapore hospitals’ master lease agreement (MLA). We expect the MLA to be renewed upwards given the strong operating performance of the Singapore hospitals during the current lease tenure. Based on our assumptions, we project PREIT to deliver a DPU CAGR of about 4.8% over FY2020–2023 when its new MLA becomes effective.”

According to Lock, the Singapore hospitals’ MLA is likely to be renewed with its lease structure maintained when the initial MLA expires on Aug 22, 2022. This renewal could be an opportunity for the REIT to review its rents and possibly mark-to-market given the strong performance of the Singapore hospitals during the initial lease term.

To that end, the analyst also believes that PREIT’s share price can re-rate further when its portfolio weighted average lease to expiry (WALE) lengthens to about 13.5 years post-renewal (from 5.37 years as at 1QFY2021), while a high 95% of its revenue remains backed by downside protection. This provides investors with strong income visibility and growth.

See also: Test debug host entity

“Furthermore, any possible asset valuation uplift, underpinned by a higher income base, could result in lower gearing and increased debt headroom, allowing PREIT to deliver even greater inorganic earnings growth in the medium term,” she adds.

So far, PREIT has diversified and grown its portfolio, with assets in Japan coming in at about 40% of its total assets under management as at end-1QFY2021.

“Looking ahead, we believe PREIT will continue to look for third-party acquisition opportunities in developed markets, including Australia, UK and Europe, in addition to Japan. Within its sponsor’s portfolio of assets, we believe Mount Elizabeth Novena Hospital could be of interest,” says Lock.

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

Although the timeline remains uncertain at this juncture, she believes that improving operating performance of the latter and IHH’s stated target to double its rate of return in five years could mean that this property is an ROFR (right of first refusal) asset for PREIT, given it is the asset recycling vehicle for the group in the medium term.

“Our current assumptions have not included any pre-emptive acquisitions. While we think current valuations could have factored in some of the anticipated upside in post-review rents, we believe the current share price has not fully reflected the extended income visibility and capacity to realise more inorganic growth prospects in the medium term,” says Lock. — Samantha Chiew

UMS Holdings
Price target:
DBS Group Research “buy” $1.83

Strong start to the year as semiconductor upswing continues

DBS Group Research’s Ling Lee Keng has maintained her “buy” call and raised her target price for UMS Holdings to $1.83 from $1.57.

In a May 11 report, Ling noted “a strong start to the year” for UMS, pointing out that the company has recorded 1QFY2021 revenue of $49.6 million, which is up 42% y-o-y and 13% higher q-o-q.

For more stories about where money flows, click here for Capital Section

This was driven by the sustained increase in semiconductor demand. For 1QFY2021 ended March, UMS reported earnings of $15.4 million, up 44% y-o-y. This quarter alone accounts for 31% of DBS’s FY2021 forecast, which is above expectations.

Ling says that UMS is poised to ride on rising global chip demand, on the back of the acceleration of 5G, AI and other technology-driven developments.

“Recent data points reinforce our positive industry view,” she says, adding that industry association SEMI expects continued double-digit growth of semiconductor manufacturing equipment sales to carry on till 2022.

Ling elaborated that the global semiconductor industry is on track to register a rare three consecutive years of record highs in fab equipment spending with a 16% increase in 2020 followed by forecast gains of 15.5% this year and 12% in 2022, reaching US$80 billion ($106.8 billion) in spending.

In the medium-to-long term, the global semiconductor manufacturing equipment market is expected to continue growing at 9.6% from 2021 through 2026 amid supportive trends led by various technological advancements such as the utilisation of AI solutions and the integration of connected devices with the Internet of Things.

Furthermore, Ling notes for UMS that US semiconductor equipment billings remain strong and marked their 18th consecutive monthly increase in March 2021, rising 47.9% y-o-y. UMS key customer Applied Materials is expected to register 44% earnings growth in FY2021 and another 10% in FY2022, which bodes well for UMS. — Lim Hui Jie

Oversea-Chinese Banking Corp (OCBC)
Price target:
CGS-CIMB “add” $13.75
DBS Group Research “buy” $14
Maybank Kim Eng “buy” $14.17
PhillipCapital “buy” $14.63
RHB Group Research “buy” $14.30
UOB Kay Hian “buy” $15.50

Consensus cheer and target price upgrade

Analysts from CGS-CIMB Research, DBS Group Research, Maybank Kim Eng, PhillipCapital, RHB Group Research and UOB Kay Hian have all kept their “add” or “buy” calls on Oversea-Chinese Banking Corp (OCBC) following the bank’s results posted on May 7.

For the 1QFY2021 ended March, OCBC reported a 115% y-o-y surge in group net profit of $1.5 billion, which surpassed consensus expectations.

All brokerages have also increased their target price estimates on the back of the strong performance reported by OCBC. CGS-CIMB has pegged its target price to $13.75 from $12.52 previously; DBS has upped its target price to $14 from $12.50; while Maybank Kim Eng’s target price is up at $14.17 from $12.74.

PhillipCapital has lifted its target price to $14.63 from $13.65; RHB has upped its target price to $14.30 from $13.30; while UOB Kay Hian is the most optimistic on OCBC with a target price of $15.50 from $15.05.

To CGS-CIMB analysts Andrea Choong and Lim Siew Khee, there are several positives for the bank, including its connectivity between Singapore and Greater China, upside to its 33 basis point (bp) credit cost guidance and strong 15.5% CET-1 position.

“OCBC sees ample opportunity in capturing business flows between Asean and Greater China, and credit growth of its network customers in the UK. Sectoral liquidity, such as in healthcare, transport and new economy sectors, will likely drive loan growth towards the mid-to-high single-digit range in FY2021 [compared to +0.5% in FY2020],” they write.

OCBC’s strong 15.5% CET-1 position — above its optimal target of 13.5% — gives room for M&A. They believe that any M&A exercise would likely take place in OCBC’s core markets and business pillars, and that Citibank’s consumer businesses could be a “good fit”.

They have upped their earnings per share (EPS) estimates for FY2021 to FY2023 by 7% to 9% to factor in “heightened wealth income levels and stronger fee income, keeping in mind that market volatilities could drag insurance and treasury income going forward”.

Choong and Lim have also raised their dividend estimate to 50 cents per share, in view of the Monetary Authority of Singapore (MAS) lifting its dividend cap in FY2021.

To the team at DBS, OCBC would be able to increase its dividend payout ratio perpetually, if there are no M&As on the horizon. The DBS team believes OCBC’s management’s guidance for 100–130 bps of credit costs to end up at the low side of the range.

“Assuming 1QFY2021’s ‘normalised’ specific allowances of 11 bps special allowances, depending on economic outlook, credit costs may come below 100 bps but management believes it is prudent not to do write-back at this point in time as there are still risk events ahead given the resurgence of Covid-19 cases in some countries in the region,” writes the team.

Maybank Kim Eng analyst Thilan Wickramasinghe sees an improved loan growth outlook with stabilised net interest margins (NIMs) which should “support further operational growth, especially given its gearing to North Asia and Singapore”.

“Strong capital and allowances together with a better-than-expected asset quality backdrop could drive reserve write-backs in 2HFY2021, we believe,” he writes.

In addition to the higher target price, PhillipCapital’s Terence Chua has raised his earnings estimates for FY2021 by 5.6% on higher insurance and wealth income, as well as lower allowances.

“We now assume 1.27 times FY2021 P/B value in our Gordon Growth Model valuation, up from 1.19 times as ROE improves from 9% to 9.5%,” he says.

The Singapore research team at RHB have, likewise, upped their earnings estimates for FY2021 to FY2022 by 6% to 8%. The higher estimates take into account the robust 1QFY2021 non-interest income and “tweaks in assumptions for loan growth and NIM”.

UOB Kay Hian analyst Jonathan Koh sees loan growth picking up in the subsequent quarters as the US is benefitting from monetary and fiscal stimulus, while China is experiencing a pick-up in domestic consumption and exports.

The bank has also estimated that maintaining dividend payout at 40% to 50% would be able to support growth in risk-weighted assets of 7–8% per year without impeding CET1 CAR. Its management has also emphasised that its dividend policy must be “progressive and sustainable”, writes Koh.

“As such, we expect OCBC to gradually increase recurrent regular dividends (special dividends are unlikely). Having a high CET-1 CAR also helped OCBC weather unexpected economic shocks, which has been aptly demonstrated amid the Covid-19 pandemic,” he adds. — Felicia Tan

Singapore Press Holdings
Price target:
CGS-CIMB “add” $2.09
DBS Group Research “hold” $1.64
OCBC Investment Research “hold” $1.92
UOB Kay Hian “buy” $1.85

Analysts remain neutral on SPH’s media restructuring

Analysts from CGS-CIMB Research, DBS Group Research and OCBC Investment Research (OIR) have remained neutral on Singapore Press Holdings’ (SPH) proposal to spin off its media business into a not-for-profit entity on May 6.

CGS-CIMB analyst Eing Kar Mei has kept her “add” call on SPH with an unchanged target price of $2.09. To her, the move, despite the short-term pain, provides a long-term gain, as it will remove the drag from the media business, which reported a profit before tax (PBT) loss of $9.7 million in the 1HFY2021 ended February.

It also removes the restrictions under the Newspaper and Printing Presses Act, which will give SPH greater financial flexibility to tailor its capital and shareholding structure to seize growth opportunities, and free up resources to focus on its other businesses.

The target price of $2.09, says Eing, is pegged to a 20% holding discount, pending the completion of the exercise.

“If we exclude the media business from our sum-of-the-parts (SOTP) calculations, reduce SPH REIT’s stake from 66% to 65% (to take into account the SPH REIT units to be given to the CLG [company limited by guarantee]), a larger outstanding share base (to take into account the SPH shares to be given to CLG), and reduce cash balances by $80 million, our SOTP target price will be $1.94,” writes Eing.

“Assuming the assumptions from [the] point[s] above but with only 10% and no holding discount, our SOTP target price will be $2.18 and $2.43 respectively,” she adds.

DBS analyst Alfie Yeo has maintained “hold” on SPH with a higher target price of $1.64 from $1.32 previously, based on the revalued net asset value (RNAV) of SPH’s properties.

“We value SPH’s properties based on 30% discount to RNAV on properties worth $4.44, other businesses and investments worth about 75 cents and net debt at about $2.80,” writes Yeo.

To Yeo, SPH, which currently trades at 0.9 times FY2022 P/B, is expected to register positive return on equity (ROE) of about 3% to 4% once its media business is no longer part of the group.

“This is, however, backend loaded, as we expect weak earnings for media to persist in FY2021 along with one-off restructuring costs. Earnings improvement is anticipated from 2HFY2022,” he says.

That said, Yeo’s earnings forecast is below consensus, reflecting operating profit largely from the property segment, he writes, adding that the move is positive in the longer term without the earnings drag from the media business.

“Earnings volatility should stabilise once earnings contribution is driven by properties, which is more stable in nature,” Yeo notes.

“Our forecast and outlook for the stock is premised on the successful completion of the restructuring in FY2022. Failure to secure sufficient votes at the extraordinary general meeting (EGM) to enable it to carry out the restructuring would lead to the continued recognition of the media business beyond FY2022, derailing our forecast and outlook for the stock,” he adds.

OCBC’s research team has also kept their “hold” call with an unchanged fair value estimate of $1.92.

“While a modest recovery path for the company’s key businesses is the base case ahead, supported by vaccine rollouts progress and global economic recovery, near-term share price volatility is expected pending developments on the strategic review, which has lifted share price and raised optimism for potential value unlocking initiatives,” writes the team.

The OCBC team also views the move as positive for the group in the longer term. “We are maintaining our fair value of $1.92 pending completion of the deal, which implies a smaller holding company discount of –7% to the estimated post-restructuring reduced NAV of $2.08/share (estimated to fall –6.6% post proposed restructuring), in view of the lifting of uncertainties surrounding the media business,” adds the team.

UOB Kay Hian analyst Lucas Teng has maintained “buy” on SPH with an unchanged SOTP-based target price of $1.85.

“After restructuring, the group’s NAV/share is about $2.08, with the current price at a discount of 27%,” he writes.“Any adjustments (post-restructuring) would lower our target price slightly to $1.79, given a change in: SPH REIT’s holdings; cash; and higher share base (from SPH shares given to the CLG).” — Felicia Tan

Genting Singapore
Price target:
CGS-CIMB “add” $1
Maybank Kim Eng “hold” 86 cents
RHB “neutral” 92 cents

With little domestic demand, Genting Singapore ‘needs time to get back on its feet’

After reporting a 26% drop in 1QFY2021 net profit last week, analysts are saying Genting Singapore needs time to get back on its feet, as domestic visitors do little to fill gaming tables and other entertainment venues.

CGS-CIMB Research analyst Cezzane See is maintaining “add” on the integrated resort operator while lowering the target price to $1.00 from $1.05 with a 17.6% upside.

“Genting Singapore’s 1QFY2021 revenue of $278 million fell 32% y-o-y and 12% q-o-q, as expected. The y-o-y drop was due to a higher base as Singapore has been impacted by Covid-19 since February 2020. On a sequential basis, we think the large revenue drop was due to the high base of 4QFY2020 non-gaming revenue, which was largely boosted by pent-up demand for year-end holidays/staycations/attraction visits. Gaming revenue was stable on a sequential basis (+2% q-o-q),” writes See in a May 8 note.

That said, 1QFY2021 adjusted ebitda of $128 million indicated margins of 32%, down from elevated levels of 67% in 4QFY2020. “We believe the fall in margins could be due to: tapering government support, such as the Job Support Scheme; a rise in operational costs as Resorts World Sentosa (RWS) developed creative events for promotions for domestic tourists; and the lack of provision reversals that were partly taken in 4Q2020,” says See.

“Thus, we trim our ebitda margins for FY2021–2023F which leads to FY2021–2023F adjusted ebitda falling by 4–9.4%,” she adds.

Nevertheless, See points to some upcoming revenue from RWS’ “continued development of attractions”, along with a temporary occupation permit for the remodelled Resorts World Theatre for a new experiential dining attraction. She also points to the extension of SingapoRediscovers Vouchers redemption from end-June to December, which could support domestic visitor counts.

See adds that Genting Singapore’s further recovery relies on Singapore’s borders reopening, but still prefers the company for its strong balance sheet, noting its end-FY2020 net cash position of $3.7 billion, “which will help tide it over the current tough times”.

The “slow start to FY2021” leads Maybank Kim Eng analyst Yin Shao Yang to trim Genting Singapore’s target price even further to 86 cents from 92 cents previously. While Yin maintains a “hold” call on the company, FY2021 is “likely to be another quiet year”.

“Unfortunately, [recovery to pre-Covid-19 levels this year] is increasingly unlikely, given the third Covid-19 wave in Malaysia. Recall that Malaysia is a key foreign market for RWS, especially its high margin mass market. Moreover, the Singaporean government announced on May 4 that the operating capacity of attractions, which includes integrated resorts like RWS, will be reduced from 65% to 50%,” writes Yin in a May 9 note.

RHB Group Research maintains “neutral” on Genting Singapore, while trimming its target price to 92 cents from 94 cents previously. “Despite gaming revenue nudging up by 1.6% q-o-qq, 1QFY2021 total revenue dropped by 12%, as non-gaming revenue fell by 29% q-o-q. The stronger non-gaming revenue in the previous quarter was due to the school holidays, when domestic tourism spending rose following the implementation of various support measures, such as the SingapoRediscovers vouchers,” says RHB in a May 10 note.

“Post results, we cut FY2021F–2023F earnings by 19.8–5.2% as we factor in a slower earnings recovery, in view of the rise in global Covid-19 cases... a full re-opening of Singapore’s borders may not take place in the near term, thereby dampening earnings recovery prospects.” — Jovi Ho