United Overseas Bank
Price target:
Maybank Kim Eng “buy” $29.34
Green financing opportunities could support medium term growth
Maybank Kim Eng analyst Thilan Wickramasinghe has maintained a “buy” call on United Overseas Bank (UOB), amid an improving operating outlook as well as better-than-expected asset quality that could drive upside surprises to earnings and provision writebacks.
In a June 4 report, he has also kept the bank’s target price at $29.34. He also views the bank’s green strategy as a plus, following an investor call with the bank’s chief sustainability officer Eric Lim.
The bank is looking to position its strategy to leverage its balance sheet with advisory, wealth and solutioning capabilities to support their customers’ transition to sustainable opportunities.
As it is, UOB has already invested $12 billion in sustainable finance. It aims to invest a total of $15 billion by FY2023, which is likely to be surpassed in FY2021, says Wickramasinghe.
The bank is also seeking to build a sustainable growth strategy that serves all its stakeholders — all of which should drive a long-term competitive advantage for UOB.
“In the near term, an improving operational outlook and potential provision writebacks should drive earnings momentum,” he writes in a June 4 report.
In the call with Lim, Wickramasinghe writes that the bank sees that it is important to align the group’s strategy towards funding sustainable assets as opposed to competing in the sustainability financing space in terms of generating lower margins than conventional assets.
“This is the wrong comparison, according to UOB. Non-green assets may offer higher margins now, but over the long run they could become un-fundable. Some may become stranded assets, which could lead to high provisioning risks,” Wickramasinghe says.
Aligning the group’s strategy requires a “major cultural and mindset shift internally”, which is supported by the group’s senior management. — Felicia Tan
UOL Group
Price target:
CGS-CIMB “add” $8
Faster residential sales and new contributions from Ang Mo Kio site
CGS-CIMB Research analyst Lock Mun Yee has maintained an “add” call on UOL Group, with a higher target price of $8 from $7.91 previously.
This factors in faster residential sales as well as new contributions from the group’s Ang Mo Kio site, which was recently awarded to the group and its joint venture (JV) partners.
The new target price is still based on a 40% discount to the group’s revised net asset value (RNAV).
On June 2, UOL Group, as well as Singapore Land Group and Kheng Leong, won the tender for a private housing site at Ang Mo Kio Avenue 1 from the Urban Redevelopment Authority (URA) for $381.4 million.
The site is said to be able to house over 370 condominiums spread over the total gross floor area (GFA) of 415,415 sq ft.
In a report on June 4, Lock estimates that the breakeven cost could be around $1,600 to $1,650 psf, based on the land price of $1,118 psf of floor area.
Meanwhile, sales at UOL Group’s at its ongoing projects “continue to be brisk”. The group has sold 159 units year-to-date in June, according to URA data on June 4.
The group’s 448-unit The WaterGardens at Canberra Drive is on track to be rolled out in early 3QFY2021.
“Given the present robust residential market, we expect this launch to be well-received when marketed. This will continue to extend the group’s development income visibility,” writes Lock.
UOL’s active asset enhancement initiative (AEI) with its office properties is also another positive for the counter.
Its subsidiary Singapore Land Group secured $100 million of green loans in March for a major upgrading of Singapore Land Tower as part of the group’s AEIs.
UOL has also received in-principle approval from the authorities to expand the 333 North Bridge Road site with a new standalone seven-storey extension.
The upgrade for Singapore Land Tower will be completed by end-2023. The building will feature more green features including landscaped public spaces, energy efficient lifts and lighting, as well as priority parking for electric and hybrid cars.
While the group’s retail portfolio may see challenges during Singapore’s Phase Two (Heightened Alert) measures from May 16 to June 13, Lock believes the UOL’s active portfolio management will improve its operational performance.
Its hospitality portfolio, however, is likely to continue to pose a drag in the near term due to the ongoing international travel restrictions.
On this, Lock continues to “like” UOL for its “diversified business model with a high proportion of recurring income”.
A faster-than-projected recovery of its hotel operations may be a re-rating catalyst for the group’s share price, while a slower-than-expected pace of residential sales or new property cooling measures may pose downside risks.— Felicia Tan
Koufu
Price target:
CGS-CIMB “hold” 71 cents
Footfall recovery to be weighed down by restrictions
Footfall at Koufu food courts have been negatively affected by Singapore’s recent Phase Two (Heightened Alert) restrictions, put in place following a spike in Covid-19 cases.
The tighter preventive measures — enforced from May 16 to June 13 — included a dining-in ban at all F&B outlets. As such, CGS-CIMB is downgrading its call on Koufu to “hold’ from “add”, with a lower target price of 71 cents from 94 cents previously.
Lead analyst Cezzane See says that while the government may ease the measures after June 13, it is highly unlikely for distancing measures to return to what they were in 1Q2021 (where up to eight persons were allowed for gatherings).
She adds: “We expect 1HFY2021 ending June revenue to rise 5% y-o-y with weaker 2QFY2021, as a significant proportion of Koufu’s current outlets are located in malls (about 43%), with a smaller proportion located in schools (about 9%) and offices (about 4%). As Singapore shifts towards a hybrid work-from-home model, we expect footfall recovery at these locations to remain an overhang for FY2021/2022 earnings.”
In addition to slower-than-expected footfall recovery, border reopening also remains a near-term uncertainty. Tourist arrivals in Singapore and Macau — while gradually improving — still remain weak at 2% and 23% of pre-Covid-19 levels respectively.
The opening of Koufu’s new integrated facility has also been delayed to 3QFY2021 due to disruptions arising from the pandemic — postponing potential gross profit margin expansion.
“That said, we think that the impact should be slightly offset by growing contributions from Deli Asia as well as enhanced grants offered from the Job Support Scheme (JSS),” says See.
Despite headwinds due to the pandemic, Koufu has still continued extending its outreach across the island with the opening of one new food court at Sun Plaza, two new R&B Tea outlets (located at Fusionopolis and Sun Plaza) and three new Dough Culture outlets located at Singpost Centre, Sun Plaza and Oasis Terrace.
Going forward, the group has already secured three new food court locations (located at Marina Square, Nanyang Technological University and Outram Community Hospital) to be opened in 2QFY2021 and 3QFY2021 and a new Grove outlet at Northshore Plaza will open in 4QFY2021. The group will also be opening a coffee shop within its integrated facility in 3QFY2021.
Nonetheless, the analyst still likes Koufu for its strong balance sheet, giving it sufficient dry powder for working capital requirements as well as potential M&A opportunities as the economy recovers.
“The worst is possibly over, but recovery is expected to be gradual in our view,” she adds. — Samantha Chiew
Raffles Medical Group
Price target:
DBS Group Research “buy” $1.40
DBS optimistic on Raffles Medical, upgrades rating to ‘buy’
DBS Group Research’s Rachel Tan has upgraded her rating on Raffles Medical to “buy” from “hold” with a raised target price of $1.40, up from her previous target price of 95 cents.
“We applied the historical mean price-to-earnings or P/E (from 2012) of 30 times to average FY2021-FY2022 earnings, plus 20 cents per share for its China hospitals,” she writes.
In a June 7 report, she says the group is “the biggest beneficiary of Singapore’s new norm” — the “test, trace and vaccinate” strategy announced by the Republic’s Prime Minister Lee Hsien Loong on May 31.
Raffles Medical is the largest Covid-19 service provider and is, by extension, the biggest beneficiary of more routine tests and accelerated vaccination programmes, which she thinks “could last longer than expected.”
As part of the accelerated vaccination programme, the Singapore government targets all eligible individuals to receive at least one dose of the vaccine by National Day, which falls on Aug 9. At least 2.2 million of the population has been vaccinated once.
Raffles Medical has been the biggest partner in the government’s Covid-19 vaccination efforts, currently managing 16 vaccination centres (about 40% of the current 40 centres).
Two Raffles Medical clinics are also offering vaccination services. In comparison, the second-largest partner is Fullerton Health with nine centres while the Minmed Group operates four centres.
Tan says Raffles Medical will stand to benefit from the reopening of travel borders, with pent-up demand from foreign patients and tests, as traffic increases at Changi Airport.
“As Singapore speeds towards achieving herd immunity via vaccination, we believe the reopening of travel borders is getting closer, barring any further major outbreaks from new variants,” she adds.
Tan says Raffles Medical will also stand to benefit from the reopening of travel borders — more tests and foreign patients are expected as traffic increases at Changi Airport.
This, in turn, could drive more revenue from Covid-19 related services.
She is also predicting that earnings could surpass pre-Covid levels in FY2022, with contributions from Covid-19 related services and medical tourism.
“Given the large-scale Covid-19 efforts in FY2021, we expect contribution from Covid-19 related services to expand in FY2021 and offset some of the gestation losses from Raffles Hospital Chongqing and the upcoming opening of Raffles Hospital Shanghai,” she adds.
Covid-19 related services might also moderate in FY2022 with fewer vaccination centres needed. Tan also expects the return of medical tourism when travel borders reopen to drive earnings.
The delay in the opening of Raffles Hospital Shanghai could reduce potential gestation losses to be recognised in FY2021, and this could lead to further potential upside to estimates. — Lim Hui Jie
mm2 Asia
Price target:
UOB Kay Hian “buy” 9.5 cents
Buy’ mm2 Asia despite FY2021 net loss, profits expected by FY2023
Despite posting a net loss for FY2021, mm2 Asia has plans in the works that will include a focus on streaming, write UOB Kay Hian research analysts Lucas Teng and John Cheong in a June 7 note.
As such, they are maintaining their “buy” call on the media and production company, with a lowered target price of 9.5 cents from 9.8 cents previously.
The entertainment group reported a FY2021 ended March 31, 2021 core net loss (excluding impairments and other fair value loss) of $44.3 million.
“The headline loss in FY2021 was $92.7 million due to the Covid-19 stay-home measures. The group recorded higher impairment losses of $38.8 million in FY2021 due to the write-down in goodwill in the cinema segment and impairment of film rights, film intangibles and inventories,” they add.
Due to the low base in 1HFY2021, 2HFY2021 revenue of $55.3 million recovered substantially, up 178% h-o-h, as most segments of the group (except concert and event production) saw a rebound.
The group continues to pivot its production projects to streaming services and targets 40% of content production revenue to come from streaming channels by FY2022.
The group completed 12 production titles in FY2021 — compared with 18 in FY2020 — as revenue dipped 29.9% y-o-y in FY2021.
“We believe that the group’s track record in quality production will see its core production business sought by streaming channels,” say Teng and Cheong.
The mm2 core production pipeline remains sizeable, they add, amounting to $97.5 million till 1HFY2023.
The company also owns Cathay Cineplexes. Revenue for this segment saw a rebound in the 2HFY2021, up 236.1% h-o-h.
“With current restrictions, about two major title releases per month would enable the segment to operate on a profitable level, which we deem to be viable given the sizeable backlog of blockbusters for 2021,” they add.
Separately, the proposed merger with Golden Village is still in progress with a submission to the Competition and Consumer Commission of Singapore expected to take place by end-June.
The company’s event production unit UnUsUaL could also help to lift earnings.
“While virtual concerts will enable a wider reach, we believe that live concerts will still lead the way for recovery in this segment as restrictions are lifted,” say the analysts.
Meanwhile, Teng and Cheong have cut earnings forecasts by $4 million and $1 million respectively for FY2022 and FY2023.
The FY2022 forecast is a slight net loss position at $2 million, while the FY2023 earnings forecast is reduced slightly to $14 million. The heightened alert measures will likely delay the recovery in the cinema and the concert business segments slightly, say analysts.
They have also introduced a FY2024 earnings forecast of $17.3 million.— Jovi Ho
