Wilmar International
Price target:
CGS-CIMB ‘add’ $5.69
Citi ‘buy’ $6.08
UOB Kay Hian ‘buy’ $5.50
DBS Group Research ‘buy’ $6.67
Maybank Securities ‘hold’ $4.47
‘Impressive’ 1HFY2022 but views of better prospects mixed
Analysts are mostly positive on Wilmar International after the group posted record earnings of US$1.16 billion ($1.61 billion) for the 1HFY2022 ended June.
The higher earnings, which beat consensus’ estimates, were mainly attributable to the better performances across the group’s business segments except food products.
CGS-CIMB analysts Ivy Ng and Nagulan Ravi have kept “add” on Wilmar with an unchanged target price of $5.69. “The record 1HFY2022 profit achievement, amid a period of record-high and volatile commodity prices, is another testament to the group’s strong integrated business and diversified business model,” the analysts write in their Aug 5 report.
They expect Wilmar’s earnings for the 2HFY2022 to be driven by higher tropical oils sales volumes and better food product margins, although this could be offset by the weaker earnings from its plantation segment.
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During the 1HFY2022, Wilmar’s plantation and sugar milling segment were the key earnings driver thanks to higher crude palm oil (CPO) prices and better performances from sugar milling operations in India.
Based on Ng and Ravi’s estimates, Wilmar has an FY2022 P/E valuation of 10.6x and dividend yield of 4.2% at its current share price levels.
Citi analyst Jame Osman has also kept his “buy” call with an unchanged target price of $6.08, following its “impressive” earnings. “[Wilmar’s] valuations look compelling, in our view, with the stock trading at FY2022 P/E of 9x; over 1 standard deviation (s.d.) below past 10-year mean of 14.2x; dividend yield of [around] 4%,” he writes in his Aug 4 report.
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The higher-than-expected earnings also “underscores in our view the strength of the company’s diversified model”.
“Investors have been perennially sceptical of Wilmar’s earnings sustainability. Ahead, we believe the company’s supply-chain advantages and significant global processing capacity provide it the agility to exploit market dislocations, as has been the case in the past,” he says.
Osman adds that Wilmar’s results were due to its upstream and midstream business performance coming in stronger than anticipated even as he expected that the impact of recent policy interventions in Indonesia and India would be contained.
The group’s downstream performance was supported both by better consumer pack volumes (due to the lockdowns in China), from upward price revisions made to products, as well as sequentially better oilseed crush margins, he adds.
“China’s reopening remains a key catalyst given [Wilmar’s subsidiary] Yihai Kerry Arawana (YKA) has been a relatively weaker spot in the business despite the overall group’s outperformance,” says the analyst.
In its note dated Aug 5, the team at DBS Group Research has kept their “buy” call and $6.67 target price, with a view that Wilmar’s positive earnings momentum will be sustained in the 2HFY2022.
“Wilmar’s integrated and diversified business model and the prudent risk management would enable the group to deliver good earnings amid commodities price, geopolitical volatility and unusual weather conditions,” writes the DBS team.
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“Wilmar is trading at [an] FY2023 P/E of 9.5x, –2 s.d. of its five-year average P/E multiple of 11.8x,” it adds. “We think investors have mispriced Wilmar as an upstream plantation company at this share price level, despite Wilmar’s well-integrated business platform that is consistently profitable even amid commodities price volatility.”
UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow Hui Li have also kept their “buy” calls and target price of $5.50. They expect 2HFY2022 earnings to “remain resilient” from better sales and higher margins. “We expect the palm upstream operation contribution to be lower as commodity prices have softened recently but still better y-o-y,” they write.
However, Maybank Securities’ Thilan Wickramasinghe is less impressed: He has downgraded the counter to “hold” from “buy” and slashed his target price to $4.47 from $6.56.
“We see limited catalysts for the stock to re-rate until better clarity on Chinese re-opening and global growth comes,” the analyst explains. “We have lowered the peer weighting in our blend to 10% (around 20%) given the massive discount Wilmar trades to its own listed parts elsewhere.”
He adds that among the agricultural counters listed on the Singapore Exchange (SGX), the analyst prefers Bumitama Agri (BAL) for its strong output outlook, valuations and yield.
Wilmar’s earnings growth, Wickramasinghe notes, was primarily driven by higher upstream palm oil prices, where downside risks to average selling prices (ASPs) are increasing. “Concurrently, downstream demand and margin recovery may take longer in a backdrop of recession and prolonged Chinese lockdowns,” he writes.
Higher CPO prices — which helped drive growth — is also likely to moderate by 32% y-o-y in the FY2023. “Even after such a price fall, CPO prices would still be higher than the past eight years (barring 2021). In the current inflationary backdrop this may drive demand destruction. We have lowered FY2022 to FY2024 segment volumes by 21% to 27%,” adds Wickramasinghe. — Felicia Tan
StarHub
Price target:
RHB Group Research ‘hold’ $1.20
UOB Kay Hian ‘hold’ $1.30
Maybank Securities ‘hold’ $1.32
Expenditure to ‘weigh heavily’ on StarHub’s earnings
While they differ in their assessment of StarHub’s reported 1HFY2022 earnings, analysts have generally kept their “hold” calls on the telco, as they expect planned capital and operating expenditure to weigh down on earnings in the coming few years.
On Aug 4, StarHub reported revenue of $1.06 billion for its 1HFY2022 ended June 30, up 8.7% y-o-y. However, earnings dropped 10.3% y-o-y to $60.9 million due to higher costs.
UOB Kay Hian’s Chong Lee Len and Llelleythan Tan say Starhub’s earnings for the quarter ended June 30 are “within expectations,” but RHB says the results “fell short”. On the other hand, Maybank’s Kelvin Tan says that while Starhub’s ebitda and patmi met expectations, the latter was “underwhelming”.
Tan sees potential in the return of high margin roaming and incoming English Premier League (EPL) revenue in August to provide major earnings tailwinds for 2HFY2022. However, given the ongoing cost pressures from heavier capex requirements, he has his FY2022 to FY2024 earnings estimates by 8% to 10%.
Still, UOB Kay Hian’s Tan and Chong are wary of potential margin compression but they believe that Starhub is on track to meet or exceed its FY2022 guidance of 10% revenue growth and an ebitda margin of at least 20%.
As seen from 1HFY2022, StarHub has beaten its own guidance. “Given that revenue contribution from the newly-launched English Premier League packages only starts in 2HFY2022, along with an expected recovery in roaming data in 2HFY2022, we expect 2HFY2022 service revenue growth to exceed the group’s 2022 guidance,” the UOB Kay Hian analysts write.
But there are issues: Over the weekend of Aug 6, StarHub’s EPL subscribers complained of the quality of service during the season’s opening matches.
RHB, meanwhile, notes that while StarHub’s mobile roaming is recovering, it has yet to reach pre-pandemic levels. It also shares the concern that the planned surge in both capex and operating expenditure will “weigh heavily” on StarHub’s earnings leading to “acute earnings compression”. They have lowered their FY2022 to FY2024 core earnings estimate by 13.8%, 5.8% and 10.3% respectively. — Lim Hui Jie
BRC Asia
Price target:
PhillipCapital ‘buy’ $2.26
3QFY2022 earnings met estimates, construction recovery seen
PhillipCapital’s Terence Chua has kept his “buy” call and $2.26 target price on BRC Asia, following the steel supplier’s 9MFY2022 earnings for the period ended June that met his expectations. Chua’s target price is pegged to 8x FY2022 earnings estimates.
On Aug 2, the company reported earnings of $20.4 million for 3QFY2022 ended June, more than double the year earlier period, thanks to a recovery in the construction sector but offset by a moderation of prices.
BRC Asia’s order book from construction clients was up slightly to $1.135 billion for 3QFY2022, up slightly from $1 billion as of 2QFY2022. “Strong demand for public housing and infrastructure projects in Singapore continued to drive up the group’s order books. BRC Asia is benefitting from the backlog of projects that were postponed during the Covid-19 pandemic and the higher number of public housing projects that are being launched to meet demand,” writes Chua.
On the other hand, he also notes that construction activity levels have been affected by a spate of fatal accidents: A total of 28 deaths were reported in the first six months of the year. The stop work orders as a result have impeded construction progress, Chua adds. In the meantime, he has kept his FY2022 and FY2023 earnings unchanged, on expectations that construction activity will continue to recover in these two years. — The Edge Singapore
APAC Realty
Price target:
DBS Group Research ‘hold’ 67 cents
CGS-CIMB ‘add’ 84 cents
‘Healthy’ 1HFY2022 earnings, but slower 2HFY022
DBS Group Research has kept its “hold” call on APAC Realty with an unchanged target price of 67 cents, following a slight earnings dip reported by the property agency for its 1HFY2022.
The company, which operates the ERA franchise, plans to pay an interim dividend of 3.5 cents per share for 1HFY2022, representing a payout ratio of 75%. In 1HFY2021, APAC Realty paid an additional special dividend of 3 cents per share as well.
CGS-CIMB’s Lock Mun Yee has kept her “add” call and bullish target price of 84 cents. “We believe the share price is likely supported by a projected FY2022 dividend yield of 7.8%.”
DBS calls the 1HFY2022 numbers “healthy”, as the property market has shown its “resilience” amid global challenges thanks to strong demand from both local and foreign buyers. While the volume of transactions for 1FHY2022 dipped, they are generally transacted at higher prices. APAC Realty’s revenue from brokering resale and rental deals dropped for 1HFY2022 but was partially offset by better new home sales.
In 1H2022, the private residential market in Singapore saw a 30% y-o-y drop in transaction volume, with the steepest drop from the higher-margin new homes segment, which was down 40% y-o-y. The HDB resale segment also saw a 6.1% y-o-y decline in 1H2022. DBS, in its Aug 9 note, points out that there is a time lag of three to six months before revenue from transactions are booked. It is also expecting a slower 2HFY2022 for APAC Realty. “Though demand remains strong, outweighing supply, especially for the new homes segment, this could be partly mitigated by the challenges of rising interest rates, higher inflation and rising land cost,” adds DBS. — The Edge Singapore
