Broker's Digest: Yanlord Land Group, GKE Corp, ISOTeam, StarHub

The team at OCBC Investment Research has kept its “hold” rating on Yanlord Land Group with a lower fair value estimate of $1.16, from $1.20 due to a weaker contracted sales outlook.

“We factor in Yanlord’s actual FY2021 contracted sales in our model, and also assume a 5% contraction for FY2022,” writes the team in its Jan 14 report.

Yanlord’s contracted sales for FY2021 ended December 2021 fell 24.0% y-o-y to RMB59.6 billion ($12.63 bil­lion), due to a decline in both contracted gross floor area (GFA) and average selling price (ASP) of 12.7% and 13.0% y-o-y to 1.87 million sq m and RMB31.889 per sq m respectively.

In December last year, the Singapore-listed Chinese developer saw contracted sales dip 16.3% y-o-y to RMB9.2 billion despite an increase in contracted GFA to 322,671 sq m. The figures imply a dip in ASP of 29.4% y-o-y to RMB28.565 per sq m. The overall contracted sales fell short of management’s target of RMB70 billion, adds the team

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OCBC has cut its core Patmi forecasts for the FY2021 and FY2022 by 32.4% and 20.4%, respectively. That said, they have ascribed “a higher P/E target multiple of 5.6 times (including a slight environmental, social and governance valuation discount) given signs of policy easing in China’s property market, coupled with Yan­lord’s healthy financial position relative to its peers”, which led to a slight dip in the team’s fair value estimate.

Potential catalysts include the easing of price caps in key cities, which Yanlord has exposure to. Strong­er-than-expected pre-sales as well as higher dividends per share will also potentially contribute to the re-rating of its share price. Meanwhile, downside risks include further property cooling measures, rising offshore funding costs and foreign exchange risks, as well as overspending on acquiring land. — Felicia Tan

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GKE Corp
Price target:
CGS-CIMB “add” 16 cents
SAC Capital “hold” 12.3 cents

Earnings from China operations a miss

CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan have maintained their “add” rating on GKE Corp but with a lowered target price of 16 cents from 21 cents, following a recent earn­ings miss. Similarly, SAC Cap­ital’s Lim Shu Rong has down­graded the stock to “hold” from “buy” and a reduced target price of 12.3 cents from 17.1 cents.

The company reported earn­ings of $3.8 million for 1HFY2022 ended Nov 30, 2021, down 41.5% y-o-y, due to the company’s ready-mixed concrete in China whose earnings suffered a drop of more than a third, due to lower volumes and bad credit.

The analysts caution that Chi­na’s near-term tight liquidity en­vironment will add stress to the construction industry’s supply chain, thereby affect­ing GKE’s business.

Meanwhile, the company’s other new business activities in China, such as a waste material recycling plant and limestone mining, are seen to start their earnings contri­bution in the current 2HFY2022.

“We remain optimistic of GKE’s longer term prospects in China, given its contin­ued urbanisation plans in lower tier cities,” write the CGS-CIMB analysts.

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On the other hand, GKE’s logistics business based in Singapore continued to hold steady, as demand for storage space held up as customers stock up in the face of supply chain woes.

During 1HFY2022, revenue and profit before tax for this segment was up 16% y-o-y and 19% y-o-y respectively, driven by higher rental rates. Ong and Tan add: “GKE’s warehouses remain fully utilised, and management is currently converting some open yard space into chemical storage areas to further optimise yield.” — Chloe Lim

ISOTeam

Price target:
RHB Group Research “neutral” 12 cents

‘Wait and see’ approach this FY2022

RHB Group Research analyst Jarick Seet has downgraded ISOTeam’s rating from “buy” to “neutral” with a lower target price of 12 cents from 21 cents previously.

On Aug 27, 2021, ISOTeam — known for winning public housing painting contracts — re­ported a net loss of $14.5 million for FY2021 end­ed June 30 last year — mainly due to the ongo­ing Covid-19 situation including supply chain disruptions and labour shortages which have severely impacted its margins.

Seet expects revenue for the current FY2022 period to be better with improved margins and expectations of executing more projects that were previously on hold because of the pandemic. As at June 30 last year, ISO­Team’s order book was $165.2 million, to be delivered over two years.

ISOTeam has been exploring new ways to do business in a more ef­ficient way. On Nov 9 last year, the company formed a partnership with Nippon Paint Singapore and Acclivis to develop and enable the use of autonomous painting drones to paint building façades or structures.

Given threats of the pandemic, Seet prefers to be “conservative” and is taking a “wait and see” approach. He has also cut his earnings esti­mates for FY2022 and FY2023 by 70% and 65% respectively, while still expecting a turnaround for FY2022. — Chloe Lim

Starhub

Price target:
UOB Kay Hian “hold” $1.30

Future earnings expected to improve

UOB Kay Hian analysts Chong Lee Len and Chloe Tan Jie Ying are keeping their “hold” call and $1.30 target price on StarHub, with a view that the company has regained a stable footing and has front-loaded capex which will help drive future earnings.

StarHub continues to experience improvement on its opera­tional parameters amid rational competition and increased 5G network roll-out. Recent updates from StarHub’s management suggest continued improvements across all segments. On the mo­bile front, prepaid competition remains rational while postpaid likely benefited from the onset of 5G network roll-out. “This, we believe, will help to partly address average revenue per user (ARPU) dilution from SIM-only plans as postpaid ARPUs have been stable since 1QFY2021. We also expect higher take-up of 5G mobile plans (5G ARPUs are estimated to be 1.2 times higher than 4G ARPUs),” Chong and Tan write in their Jan 25 report.

They also believe that StarHub’s cross-products bundling strategy will help create customers’ stickiness. Anecdotally, the HubBundle plan (integrated mobile, broadband, Netflix and Dis­ney+) saw encouraging adoption since it was launched in Sep­tember last year.

StarHub has also made major investments to grow its enterprise business. It acquired Ensign (cybersecurity), Strateq (regional ICT), JOS (ICT), and MyRepublic (enterprise broadband) in recent years and can now offer a stronger suite of converged business solutions (5G, cloud and security).

For 9MFY2021 ended September last year, Ensign was able to grow its revenue by 14% y-o-y with operating profit up by nearly 9 times to $6.8 million. Thanks to higher contracts from public sector clients, Ensign’s order books remained strong, with an estimated 18% market share in Singapore. According to Gartner, crowd security is seen to grow at a five-year CAGR of 36% by 2024 and Ensign is well positioned to grow in tandem.

The analysts also expect StarHub to look for strategic partnerships to move up its value chain for sustainable growth.

Currently, StarHub has a budget of $270 million (capex and opex) over FY2022 to FY2024 for digital platforms and 5G network roll-out.

Including the $26.3 million (shared with M1) 2.1 GHz 5G spectrum fee, a total of about $300 million front-loaded in­vestments are expected to materialise in the near-term. Despite front-loading capex, StarHub remains committed to its 5 cents per share or 80% earnings payout policy. If earnings start to grow, so will its payout. — Samantha Chiew