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931 Brokers' Digest

The Edge Singapore
The Edge Singapore • 5 min read
931 Brokers' Digest
Here are three stocks to watch for the week: ComfortDelGro, Mapletree Logistics Trust and Singapore Exchange.
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Price targets:

$1.75 BUY (OCBC Research)

OCBC Investment Research is keeping its “buy” call on ComfortDelGro (CDG) with a fair value estimate of $1.75.

Although the research house notes that CDG will be negatively affected by Covid-19 measures in Singapore, it is positive that the group will recover from the impact and recommends to “buy” with a longerterm view.

Covid-19 has impacted transport activity significantly worldwide. In Singapore, the “circuit breaker” means that activity will slow significantly in April and May. Depending on the trajectory of the virus situation, recovery may be slow. On the back of this, shares in CDG have corrected by some 40% year-todate, compared to the STI’s 21% fall.

In an April 24 report, OCBC says, “The taxi segment has been most impacted, and we estimate that this is likely to be loss-making, partly due to the rental waivers and reliefs that have been extended.”

Additionally, the group will benefit from the government’s Jobs Support Scheme given the higher percentage of local employees, and the group’s public bus operations in Singapore are not exposed to fare revenue, as it operates under the bus contracting model. “Still, we are cognisant of the possibility of mileage revisions by the authorities because of Covid-19,” adds OCBC.

As for rail, ridership is likely to be impacted by the pandemic, lengthening the time required to attain breakeven for the Downtown Line, which is run by ComfortDelgro’s subsidiary SBS Transit.

Nonetheless, the research house is positive on the group’s long-term prospect. CDG’s net gearing remained low at 1.3% as at end-FY2019, and the group is in a position to undertake more acquisitions when the opportunity arises. — Samantha Chiew

Mapletree Logistics Trust

Price targets:

$1.40 HOLD (Jefferies Research)
$1.85 BUY (DBS Group Research)
$2.08 BUY (UOB Kay Hian Research)

Despite global supply chain disruptions as countries go on lockdowns to curb the spread of the coronavirus, market watchers are staying cautiously optimistic on Mapletree Logistics Trust (MLT).

“We remain comfortable that MLT’s pure logistics exposure is least impacted by the Covid-19 outbreak and Singapore’s tightening restrictions on workspaces,” says DBS Group Research lead analyst Derek Tan in an April 27 report.

He believes that the logistics sector is less impacted by movement control measures. “This implies that its earnings profile will remain more stable than peers,” says Tan, who is keeping his “buy” recommendation on MLT with an unchanged target price of $1.85.

Meanwhile, Maybank Kim Eng Research has increased its target price by 10 cents to $1.85 as well. However, the brokerage is keeping its “hold” call on MLT.

“Management remains cautious on lower demand visibility with heightened government-led measures in Singapore and Malaysia, and expects a slower acquisition growth profile in FY2021,” says Maybank analyst Chua Su Tye in an April 26 report.

The way Chua sees it, MLT has limited distribution per unit (DPU) growth upside to its 5.0% dividend yield valuation.

The trust reported a 1.2% rise in DPU to 2.048 cents for the 4QFY2019/20 ended March, bringing full-year DPU to 8.142 cents, a 2.5% increase from the previous year.

Revenue for the quarter saw a 5.5% increase to $128.1 million, led by higher revenue contributions from existing properties and accretive acquisitions in Malaysia, Vietnam, South Korea and Japan.

“Our earnings estimates are further moderated by 1%–3% to conservatively assume negative reversions in Singapore and Hong Kong, and slower acquisition assumptions,” says DBS’ Tan.

While the analyst is optimistic that MLT can still deliver acquisitions, he now believes these are likely to only happen towards the end of 2HFY2021 onwards.

“We moderate our forecast to $350 million worth of acquisitions in FY2021, funded by 40% debt and 60% equity,” Tan says. “This has not been priced in by consensus at this point.” — Stanislaus Jude Chan

Singapore Exchange

Price targets:

$9.70 NEUTRAL (RHB Research)

The market volatility resulting from the Covid-19 pandemic disruptions should continue to keep trading volumes at the Singapore Exchange (SGX) steady, according to RHB Securities.

This comes after the bourse operator’s securities average daily value (SADV) soared 58% to $1.61 billion in 3QFY2020, from $1.02 billion a year ago. The increase was largely due to an 85% surge in the Nikkei 225 Index futures, which has now given it a 15% share of the total equity derivatives volume. Overall, SGX’s equity derivatives volume leapt 24% y-o-y to 61.5 million contracts, of which the revenue now accounts for 36% of total revenue.

As such, RHB has now raised its FY2020 SDAV forecast by 9% to $1.35 billion from $1.24 billion previously. It also increased its FY2020 earnings forecast by 4% to $457 million.

“We believe market volatility will keep volumes firm,” RHB analyst Leng Seng Choon writes in a note dated April 24, who has raised his target price from $9.10 to $9.70 but kept his “neutral” call.

The brokerage believes that the SADV has appeared “peakish” after the surge in March.

Hence, it has forecast a lower SADV of $1.15 billion in FY2021 on reduced trading volume — assuming that the Covid-19 pandemic has faded.

The brokerage also notes that SGX’s valuation is not cheap after the stock has rallied 23% over the past six months. The downside risk, RHB warns, is if the Covid-19 pandemic is prolonged, SGX’s trading volumes could experience a gradual decline from the current high levels.

But if the Covid-19 pandemic is resolved soon, the bourse operator could see another round of short-term surge in trading volume, it says.

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