Xiaomi Corp

Price target:

OCBC Investment Research “buy” HK$19.29

Benefitting from the US restrictions on Huawei

OCBC Investment Research believes that Xiaomi Corp is “well-positioned” to gain a larger share in the domestic market at Huawei Technologies’ expense. As such, it has maintained its “buy” call on Xiaomi with a higher fair value estimate of HK$19.29 ($3.41), from HK$15.31 previously.

On Aug 17, the US Department of Commerce announced further restrictions on the latter and its non-US affiliates on the entity list to items produced domestically and abroad from US technology and software.

“In our view, this latest development prevents Huawei from relying on third-party chip designers for its handsets, and could significantly curtail Huawei smartphone production internationally,” says an OCBC team report on Aug 19.

Following the restrictions, the team believes it opens the door for Chinese original equipment manufacturers (OEMs) like Xiaomi to gain market share.

“[We] believe there is reasonable precedence for this. In our view, Xiaomi has been a notable beneficiary of Huawei’s loss of access to Google Mobile Services last year. Looking at Europe, Xiaomi saw its smartphone shipment market share rising from 6% in 1QFY2019 to 17% in 2QFY2020, while Huawei’s share dropped from 26% to 15% in that same time frame, according to data from Strategy Analytics,” it says.

“Thus, this gives us optimism that Xiaomi will be able to likewise increase share in China, as it currently only commands 9.3% of smartphone shipments in China in 2Q20, vs. 40.2% by Huawei,” it adds.

“We expect Xiaomi to be able to enjoy a meaningful share increase from 2021 onwards, after Huawei depletes its strategic inventory,” says the OCBC team, which is pegging its revised target price on Xiaomi from 26 times PE, from 21 times. — Felicia Tan


JEP Holdings

Price target:

PhillipCapital “reduce” 15.8 cents

Aerospace industry hit by Covid-19

The aviation industry is one of the worst hit sectors amid the Covid-19 outbreak. International air travel has collapsed and countries worldwide are keeping their borders closed to contain the pandemic.

This has caused an overcapacity in aircraft production — a reverse from the insufficiency during pre-Covid times — as orders have been mothballed.

Provider of precision machining and engineering services for the aerospace industry, JEP Holdings, is expected to go through a rough 18 months as aviation equipment orders have frozen, according to Phillip- Capital’s Paul Chew, who has downgraded the stock to “reduce” from “buy” with a lowered target price of 15.8 cents from 26 cents previously.

“With the lack of visibility, we are benchmarking our target price to book value. We still expect to be profitable but depressed in the medium term. Any valuation based on earnings would understate the earnings potential of the aircraft machining operations,” says Chew.

“Aerospace was around 60% of JEP revenues. We are not expecting any recovery in aerospace orders until the end of 2022,” he adds. 

In its latest 1H2020 results, JEP booked earnings of $4.6 million, 38.1% higher than $3.3 million despite revenue dropping by 5.2% y-o-y to $42.4 million.

The increase in earnings was mainly due to a surge in other operating income to $2.6 million from just $0.6 million a year ago, as a result of government grants. Without the government grants, PATMI would have declined to 22% y-o-y to an estimated $2.6 million.

With the aerospace industry grounded, Chew expects the company to pivot its focus towards semi- conductor projects with the support from UMS and cost restructuring exercises in the medium term.

Some of the initiatives Chew believes JEP will undergo during this period of consolidation include having UMS tap on JEP to utilise their excess capacity for semiconductor orders. It could further realign cost and production into the Malaysian factories while pursuing more semiconductor equipment and printing projects, in particular customers looking to shift out of China. Both JEP and UMS share the same executive chairman and CEO, Andy Luong. UMS also currently owns a 40.1% stake in JEP. — Samantha Chiew

Dasin Retail Trust

Price target:

PhillipCapital “accumulate” 91 cents

Maintains ‘accumulate’ following higher-than-expected 1H20 DPU and NPI 

PhillipCapital’s research team has maintained its “accumulate” call on Dasin Retail Trust with an unchanged target price of 91 cents following the Trust’s results that beat expectations.

On Aug 13, Dasin Retail Trust declared 1H2020 distribution per unit (DPU) of 1.92 cents, 43.4% lower than the 3.39 cents posted in 1H2019. The lower DPU was attributable to lower earnings and an enlarged share base from the Trust’s preferential offering and fewer units with distribution waiver.

Revenue for the period grew 5.2% y-o-y to $37.1 million mainly driven by contribution from Doumen Metro Mall, which was acquired in September 2019. Net property income (NPI) rose 6.4% y-o-y to $30.3 million.

The higher NPI was mainly due to the higher NPI margins of and post-asset enhancement initiative (AEI) rental income of Xiaolan Metro Mall.

Looking ahead, the team believes there is “income visibility” in the Trust’s lease structure. As at end June, its assets have maintained a high occupancy rate of 97% and weighted average lease expiry (WALE) by gross rental income (GRI) of four years.

Following the acquisition of Shunde and Tanbei Metro Mall on July 8, which will contribute around 12% to overall revenue, Dasin is said to relook at acquisition plans in FY2021. — Felicia Tan

Uni-Asia Group
Price target:
KGI Securities “neutral” 54 cents

Dividend cut likely from multiple headwinds

KGI Securities analyst Joel Ng has maintained his “neutral” rating on Uni-Asia Group, with a lowered target price of 54 cents from 62 cents previously, as he expects weaker earnings for the next six to 12 months.

In a report dated Aug 25, Ng noted the 25% drop in y-o-y income in 1H2020 to US$21.6 million ($29.56 million), led mainly by the 25% y-o-y decline in charter income for its shipping business and 61% drop in investment returns. Charter income fell as average charter rates plunged to around US$7,000 per day in 1H2020 from over US$9,000 per day in 2012-2019.

As a result, its shipping business reported a net loss of US$11.2 million in 1H20, which also included US$8.3 million impairment of vessels, and US$1.1 million impairment of a loan receivable. Excluding the total impairment of US$9.0 million, UAG would have reported an operating profit of US$1.7 million in 1H2020. Ng estimates a net loss of US$1.0 million when a US$9 million impairment and a US$6.1 million gain from the sale of its hotel business held via UA Hotels from 100% to 49.5% were factored in.

With the sale, UAG will no longer consolidate the financials of UA Hotels into its financial statements, but will only recognise contributions under associate income. The hotel business reported a net loss of US$18.3 million in 1H2020.

Ng said this is “perhaps a prudent move to avoid further risks from the hotel management business, given how depressed occupancy and average daily rates are for all its hotels.”

However, he added “the partial divestment of UA Hotels has now thrown a wrench into our original investment thesis of UAG’s growth prospects”, as the hotel management business was the biggest contributor to recurring income, and expected to be the key earnings driver in the medium to long term. Moving forward, charter income from shipping will contribute at least 60% of total income.

As such, Ng also expects UAG to cut dividends for FY2020, FY2021 and FY2022 to 1.0, 1.5 and 1.8 cents respectively, down from the previous estimate of 4 cents, as he believes it will be prudent for management to conserve cash amid the risk of a prolonged downtown in the global economy.

The bright spot is UAG’s asset management and property business in Japan, which is still enjoying stable rental rates. — Lim Hui Jie

Venture Corp

Price target:

RHB Group Research “neutral” $20.20

Venture likely to see recovery this year
RHB Group Research hosted a non-deal road- show (NDR) for Venture Corporation recently and is remaining “neutral” on the stock with a target price of $20.20.

Some of the key takeaways from the NDR include: Venture will likely see a steady recovery in 2H2020 and is fulfilling the backlog of orders now. Its earnings visibility is clear for 2H2020, as Venture’s research and development segment aims to release new products for manufacturing companies from early 2021.

However, production is unlikely to revert to pre-Covid-19 levels, due to social distancing measures. Hence, Venture now aims to meet demand, balance orders between customers, and deliver products and services to them efficiently.

Its top 10 customers now account for 45%- 55% of revenue, compared to 50%-60% in previous years. Customers are also becoming increasingly diversified.

Despite lower revenues, the group is still trying to maintain its margins.

“Venture continues to work with its customers, implementing further cost controls and improving production efficiency. ASP pressure will align to end-market demand, in the meantime. Non-essential market segments may see some pressure, given the slower rate of recovery,” says lead analyst Jarick Seet in an Aug 26 report.

Meanwhile, as the economy reopens, Venture is seeking increased orders from some of its customers, mainly from the life sciences, medical devices and equipment, networking and communications as well as semiconductor-related equipment domains. Venture has also gained meaningful traction with its new customers, including its existing semiconductor partner in 2QFY2020.

For its shareholders, Venture likes to give out long-term stable and sustainable payments. It declared a higher interim DPS of 25 cents in 1H2020 from 20 cents a year ago.

“Assuming the final dividend remains unchanged, the FY2020 DPS will likely be raised to 75 cents from 70 cents — which indicates approximately 4% FY2020 dividend yield,” says Seet.
“We believe this ratio is highly sustainable, and shareholders would likely continue to enjoy higher dividends if the company’s performance continues to improve,” he adds. — Samantha Chiew


Singapore Press Holdings
Price target:
UOB Kay Hian “hold” $1.22

‘Hold’ for undemanding valuation and better outlook on property assets

UOB Kay Hian analysts Lucas Teng and John Cheong are maintaining their “hold” calls on Singapore Press Holdings (SPH) with a lower target price of $1.22, from $1.41 previously.
The rating comes after the media publisher announced that it would be retrenching 140 employees from its media sales and magazine operations. The incurred retrenchment costs of some $8 million will be recognised in 4Q2020.

While advertising revenue for SPH took a severe hit during the economic downturn, digital circulation remained the only bright spot with a 53% growth y-o-y. On the property front, sales for Woodleigh Residences have been “encouraging” during the “circuit breaker”, with 43% of the total units sold as at Aug 16, with an average agreement for sale and purchase (ASP) of $1,892 psf.

The group’s purpose-built student accommodation (PBSA) has also achieved 83% of its target revenue for the coming academic year as of Aug 14, with local students accounting largely for the remaining bookings.

Potential catalysts include pick-ups in the footfall for SPH’s retail malls, bookings from international students for its PBSA, and a slower-than-expected decline in the media business.

“We input a higher conglomerate discount of 25% (previously 10%), given the severe adverse impact of the pandemic across all business segments for the group,” say Teng and Cheong.

“Current valuation appears undemanding at 0.5x book value although Covid-19 is expected to affect the valuation of SPH’s investment properties. We opine that a better outlook for its property assets could help re-rate the stock. Entry price is $1.00,” they add. — Felicia Tan