Haidilao International

Price target:

UOB Kay Hian “buy” HK$52.10

New store openings to drive higher earnings
Haidilao International may have reported a net loss of RMB965 million ($191.5 million) in 1H20 due to the Covid-19 pandemic, but UOB Kay Hian is positive on the China hotpot chain’s results for FY20 on the back of its 173 new store openings in 1H20.

While keeping the “buy” call, the brokerage has given the stock an increased target price of HK$52.10 ($9.14) from HK$38.90 previously.

As at end-June, the total number of restaurants stood at 935, from 768 and 593 outlets as at end-2019 and end-June 2019, respectively.

Haidilao on Aug 25 reported a 16.5% y-o-y decline in its revenue to RMB9.76 billion for the 1H20 ended June. Gross profit fell 20.3% y-o-y to RMB5.41 billion, while gross profit margin fell 2.6 percentage points y-o-y to 55.5%. Its overall operating expenses increased 15% y-o-y as the company has not suspended its new store openings, and its expenditures are mostly rigid. Delivery business revenue, however, surged 123.7% y-o-y to RMB409.6 million.

While Haidilao has not given specific guidance on its new store openings for 2020, UOB Kay Hian expects “strong traction”, especially in the Tier 3 cities.

Since the easing of lockdown measures, Haidilao says that its overall table turnover rate has recovered to 4.1 in August compared to 5.1 in August 2019.

While the brokerage has cut its 2020 earnings forecast by 19.8% to reflect the lower gross profit margin, it has raised its forecast for 2021 and 2022 by 3.1% and 3.4% respectively to factor in the new store openings. — Felicia Tan


ClearBridge Health

Price target:

PhillipCapital “buy” 26 cents

Clear skies as recovery expected in 2H20
PhillipCapital has maintained its “buy” rating and target price of 26 cents on ClearBridge Health (CBH) on the expectation of a stronger 2H20.

The Phillip Research Team said 1H20 revenue and Ebitda were within expectations, with revenue coming in at $21.4 million and Ebitda at a positive $3.6 million. Operating cash flow also saw a reversal from negative $3.6 million in 1H19 to $4.5 million in 1H20.

CBH continues to expand and leverage its network of medical centres throughout Asean. The stronger operating cash-flow and balance sheet will allow CBH to further grow via acquisition and expand their Indonesian operations faster where the capital expenditure and working capital requirements are much higher.

The team noted growth in 1H20 was driven by the acquisition of nine Singapore dental clinics in August 2019, as well as the distribution of Biolidics Covid-19 Antibody Test Kits.

They add that the ability of CBH to widely and rapidly distribute the new test kit across their medical network in Southeast Asia was a positive surprise and represents a new growth opportunity for future products.

As such, the team expects a stronger recovery in 2H20 for CBH. Almost all business segments suffered lower patient load in 1H20 due to lockdowns. Only renal care operations in Indonesia fared better as the daily dialysis treatment is essential for patients. — Lim Hui Jie

Yangzijiang Shipbuilding (Holdings)
Price target:
DBS Group Research “buy” $1.40

Sentiment positive as its order wins pick up steam
DBS Group Research is keeping its “buy” call on Yangzijiang Shipbuilding (YZJ) with a target price of $1.40 on growing momentum in order wins.

On Aug 31, YZJ announced that it won new contracts for containerships worth some US$252 million ($342.2 million).

Under this contract, YZJ will be building and delivering 12 1,800 TEU containerships for SITC International Holdings Co (SITC). Out of the orders for the 12 vessels, six are firm orders worth US$126 million. These are accompanied by six option orders for identical vessels, to be exercised in three stages, two options each.

Adding to the new order update, YZJ has also secured orders for two 82,000 DWT dry bulkers. This brings the group’s new orders to 23 vessels year-to-date. The orders for the vessels are worth approximately US$700 million (not considering the value of the option orders). This makes up about 47% of its target of US$1.5 billion for 2020.

“This is certainly commendable, given the pandemic and low industry contracting level, demonstrating Yangzijiang’s market leadership and capability,” says analyst Ho Pei Hwa in a Sept 1 report.

Ho is hopeful that YZJ will be able to meet its order target, as enquiries and negotiations with customers have picked up, which could lead to firm orders in the near future.

Meanwhile, YZJ’s successful strategy to expand into the LNG carrier and tanker markets, and overall shipping recovery should lead to margin improvements.

Ho believes that the market has over-penalised YZJ for its debt investments, not realising most investments are backed by collateral of 1.5–2.5 times.

As it stands, she sees the stock as a bargain: it is trading below cash of $1.13 per share and “an unjustifiably low” price-to-book value of 0.6 times despite superior financials of 8% return on equity and more than 4 cents distribution per unit, which represents some 4% in dividend yield. This represents a good opportunity for long-term investors. — Samantha Chiew


Marco Polo Marine
Price target:
UOB Kay Hian “buy” 2 cents

Lean operations and revitalised balance sheet
The worst seems to be over for integrated marine logistics company Marco Polo Marine (MPM), given the more “rational environment” in the offshore support sector, says UOB Kay Hian analyst Clement Ho in an initiation report.

The counter had been badly hit by the 2014 oil crisis and has been showing signs of improvement, particularly after a corporate restructuring exercise on Nov 17, 2019. This saw a cash injection of $60 million which has since seen a return to full-scale operations and a positive Ebitda.

“We like its lean operations and revitalised debt structure, providing promptness and flexibility to navigate the current tough environment,” writes Ho.

MPM has diversified beyond the oil and gas industry to the offshore infrastructure and renewable energy sectors. This includes submarine cable installations and services to offshore windfarms in Taiwan, which has translated to a marked improvement in the company’s sales quality in FY2019 ended Dec 31, notes Ho.

Looking ahead, MPM has one remaining offshore support vessel under warm lay-up that is immediately available should it clinch a new charter contract.

Quoting data on charter rates, Ho notes that prices have rationalised since the 2014 oil crisis, thanks to minimal newbuilds and more vessels on lay-ups.

Rates have also rationalised following rising vessel utilisation demand in Southeast Asia’s infrastructure and renewable energy sectors, adds Ho.

With things looking up for MPM, Ho says the “only drag to the group’s turnaround is its loss-making 34.8%-owned Indonesian ship chartering associate”.

Still, he is posting a “buy” call on the counter at a target price of 2 cents. The call price is pegged to a 31% discount to “a severely-impaired book value of 2.9 cents a share”, Ho elaborates.
With the counter trading at 0.56x net asset value/share at 1.6 cents on Aug 27, Ho’s call price gives it a 25% upside. — Amala Balakrishner


Overseas Education
Price target:
CGS-CIMB “hold” 26 cents

Lower enrolment numbers seen

The threat of lower enrolment numbers resulting from the soft labour market and restrictions is expected to hit the bottom line of Overseas Education, according to CGS-CIMB analysts Ngoh Yi Sin and Caleb Pang Huan Zhong in their Sept 1 note. As such, they have lowered their FY20-22 earnings per share forecasts by 2.3–20.9% to reflect the impact. They now rate the stock “hold” from an “add” call previously, with a new price target of 26 cents from 42.3 cents previously.

According to CGS-CIMB, Overseas Education’s student enrolment is forecast to decline to 2,400 in the annual year 2020/2021 and 2,300 in annual year 2021/2022. This comes as retrenchment figures have risen and foreign hiring tightened. Singapore’s unemployment rate spiked to 2.9% in 2Q20 with retrenchments doubling q-o-q to 6,700.

The Ministry of Manpower recently raised the salary threshold requirements for the Employment Pass and S-Pass, which are necessary for foreigners to work here.

“The soft labour market, coupled with recent tightening of foreign work pass policies and border restrictions, is likely to make it tougher for new expats to enter Singapore, and convert earlier enquiries into enrolment at Overseas Education,” the analysts note. — Jeffrey Tan


Penguin International
Price target:
CGS-CIMB “add” 55 cents

Likely beneficiary of higher crude oil prices
CGS-CIMB is keeping its “add” call on Penguin International with a target price of 55 cents, as the company is expected to survive this crisis to see revenues pick up with crude oil prices, despite its latest 1H20 earnings being cut in half.

In an Aug 27 report, analyst Cezzane See says: “While we expect FY20 net profit to weaken due to lower stock sales and delays in deliveries, Pengiun’s 1H20 net cash position is a positive (net cash/share of 23 cents), while forward price- to-book valuations are undemanding at 0.48 times.”

For 1H20, Penguin reported a 26.2% y-o-y drop in revenue to $50.1 million on the back of fewer build-to-stock (BTS) vessels sold, leading to lower ship- building revenue and low er chartering revenue, while gross profit margin (GPM) was lower at 25.2%.

Overall, Penguin’s key markets are slightly soft, but are stabilising.

In early August this year, the company guided for no cancellations of any of its BTO contracts but some vessel delivery delays by mutual agreement. It also guided that the offshore oil and gas (crewboats) and maritime protection (security vessels) markets have weakened but stabilised recently; the offshore wind market (windfarm boats) remains fairly resilient for now, while the tourism market (passenger ferries) are the most affected.

“We cut FY20–22 earnings per share (EPS) by 18.8-20.7% as we lower GPM, especially in FY20. While we forecast a 43% y-o-y drop in FY20 EPS, we pencil in 31% y-o-y growth in FY21 EPS as we believe vessel demand will improve as crude oil prices and industry sentiment pick up,” says See.

Historically, Penguin sailed past the 2014–2016 oil crisis with only one year of net loss (in FY16). Back then, it had lower chartering and BTO contracts and a lower net cash pile. Profits recovered as crude oil prices increased in 2016–2019, unlike some of its other Singapore mid-sized offshore peers, which till today are still struggling with low profits or losses.

“FY20 will be a soft year; but given its healthy balance sheet and diversified portfolio, we think that Penguin will be one of the main survivors of this round of economic/crude oil slowdown,” says See. — Samantha Chiew


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