Price target:
UOB Kay Hian “buy” HK$150

Rapid progress made in rechargeable battery business
Chinese automobile and rechargeable battery manufacturer BYD is “progressing rapidly” with its new electric vehicle (EV) battery business, says UOB Kay Hian analyst Ken Lee in a Sept 29 note. Lee is maintaining his “buy” call on the company, with a raised target price to HK$150 ($26.48) from HK$95.

According to Lee, BYD will double the production capacity for its new blade battery from 13Gwh currently to 26Gwh in 2021 by adding eight new production lines at its plant in Chongqing. This is in place to meet in-house EV manufacturing and expected strong demand from external customers (Chinese and global OEMs).

“As such, we raise our 2021-2022 EPS estimates by 3% and 12% respectively,” says Lee.

BYD announced the launch of its new blade lithium iron-phosphate (LFP) battery — or blade battery — in March. Blade battery refers to a single-cell battery which can be placed in an array and inserted into a battery pack like a blade. According to BYD, only about 40% of the current battery packs’ volume contain batteries. The cells take up four-fifths of a module and modules make up 50% of the pack. With its blade batteries using cell-to-pack technology, the batteries take 60% of pack volume.

The blade battery pack also boasts 50% greater volumetric energy density. It also costs 20% to 30% cheaper than the conventional LFP battery pack, says Lee. The blade battery pack is also safer and more durable than the nickel magnesium cobalt (NCM) battery pack.

In April, BYD formed a joint venture with Toyota to conduct R&D for EVs. The EVs developed under this venture will be manufactured and sold by Toyota. BYD has also struck deals to supply batteries for major automotive corporations Ford and Daimler. — Jovi Ho



Food Empire
Price target:
UOB Kay Hian “buy” $0.85

Retail recovery seen in core markets of Russia and Ukraine
UOB Kay Hian analyst Joohijit Kaur is keeping her “buy” call with a target price of 85 cents on instant coffee maker Food Empire as its key markets of Russia and Ukraine see recovery of retail sales.

In its latest 2QFY2020 results ended June, Food Empire’s revenue from its Russian sales fell by 20% y-o-y, due to stay-at-home measures implemented at the end of March. However, both the Russian and Ukrainian markets have been easing restrictions since June.

With the reopening of retail businesses in most regions, retail food sales in the Russian market has rebounded with the pace of decline narrowing to –2.2% y-o-y in July. Meanwhile, the retail turnover in Ukraine also bounced back in July, registering a y-o-y growth of 7.8% for the first month since April. This mirrors the management’s projections in 2QFY2020 that sales will slowly revert to pre-Covid-19 levels. “We are encouraged by the sequential recovery in these markets and our forecast accounts for a moderate 5.1% y-o-y decline in core earnings in 2H2020 compared with -24% y-o-y (excluding forex gain) in 2QFY2020,” Kaur writes in her Sept 24 report.

Furthermore, the company is mitigating the impact of the volatile Russian Rouble by implementing an average selling price (ASP) hike in April. With the price hike being carried out in stages, the analyst reckons that this will only be more apparent in the group’s 3QFY2020 results, as compared to 2QFY2020.

“Given the consumer staple nature of its products, low price point and its market leading position, demand for its products is relatively price inelastic and is fairly resilient in the face of an economic slowdown, in our view,” adds Kaur.

The stock is trading at an attractive valuation of 8.6 times FY2021 P/E, a significant discount to peer average of 20 times FY2021 P/E. This is despite its market leader position in its core markets in Eastern Europe and growing presence in Vietnam. —Samantha Chiew


Far East Hospitality Trust
Price target:
UOB Kay Hian “buy” $0.72

Lift from government contracts and staycations
Slowly but steadily, UOB Kay Hian is expecting a recovery for Far East Hospitality Trust (FEHT). Despite the hospitality sector being the hardest hit by the Covid-19 pandemic, the research house is maintaining its “buy” call on FEHT with an increased target price of 72 cents, from 58 cents previously.

“We expect contributions from government contracts to remain stable in 3QFY2020, followed by a mild pick-up boosted by Singaporeans going for staycations in 4QFY2020. We expect recovery to take place in mid-2021 and normalcy to return in 2HFY2021,” writes lead analyst Jonathan Koh in his Sept 25 report.

While demand to house returning Singaporeans and foreign visitors serving Stay-home Notices (SHN) has tapered off, the government has channelled the rooms to other usages, such as foreign worker decampment and quarantine for those with mild symptoms.

With government contracts accounting for more than 50% of available rooms in hotels — 20% to 30% of which are being used to house stranded Malaysian workers — FEHT can expect an occupancy of above 90% in 3QFY2020.

Meanwhile, FEHT’s Serviced Residences (SR) cater to guests on extended stay and long-term projects. Occupancy for its SR remained high at 81.8% in 2QFY2020 due to longer leases from corporate accounts. This is because many corporate customers have extended their leases due to delays to their projects.

With these customers being able to utilise the bilateral Green Lane arrangements to travel to Singapore, Koh expects SR occupancy to remain stable.

Ultimately, the recovery of the hospitality industry hinges on the development of an effective Covid-19 vaccine. Koh expects a vaccine to be authorised for emergency usage in November or December, and approved for usage by the general public in 1QFY2021.

Currently, FEHT is trading at a price-to-book ratio of 6.5 times, one of the lowest in UOBKH’s universe of S-REITs.

“Trading at a steep 35% discount against NAV/ share of 85.5 cents, we believe the deep discount is unwarranted, given good corporate governance and creditworthiness of its sponsor Far East Organization (FEO),” adds Koh.

The stock also provides an attractive FY2021 distribution yield of 5.6%. Its yield spread is 4.7% above 10-year government bond yield of 0.9%, which is 1 standard deviation (SD) above its long-term mean. — Samantha Chiew


China Aviation Oil
Price target:
RHB Research “buy” $1.05

Upgrade as air traffic continues to improve
RHB Research has upgraded China Aviation Oil (CAO) to “buy” from “neutral” with a target price of $1.05, up from 95 cents previously.

Analyst Shekar Jasiwal says this is amidst continuing improvement in China’s aviation traffic as well as expectations of y-o-y growth in domestic passenger volume and aircraft movements at the upcoming Golden Week holidays.

Jasiwal said strong control on the Covid-19 cases in the country, rapid expansion of domestic capacity by Chinese airlines and aggressive price promotions have boosted demand for domestic aviation in China.

In addition, Chinese travellers either unwilling or unable to travel internationally at the current time are using this opportunity to travel domestically, sparking a “sharp m-o-m revival” since the low numbers seen in February this year.

He also says China’s monthly aviation traffic has improved to 46.1 million in August from a low of 8.3 million passengers in February this year. He also expects the volume of domestic flights in China during this year’s annual Golden Week holiday from Oct 1 and Oct 8 will likely push well past last year’s record.

“While international aviation traffic has yet to improve, higher domestic aircraft movement at Shanghai Pudong International Airport (SPA) should support earnings recovery for CAO in 2H2020,” Jasiwal notes.

He elaborated that SPA has also seen a material improvement in flight traffic. As such, the Shanghai Pudong International Airport Aviation Fuel Supply (SPIA), the exclusive aircraft refuelling service provider at SPA, should see a rebound in its profit contribution to CAO in 2H2020 and a gradual recovery in international traffic will support profit growth in 2021.

CAO owns 33% of SPIA. It also accounts for 65% of the latter’s profit before tax. — Lim Hui Jie


UG Healthcare
Price target:
CGS-CIMB “buy” $4.80

Glove maker’s earnings might surge 50 times
CGS-CIMB analyst Ong Khang Chuen says he “remains positive” on UG Healthcare (UGHC) as he believes the global shortage of gloves will persist till at least end 2021, given the “gravity” of the Covid-19 outbreak.

On the back of continued demand for gloves due to the acceleration of the pandemic globally and the possibility of a second wave of infections in Europe, inventory levels across the supply chain — notably for distributors and end-users — remain low due to extended order lead times for glove manufacturers.

He expects glove demand to remain high in the medium term even with the eventual discovery of a vaccine. In a Sept 25 report, Ong estimates a jump of 50 times y-o-y in the company’s 1QFY2021 net profit to $15.7 million. Accordingly, he also expects “even stronger earnings” in subsequent quarters ahead, and forecasts UGHC to record net profit of $70.5 million (a 400% growth y-o-y) in FY2021.

“We estimate ASPs could rise by 10% to 15% monthly between September to November 2020, versus 10% to 12% monthly from May to August. We understand the recent hike in nitrile glove (around 40% of FY2020 revenue contribution) prices was catalysed by raw material shortages,” he says.

“Meanwhile, latex glove (around 50% revenue contribution) prices are also on the rise as more end-users from developed countries are increasingly open to switching from nitrile to latex gloves given the long order lead time for nitrile. We forecast UGHC to record ASP growth of 69% y-o-y in FY2021,” he adds.

Ong has maintained his “add” or “buy” call on the counter with an unchanged target price of $4.80. “UGHC remains our preferred pick among Singapore-listed rubber glove companies, due to its undemanding valuation (a 52% discount to the Malaysia-listed glove sector average 2021 P/E of 16.7 times) and OBM business model, which allows it to garner stronger ASP upside potential versus its peers,” he adds.— Lim Hui Jie


Keppel Corp
Price target:
DBS Group Research “buy” $5.50 OCBC “buy” $6.40
CGS-CIMB “add” $6.46

Clearer roadmap for Vision 2030
DBS Group Research analyst Ho Pei Hwa has upgraded her call on Keppel Corp to “buy” from “hold” with an unchanged target price of $5.50.

“[The] recent price correction of about 20% [following Temasek’s partial offer] has dragged its valuation to near trough of 0.73 times P/B or 2 standard deviation (SD) below its five-year mean (1.1 times P/B),” Ho writes in her Sept 30 report.

On Sept 29, Keppel Corp set out a clearer strategic plan ahead. “Clearer Vision 2030 roadmap and reaffirmation of capital recycling to unlock $3 billion to $5 billion from identified assets over the next three years should restore confidence. Strategic review of O&M shines some light at the end of the tunnel. Yard restructuring is much needed in this prolonged downturn”, Ho adds.

She is also positive on Keppel’s Tianjin Eco-City in China, its huge land bank of some five million sq m that is held at low cost. Half is under development, progressively unlocking its revalued net asset value (RNAV) over the next three to five years.

However, she also foresees downside risks such as lower-than-expected en bloc sales and a smaller number of O&M orders.

The research team at OCBC Investment Research and CGS-CIMB Research analyst Lim Siew Khee have also maintained their “buy” or “add” ratings on the stock, with target prices kept at $6.40 and $6.46 respectively.

The briefing, says the OCBC research team, has partially answered questions on the future of Keppel Corp. “We have always held the view that there is value in Keppel Corp’s stock waiting to be unlocked but the question is how and when”, says the OCBC research team. “Actual successful monetisations of undervalued assets would provide further support to the share price”, it adds.

CGS-CIMB’s Lim says Keppel is targeting the “low hanging fruit” in its monetisation plan, and that its hard target of $3 billion to $5 billion makes the difference this time, compared to its previous asset recycling strategy.

Other “low hanging fruit” could include “paring down its stakes in REITS to 15% to 20%, the optimal level of interest, in its view. This could mean lower stakes in K-REIT (currently 44.31%) and KDC REIT (currently 21.29%)”.

Lim does not rule out a merger of Keppel O&M with Sembcorp Marine (SMM), believing that had the Temasek deal proceeded, the decision to streamline its O&M business would have been “on the cards”.

Lim’s current valuation implies an undervaluation for the group’s O&M business.

“With the clear communication of what is in store ahead, we expect Keppel Corp to trade up to its long-term mean of 8 times 12 months forward P/E or 1.9 times P/B”, Lim adds. — Felicia Tan