Alibaba
Price target:
UOB Kay Hian “buy” US$311

Improved user engagement
UOB Kay Hian analyst Julia Pan has maintained her “buy” call on e-commerce giant Alibaba with a maintained target price of US$311 ($423.89).

“Our target price implies 31 times FY2021 forward P/E, or 0.8 SD above its five-year historical mean, on the back of a 25% EPS CAGR in FY2021– 2024,” says Pan in a report dated Sept 30.

In 2020, China’s retail platforms — including Alibaba — saw sustained improved user engagement despite the Covid-19 outbreak.

China’s retail mobile monthly active users (MAU) grew 15.8% y-o-y to 874 million in 2Q2020. New users’ average revenue per user (ARPU) exceeded RMB3,000 ($602) in FY2020 with more than 70% of new users coming from tier 4-6 cities.

Physical goods’ gross merchandise value (GMV) for fast-moving consumer goods (FMCG), apparel, and consumer electronics under Alibaba offshoot Tmall grew 40%, 17%, and 27% y-o-y respectively.

The growth supersedes China’s retail growth of 6%, –8% and 6% in the same categories in 2Q2020.

In August, Taobao GMV grew 20% y-o-y, surpassing pre-Covid-19 levels. The platform saw over seven million merchants joining the platform as at 1HFY2020. The online store also saw improved recommendation feeds and impressions of Taobao Live and short-form videos on its app.

Moving forward, Alibaba says it will focus on upgrading its recommendation feeds for Taobao mobile app as well as to enrich its live ecosystem and interactive entertainment products to drive new-user growth.

Alibaba’s cloud business also saw heightened growth. Alicloud achieved 9.1% and 28.2% of global and Asia Pacific Infrastructure as a Service (IaaS) market share in 2019, and 42.4% market share in China’s IaaS and Platform as a service in March 2020 alone.

It had served more than 60% of A-share companies as at June with ARPU CAGR of 40% from 2018 to June.

Alicloud CEO Jeff Zhang says the company is looking to expand its presence in the Southeast Asian market due to its fast growth opportunity.

As at March, internet data centre revenue from Southeast Asia grew 200% y-o-y on the back of a 50% y-o-y growth in newly registered entities.

During the Covid-19 pandemic, the average number of daily buyers for Alibaba’s wholesale marketplace arms, 1688.com, and Alibaba.com, achieved 51% and 100% growth y-o-y. — Felicia Tan

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Hi-P International
Price target:
Maybank Kim Eng “buy” $1.23
CGS-CIMB “hold” $1.23

Better ESG factors and ‘M&A-driven growth’
Maybank Kim Eng analyst Lai Gene Lih has upgraded his call on electronics manufacturer Hi-P International to “buy” from “hold” due to its continued improvement in environmental, social and corporate governance (ESG) factors.

Lai has, however, maintained his target price of $1.23, due to the recent correction, which may have priced in negatives such as pricing pressure and demand uncertainty.

As Hi-P’s electronics manufacturing business exposes it to industry risks such as corruption, workplace safety, fair labour practices and environmental, its rolling out of new ISO standards to “improve its monitoring and execution of environmental and anti-corruption factors” is commendable.

“We believe the key risk to our ‘buy’ call is if we have overestimated the rate of earnings recovery in FY2021 amid a still uncertain outlook,” Lai adds.

On the other hand, CGS-CIMB analysts William Tng and Darren Ong have maintained their “hold” recommendation. “Based on our understanding, orders from most of Hi-P’s key customers are healthy. We believe Hi-P is seeing domestic market demand in China, with orders for smart wearables and Internet of Things (IoT) devices from a Chinese customer,” they write in a report dated Oct 2.

“The other trend we noted is that some customers are enjoying stronger demand for their products due to the shift to work-from-home arrangements. We believe Hi-P is also experiencing stronger orders from a communications customer, which has benefitted from America’s trade war with China,” they add.

Like Lai, Tng and Ong have also maintained their target price of $1.23. “We believe Hi-P remains committed to its M&A growth strategy, supported by a net cash balance of $197 million as at end June 2020 and 80.2 million treasury shares,” they note.

To recap, Hi-P acquired South East Asia Moulding Company, a high-volume/high-precision engineering plastic components manufacturer, in 2019. — Felicia Tan

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Keppel REIT
Price target:
DBS Group Research “buy” $1.40

Acquisition mode in motion to lift DPU
DBS Group Research analysts Rachel Tan and Derek Tan are positive given Keppel REIT is “kick-starting” its acquisition mode which is seen to drive its underlying DPU growth.

They have maintained their “buy” call on Keppel REIT with an increased target price of $1.40 from $1.35 previously to factor in the acquisition of Pinnacle Office Park in Sydney’s Macquarie Park on Sept 13, and some interest savings from a lower average cost of borrowing.

According to the analysts, this is probably the first asset acquisition made among the nonindustrial and logistics REITs since the Covid-19 pandemic started.

“The long-awaited redeployment of capital post a series of divestments in the past few years will drive underlying DPU growth with the accretive acquisition and embedded rental escalations. Based on pro-forma FY2019 numbers, underlying DPU accretion is estimated to be around 4%,” they write in a report dated Oct 2. They estimate underlying FY2021 DPU to grow by 13%.

Following the merger between CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT), Keppel REIT (KREIT) will become the only pure-office REIT, a valued trait that investors have “yet to appreciate”. “We believe KREIT’s best-in-class office portfolio, anchored by Singapore Grade A offices in prime CBD locations, is well-positioned to benefit from a potential recovery in a very tight net supply market. Valuation remains attractive at 0.8 times P/ NAV, below the sector’s historical mean,” they say.

The analysts also believe that the REIT’s low expiring rents will provide a buffer to weather a decline in rental income.

They also note that the REIT could do better under a more optimal shareholding structure.

Keppel REIT, which is currently trading at a lower velocity compared to its large-cap S-REIT peers, can match its peers if its sponsor, Keppel Land, considers paring down its stake to a more “optimal 30– 35% level”, similar to its peers, they say.

“We believe that the boost in liquidity and K-REIT’s position as a pure-play office play post-CCT-CMT merger, will drive a re-rating in share price towards its NAV over time, in line with an improvement in earnings,” they add. — Felicia Tan

keppel reit

Venture Corp
Price target:
UOB Kay Hian “buy” $23.76

Better growth prospects expected
UOB Kay Hian’s John Cheong is upgrading his call on Venture Corporation to “buy” with a higher target price of $23.76 from $17.64 previously, as its clients are seeing better growth prospects.

Analysts expect Venture’s clients to see a strong recovery in 2021 that will be comparable or even higher than in 2019. Clients in the test & measurement and life sciences/medical domains are seen to grow 7.9% and 18.8% growth respectively.

“We estimate these domains, including a contribution from ‘I quit ordinary smoking’ (IQOS) devices, to form more than 50% of the group’s revenue. Other domains that we think Venture could see more traction include semiconductor-related equipment and networking & communications,” says Cheong.

Meanwhile, uncertainties in the business environment this year have caused several new product releases to be delayed to early next year.

Although Venture may or may not be involved, its key clients that have announced notable product launches in 2020. These include Illumina’s Next Seq 1000 that was originally scheduled for shipping in 4Q2020 and Agilent’s NovoCyte Penteon Flow Cytometer announced in September.

On the other hand, Venture could also benefit from rising demand for Covid-19 testing and diagnostic equipment from Thermo Fisher, which is expected to add US$1.6 billion ($2.2 billion) in Covid-19 related revenue in 3QFY2020 ended September (1HFY2020 group revenue: US$13 billion) and potentially meaningful revenue in FY2021.

The analyst believes that the stock should be trading at the top-end of peers’ valuations, given that its clients have dominant market share in their respective industries with long-term favourable dynamics, for example Illumina in the NextGen Sequencing market).

In comparison with many other ODM/OEM players, Venture’s business model focuses on a high-mix, low-volume product profile and it has a diversified customer base. This gives Venture net margins of 9–10%, the highest among most peers, even during a difficult operating environment such as in 1HFY2020 (9.6%) when revenue fell 25% on the back of an adverse impact from Covid-19.

As at end 1HFY2020, Venture recorded net cash of $834.1 million, or 15% of its current market cap, and led the pack of US-listed peers that were mostly in net debt positions. Venture is also seen to maintain its dividends of 75 cents per share, says Cheong. — Samantha Chiew

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ComfortDelGro
Price target:
RHB “buy: $1.70

Phase Three will bring relief
The taxi business here will see gradual improvement once Phase Three of Singapore’s reopening begins, says RHB analyst Shekhar Jaiswal in an Oct 7 note. Jaiswal is maintaining his “buy” call on the transport operator, with a target price of $1.70.

“ComfortDelGro should benefit from gradual improvements in public transport ridership and increase in its taxi utilisation, as Singapore enters Phase Three reopening of the economy. Continued government support from extensions to the Jobs Support Scheme and Point-to-Point (P2P) Support Package to early-2021 should provide strong cost support for its Singapore operations. Given expectations of strong profit growth and an improvement in ROE for 2021, we believe current valuations remain attractive,” writes Jaiswal.

Based on the last published data for July, the average daily number of trips for one-shift taxis is now at approximately 75% of the historical average, while the same data for two-shift taxis is now at approximately 85% of the historical average. With the impending Phase Three, improvements will be seen. — Jovi Ho

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Singtel
Price target:
DBS Group Research “buy” $2.69

New group CEO named
Singtel on Oct 1 announced that its Group CEO, Chua Sock Koong, will be retiring after 13 years at the helm and 31 years with the company. On Jan 1, 2021, she will be passing the baton over to fellow CEO of Singapore consumer business and the chief digital officer, Yuen Kuan Moon.

“Yuen is a promising leader who has delivered far superior performance for Singtel’s Singapore Consumer business compared to the core business in Singapore and Australia,” writes DBS analyst Sachin Mittal in his Oct 2 report.

For example, Singapore Consumer business’s operating profit has been stable despite TPG’s threat, which compares favourably with the overall core business’s operating profit declining by 14% annually over FY18–20, notes Mittal, who is keeping his “buy” call and target price of $2.69.

Meanwhile, Singtel’s share price has been weak over the past couple of weeks, mainly due to profit-taking on Bharti’s stock. Bharti’s stock price was impacted after Jio launched aggressive post-paid price plans in India.

However, Bharti’s share price correction may be overdone as post-paid users (about 10-12% of total subscriber base in India) tend to be less price-sensitive and care more about network quality, an area where Bharti is better-placed than its peers. Bharti accounts for over one-third of the analyst’s Singtel valuation.

Along with Bharti, Mittal expects associates’ contribution to grow into FY2021 led by Bharti’s turnaround. “Singtel could divest assets worth 35 cents per share, possibly Optus towers in the near term followed by data centres and the digital business in two to three years,” he adds.

Currently, the market value of Singtel’s associates is worth $2.49 per share, more than Singtel’s current share price of $2.14, and implies that the market is assigning a negative value to its profitable core business in Singapore and Australia.

Mittal’s valuation, however, is slightly less bullish than the market. “Our fair value for the core business is 48 cents per share based on peer multiples. Associates are worth $2.49 per share based on their market values. After applying a 10% holding company discount, associates are worth $2.21 per share,” he says.

Nonetheless, if Singtel’s majority shareholder Temasek accepts scrip dividends, Singtel’s net debt-to-Ebitda might improve to 1.8–2.0 times in FY2022 from 2.4 times currently, easing any pressure on its credit rating. — Samantha Chiew

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