Wilmar International

Price target:

RHB Group Research “buy” $5.85

DBS Group Research “buy” $5.28

CGS-CIMB “add” $5.54

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An exceptional year, special dividend flagged

Analysts are staying positive on agribusiness giant Wilmar International following its 3QFY2020 earnings of US$536.6 million ($732.5 million), up 20% y-o-y, which makes this the highest third-quarter core results since its listing. Revenue in the period was up 19.3% y-o-y to US$13.3 billion, on the back of stronger demand, more profitable crushing businesses and better performance in plantation and sugar milling.

Furthermore, when Wilmar reports its fullyear earnings next February, it will give a special dividend equivalent estimated at between 6 and 6.5 cents from around 15% of proceeds of US$2.06 billion from the listing of its China subsidiary, Yihai Kerry Arawana (YKA), which is eyeing more downstream consumer products.

RHB’s Juliana Cai is keeping her “buy” call but with a higher target price of $5.85 from $5.60. “With the strong set of numbers and positive outlook for 4QFY2020, the group is on track to generate a 10-year record-high profit,” she says.

With all three core segments seen to do well, the outlook for the next six months is positive. “Management also allayed our concerns on crushing margins, as Wilmar is able to pass on higher costs to end-consumers. Barring any extreme weather conditions, the group expects crushing margins to remain satisfactory in the near term,” says Cai. Wilmar is also exploring the listing of its other businesses to unlock more value.

Similarly, DBS Group Research’s William Simadiputra is reiterating his “buy” call with a target price of $5.28, with higher earnings of 12% seen for both FY2021 and FY2022.

“Wilmar’s operating profit margin (OPM) has been expanding in the last three years and is expected to remain firm from its growing exposure to higher-margin branded kitchen food segment,” says Simadiputra in his Nov 2 note. “Wilmar is expected to post sublime FY2020 earnings performance mainly driven by YKA in China.”

“Meanwhile, the current strong palm oil price trend will provide another leg of earnings growth for its tropical oil division. Wilmar has proven it can benefit from both upcycle and downcycle edible oil market trends to expand its tropical oil segment earnings,” notes Simadiputra.

CGS-CIMB’s Ng Li Fang, meanwhile, has kept her “add” with an unchanged target price of $5.54, noting that Wilmar’s associates and joint ventures, particularly from India and Africa, also did well.

Overall, Wilmar expects its results for the rest of the year to be good.

The group expects to benefit from higher sales volumes in Asian countries where lockdown measures have eased, better sales volumes from China, thanks to a rebound in the economy, expectations that crude palm oil prices will stay firm going into 2021, satisfactory processing margin for tropical oils and oilseeds crush margin and lastly, better sugar operations due to strong white sugar premium and recovering sugar prices. — Samantha Chiew

Micro-Mechanics

Price target:

PhillipCapital “accumulate” $2.93

Record revenue and earnings
Micro-Mechanics Holdings posted record earnings and revenue for 1QFY2021, beating the expectations of PhillipCapital’s Paul Chew who has raised his FY2021 earnings estimate by 9% in a Nov 2 note. However, Chew has downgraded his call to “accumulate” with a higher target price of $2.93 from $2.50 previously as its share price has surged past his earlier price target.

For the three months ended Sept 30, Micro-Mechanics recorded revenue of $18.1 million, up 18% y-o-y, while earnings of $4.7 million was up 42% y-o-y, thanks to new projects in the US and resumption of production following earlier lockdowns.

“Following its lumpy capacity expansion in FY18, economies of scale have kicked in and revenue has increased to cover its additional fixed costs. New products also typically command higher margins,” says Chew.

Operating cash flow more than doubled at the company, with 1QFY2021 operating cash flow of $7.1 million more than double the $3.2 million achieved a year ago. Net cash was $25.5 million, up from $19 million a year ago.

Chew also notes a spike in capital expenditure by four times y-o-y to $2 million. “MMH continues to guide for $4 to $5 million for FY2021. Capex front-loading might have been due to a surge in demand from customers,” he says.

The cycle recovery remains nascent and growth this year should be further supported by new projects from its front-end semiconductor customer in the US, notes Chew.

“We believe the contribution could be almost 10% of revenue in FY2021 … MMH provides attractive financial metrics, namely ROE of 33%, a net cash position and a dividend yield of 4.9% remains attractive,” he says. — Jovi Ho

Japfa

Price target:

DBS Group Research “buy” $1.03

CGS-CIMB “add” $1

Analysts fill their bellies with Japfa

Analysts from CGS-CIMB and DBS Group Research have maintained their bullish calls on Japfa after better-than-expected 3QFY2020 earnings of US$53.1 million ($72.5 million), up 452% y-o-y.

DBS Group Research analysts Andy Sim and Alfie Yeo, who have increased their target price to $1.03 from 82 cents, say “the market is missing out” on the company’s long term prospects. They also describe the stock — trading at less than five times EV/Ebitda — as a “bargain”.

Sim and Yeo also said high pork prices in Vietnam will act as a further boon, as supply is seen to stay tight for the next few years.

While its Indonesia poultry operations are facing headwinds due to the outbreak of Covid-19, this would be mitigated by Japfa’s dairy and swine operations in China and Vietnam.

CGS-CIMB analyst Cezzane See also raised her target price from 96 cents to $1.00, citing “higher Vietnam swine and China raw milk prices”. Vietnam’s swine prices are at about VND70,000–VND73,000 per kg ($4.13– $4.30 per kg) in October, compared to about VND54,500 per kg in October 2019. China raw milk prices also are at about RMB3.9 per kg ($0.79 per kg) in October versus RMB3.78 per kg in October 2019 due to ongoing shortage of raw milk in China.

She also pointed out that CGS-CIMB’s channel checks also revealed better poultry prices in Indonesia for October, saying average day-old-chick (DOC) prices were at about IDR5,400 ($0.50) and broiler price at about IDR16,000 in October.

This is higher than the average 3QFY2020 DOC and broiler prices of IDR3,300 and IDR14,600 that were guided by JAP previously. “In our view, this could imply stable Ebit in 4QFY2020.” — Lim Hui Jie

Ascendas REIT

Price target:

PhillipCapital “buy” $3.63

Upgrade on MQX4 acquisition

PhillipCapital analyst Natalie Ong has upgraded Ascendas REIT to “buy” from “accumulate” with a lower target price of $3.61 from $3.63 previously.

The upgrade comes as Ong adjusts her forecasts to reflect the REIT’s acquisition of MQX4, while the lower target price is due to the REIT’s higher debt and perpetual securities.

“Recent pullback in share price presents better entry price and total returns of 31.5% to our target price,” writes Ong in her Nov 2 report.

Ascendas REIT, on Sept 18, announced its acquisition of MQX4, a suburban office under development in Macquarie Park, Sydney. MQX4 was bought at a “as if completed” market valuation of $161 million.

This is the REIT’s third acquisition this year following its purchase of a 25% stake in Galaxis and a logistics asset under development in Kiora Crescent, Yennora, Sydney in March and July respectively.

Portfolio occupancy for 3QFY2020 climbed 0.4 percentage points to 91.9%, while gearing improved from 36.1% to 34.9% due to its $300 million non-call green perpetuals issued at 3.0%, which counted as equity.

However, despite better occupancy in its Singapore portfolio — which saw a 0.9 percentage point increase to 88.8% for the quarter — Singapore’s portfolio rental reversions were a negative 2.8%.

“Larger space signed with negative reversions wiped out AREIT’s +11.5% reversions in the US. Aside from business parks’ positive 4.5%, reversions for the other asset classes were flat or negative … 9MFY2020 portfolio reversions came in at +4.2%. We think low-single-digit positive reversions for FY2020 are still achievable owing to stronger leasing locked in in 1HFY2020,” says Ong.

Looking ahead, Ong expects subdued leasing for the REIT as companies continue to hold on their business and expansion plans. “Singapore industrial rents were weak in 3Q2020 while sector occupancy only crept up due to warehouse leasing,” she adds.— Felicia Tan

Starhill Global REIT

Price target:

OCBC Investment Research “buy” 52 cents

A star to buy

With negatives priced in, and with current share price at a significant discount to book value, OCBC Investment Research analysts continue to like Starhill Global REIT (SGREIT) even as they trim their earlier 53 cents fair value to 52 cents.

For 1QFY2021 ended Sept 30, SGREIT recorded a net property income (NPI) of $29.8 million, down 19.2% y-o-y. During the quarter, revenue was down 10.3% y-o-y to $43.1 million, as $7.3 million worth of rental assistance was granted to tenants hit by Covid-19.

The latest numbers are “in line with expectations” say OCBC’s analysts, adding that SGREIT’s 1QFY2021 NPI constitutes 23.6% of their FY2021 forecast.

Interestingly, the quarter saw the REIT’s occupancy levels inching up 0.4 percentage points q-o-q to reach 96.4%.

SGREIT’s portfolio comprises 10 properties in Singapore, Malaysia, China, Japan and Australia. Its properties in Singapore include the prominent Wisma Atria and Ngee Ann City, located along the Orchard Road retail belt.

A cause for concern is that 25.8% and 37.2% of leases (by gross rent) are slated to expire at Wisma Atria’s retail and office component in the remaining three quarters of FY2021, OCBC’s analysts say.

“No rental reversion figures were provided, but this would likely be negative as management prioritises defending its occupancy,” they observe.

Still they flag that tenant sales and footfall traffic at the mall’s retail arm had plunged by 33.5% and 54.4% respectively year-on-year in 1QFY2021. This, according to the analysts, is a “marked improvement” from the declines of 80.0% (tenant sales) and 86.9% (footfall) seen during the circuit breaker in SGREIT’s 4QFY2021.

“Although some of SGREIT’s properties are under master leases, the severe and widespread impact of Covid-19 has resulted in management extending, or having the intention to extend some form of rental rebate to its master lessees to share the pain and build a stronger longer-term relationship,” the analysts note.

To this end, they have cut their FY2022 DPU forecast by 4.4% to factor in further rental rebates at The Starhill property — formerly known as Starhill Gallery — that have been imposed due to a two-month delay in the completion of the asset enhancement works there. — Amala Balakrishner

Jiutian Chemical

Price target:

UOB Kay Hian “buy” 16 cents

Upswing in ASPs unlocks value

As China continues its rapid recovery from Covid-19 lockdowns, strong demand for dimethylformamide (DMF) is likely to benefit Chinese chemical firm Jiutian Chemical.

With DMF’s ASP rising from RMB4,512/tonne ($919.26/tonne) in 2QFY2020 to RMB5,925/ tonne in 3QFY2020, UOB Kay Hian analyst Clement Ho sees strong earnings potential in the world’s second-largest DMF manufacturer. As of Nov 3, spot price for DMF is hovering at RMB 11,950/tonne.

“There has been exceptional demand for DMF, on the back of the strong industrial recovery in China following pandemic lockdowns. The fine chemical has a diversified range of applications, being a feedstock in the production of polyurethane, pharmaceutical and agrochemical products, as well as a universal industrial solvent that can be used as an absorbing agent,” writes Ho, who on Nov 3 initiated coverage on the stock with a “buy” call and 16 cents target price, pegged to 5 times earnings estimated for FY2021. Its closest peer China Sunsine Chemical Holdings has a historical five-year average P/E ratio of 5.7. Jiutian, meanwhile, is now trading at just three times forward earnings.

Ho sees earnings growth momentum for this stock, with growing demand for industrial products “Made in China” even as other manufacturing nations continue to struggle with Covid-19. Jiutian’s rival Zhejiang Jiangshan Chemical — the second-largest DMF producer in China — has also shut down its production facility in Jiangshan City, Zhejiang due to urban planning. With 180,000 tonnes of annual capacity removed from global supply, Jiutian could pick up the slack. — Ng Qi Siang