Starburst Holdings

Price target:

UOB Kay Hian “buy” 61 cents

Strong turnaround amid growing military spending

UOB Kay Hian has initiated coverage of Starburst Holdings on its strong turnaround with its niche as a specialised designer and builder of shooting ranges.

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In a Nov 5 note, UOB Kay Hian analysts Llelleythan Tan and John Cheong rate the company a “buy” with a target price of 61 cents.

They note that since late 2019, Starburst has won several large contracts and achieved a record orderbook of close to $60 million as of 3Q2020. This has helped it to turn around and make profit of $4 million in 9M2020.

“As such, we expect it to achieve a growth of $8 million profit for 2020 before doubling to $17 million in 2021. We see ample opportunities for more new project wins,” the analysts note, adding that an order book of $100 million is seen by end-2020.

The UOB Kay Hian analysts have also flagged that Starburst enjoys high barriers of entry, which result in comfortable margins. “In Singapore, the company has only two foreign competitors — Cubic Corp and Meggitt. Starburst is able to generate an impressive net margin of around 35% for new projects and 50% for maintenance projects,” say the analysts.

“It has also been building up its maintenance contracts as every greenfield project requires regular maintenance. Starburst has an advantage over the other maintenance contractors as they lack the capabilities to maintain facilities without compromising on safety,” they add. — Jovi Ho

Venture Corp

Price target:

DBS Group Research “buy” $24.30

Maybank Kim Eng “buy” $23.27

CGS-CIMB “buy” $24.84

PhillipCapital “neutral” $18.60

Stars are aligning for Venture to venture into its recovery

Venture Corp reported earnings of $80.2 million for its latest 3QFY2020 ended Sept 30, down 5.9% y-o-y.

However, analysts are positive on the company’s outlook as they see the leading contract manufacturer poised for a steady recovery, thanks to strong demand from its customers across various sectors.

In her Nov 9 report, DBS Group Research’s Ling Lee Keng kept her “buy” call, with a revised target price of $24.30 versus $20.70 earlier.

“With its diversified geographical footprint, Venture is poised to benefit from the shift in supply chain. Beyond FY2020, demand momentum is expected to remain strong,” she says.

Similarly, Maybank Kim Eng’s Gene Lih Lai kept his “buy” call but with a significantly raised target price of $23.27 from $18.46 previously.

“During the 3QFY2020 reporting season, a common theme was customers’ broad-based optimism towards new products and pipeline. We are excited by this as it signals positive end-market receptivity. This corroborates with Venture’s expectation for new products to be released from its R&D labs into manufacturing throughout 2021, including in fast-growing domains,” says Lai, referring to sectors such as life science & genomics, medical devices & equipment, healthcare & wellness, networking & communications and semiconductor equipment.

CGS-CIMB’s William Tng continues to rate Venture a “buy” with a higher target price of $24.84, from $20.14.

He expects Venture to benefit from higher demand for the I Quit Ordinary Smoking (IQOS) e-cigarette it makes on behalf of Philip Morris, which plans to introduce newer variants in the coming quarters and into more new markets.

By the end of September 2020, the number of IQOS users had reached 16.4 million, up 1.1 million q-o-q and up 4.1 million y-o-y.

On the other hand, PhillipCapital’s Paul Chew is more conservative on Venture. He has a “neutral” call on the stock with a target price of $18.60, as he sees orders in 3QFY2020 were softer than expected.

“Moving into 2021, we anticipate a recovery led by new products that Venture mentioned would be released by customers. These will likely be in the healthcare sector, including Covid-19-related detection, testing and diagnostic products. Another driver of growth could be an improvement in macro conditions,” he adds. — Samantha Chiew

Hyphens Pharma International

Price target:

KGI Securities “outperform” 48 cents

‘Skin is the game’ with proprietary products push

Pharmaceuticals seller Hyphens Pharma International is moving beyond distribution for other brands and is growing the sales of its own proprietary brands. Instead of developing them from scratch, the company has made acquisitions, such as the CG-210 hair loss treatment brand.

“Skin is the game — Asia-Pacific is the fastest growing region for the beauty market, and with new product releases in its two major brands Ceradan and Ocean Health, we expect the business to maintain double-digit growth, exemplified by the 23.7% y-o-y sales growth in 1H2020,” says KGI Securities Kenny Tan.

On Nov 6, he initiated coverage with an “outperform” call and a target price of 48 cents, which is pegged to 17 times FY2021 estimated earnings.

Hyphens is also seen as an “appealing partner” for pharmaceutical brands looking to expand their presence in Asia. This is as the company has “built up a fair strong distribution network in Asia, with a direct presence in four emerging Asean markets”, he explains.

Aside from its product offerings, Hyphen’s presence on major e-commerce platforms Shoppee and Lazada has helped it reach out to customers, particularly during the lockdowns imposed to curb the spread of Covid-19 infections.

“Online penetration of beauty and personal care product sales is the highest in the Asia Pacific region, and we expect this to also contribute to sales for the proprietary brands segment,” says Tan. — Amala Balakrishner

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StarHub

Price target:

PhillipCapital “neutral” $1.24

RHB “neutral” $1.30

CGS-CIMB “add” $1.60

Awaiting stronger recovery

Analysts are staying neutral on StarHub following its latest 3QFY2020 results where earnings dropped 23.3% y-o-y to $44.5 million.

Its enterprise business was the bright spot, amid weaker overall revenue that dropped 14.5% y-o-y to $489.7 million.

StarHub has cut its dividend but at 5% yield now, it is still seen as attractive, according to DBS Group Research’s Sachin Mittal, who is keeping his “hold” call but is raising his target price to $1.21 from $1.16.

He sees StarHub keeping a tight lid on 5G-related capex because of its joint arrangement with M1.

However, the savings may not translate into dividends if StarHub chooses to reinvest the savings in acquisitions. PhillipCapital’s Paul Chew has also kept his “neutral” stance on StarHub with a target price of $1.24.

He sees the mobile business as StarHub’s “Achilles heel”, which has suffered with hardly any roaming revenue, thereby driving post-paid average revenue per user (ARPU) down 25% y-o-y to a record low.

Prepaid numbers shrank by 108,000, or 33% y-o-y, in the absence of demand from tourists. “A significant resumption of international travel is key to its earnings recovery. There are little signs yet,” says Chew.

Similarly, RHB Group Research, noting that StarHub’s earnings were in line with consensus estimates, is reiterating its “neutral” call on StarHub with a target price of $1.30. RHB is betting that wider interest, followed by take-up of 5G-related products (such as the iPhone 12 5G) and services, will eventually help to lift mobile revenue.

On the other hand, CGS-CIMB’s Foong Choong Chen is more upbeat, with his “add” call and $1.60 target price. He has raised earnings estimate for FY2021 by 12% to factor in lower cybersecurity/content costs, higher device margin and Strateq’s consolidation; and raised FY2022 earnings estimate by 6.6% on better contributions from the enterprise business. — Samantha Chiew

NetLink NBN Trust

Price target:

PhillipCapital “accumulate” $1.03

OCBC Investment Research “buy” $1.10

Maybank Kim Eng “buy” $1.11

UOB Kay Hian “buy” $1.08

CGS-CIMB “add” $1.10

Resilient earnings and sustainable distributions

Following resilient earnings reported in 1HFY2021, five in six brokerages are recommending investors to accumulate units in NetLink NBN Trust (NLT), after it reported distribution per unit (DPU) of 2.53 cents for 1HFY2021, up 0.4%. Earnings in the same period were up 1.5% y-o-y to $44.8 million.

PhillipCapital, CGS-CIMB, OCBC Investment Research, Maybank Kim Eng and UOB Kay Hian are all maintaining their “buy” or “add” calls. DBS Group Research differs with its “hold” call and target price of $1.02.

“We are more conservative in our valuation,” said DBS analysts Sachin Mittal and Lim Rui Wen in their Nov 10 note. “We expect annual capex to hover between $55 million and $60 million in the long term and any potential acquisition or rise in capex could be a positive surprise. Any reduction in regulatory WACC (weighted average cost of capital) in the next review period could be a negative surprise.”

Mittal and Lim note that the 2QFY2021 results recorded a one-off tax surprise. “2QFY2021 revenue $94.1 million (–2% y-o-y/+4% q-o-q) and net profit at $21.3 million (–8% y-o-y/–9% q-o-q) were broadly in line except for the tax deduction of $3.1 million,” they say.

CGS-CIMB analyst Ong Khang Chuen notes that NLT continued to see growth in all three types of fibre connections, and he believes the current growth trajectory is sustainable. Its residential segment reached 1.44 million connections in 2QFY2021 (0.6% q-o-q, +1.9% y-o-y) as NLT reached more new homes and added connections to low-income households via initiatives such as IMDA’s Home Access programme.

Non-residential connections resumed growth to 476,000 (+1.3% q-o-q) after a dip in 1QFY2021, which saw the “circuit breaker” impacting new additions. The non-building address point (NBAP) segment saw the fastest connection growth to 1,847 (+4.2% q-o-q, +17.7% y-o-y) as NLT supplemented local telcos’ rollout of 5G infrastructure, he adds.

OCBC Investment Research analysts note the growing prominence and potential of the company. “With the increasing usage of fibre broadband services for day-to-day activities driven by growing demand for connectivity and rapid broad-based growth in data consumption, we believe NLT NBN has a resilient business model, and is hence able to weather through various economic cycles given the defensive nature of its income streams.”

“Furthermore, we expect NLT NBN to be a key participant of growth in other connected services within the non-residential and NBAP (non-building access point) space, especially with Singapore’s push to transform into a digital economy,” notes OCBC.

PhillipCapital’s Paul Chew anticipates NLT to generate free-cash-flow of $204 million. This is expected to support its attractive distribution, which he expects to be 5.08 cents for FY2021. — Jovi Ho

Far East Hospitality Trust

Price target:

Maybank Kim Eng “buy” 60 cents 

Lift from transient demand and support from master lease

Amid slow recovery forecasted for 2021, Far East Hospitality Trust (FEHT) continues to be bolstered by “transient demand” and a high proportion of minimum fixed rent from its master lease, says Maybank Kim Eng analyst Chua Su Tye, who is calling a “buy” with a 60 cents price target.

“FEHT’s Singapore-focused operations in 3Q2020 continued to be bolstered by transient demand originating from travel and border restrictions, with occupancies for its hotels and serviced residences (SRs) high at 87% to 97%,” he says.

FEHT’s hotel revenue, cushioned by fixed rent from its master lease rental, fell 33.8% y-o-y and 0.1% q-o-q, and contributed 69.1% of gross revenue in 3Q2020 and 65.9% for 9M2020. Occupancy improved y-o-y to 97.3% from 92.3%, supported by contracts from government agencies as dedicated facilities for isolation purposes, as well as accommodation for Malaysian workers affected by border closures, notes Chua.

Despite a pick-up in occupancy from 77.6% in 1H2020 to 84.2% in 9M2020, revenue per available room (RevPAR) fell 55.8% y-o-y to $67 in 3Q2020 on the back of a 58.1% y-o-y decline in average daily room rate (ADR).

Staycation demand at the Barracks (40 rooms) and Oasia Downtown (314 rooms) could gain traction from 4Q2020.

FEHT is the first and only Singapore-focused hotel and serviced residence hospitality trust listed on the Singapore Exchange, with 13 properties in its portfolio.

In September 2018, FEHT rebranded the Orchard Parade Hotel to Rendezvous Orchard Hotel following its refurbishment. In April 2019, the REIT opened two hotels in Sentosa: the 606-room mid-tier Village hotel and the 193-room upscale Outpost hotel.

Chua notes that various asset enhancement initiatives (AEIs) should help reposition FEHT’s assets towards Singapore’s longer-term tourism initiatives and its CBD rejuvenation plans.

They include a repainting of the Rendezvous Hotel by end-2020, an upgrading of the Orchard Rendezvous outdoor refreshment area, and the renovation of the Elizabeth Hotel together with its sponsor. — Jovi Ho