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960 Brokers' Digest

The Edge Singapore
The Edge Singapore • 11 min read
960 Brokers' Digest
Take a look at these six stocks this week, including Silverlake, Genting Singapore and Hyphens Pharma.
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Genting Singapore

Price target:

DBS Group Research “buy” $1

CGS-CIMB “add” 86 cents

OCBC Investment Research “buy” 96 cents

RHB “neutral” 72 cents

Maybank Kim Eng “hold” 78 cents

Upgrades following unexpected 3Q outperformance

Following Genting Singapore’s strong q-o-q recovery in 3QFY2020, analysts from CGSCIMB, DBS Group Research and OCBC Investment Research are advising investors to accumulate Genting Singapore shares, while Maybank Kim Eng and RHB’s analysts are neutral on the casino operator.

On Nov 14, Genting Singapore reported earnings of $54.5 million in 3QFY2020, reversing from losses of $163.3 million reported in the previous quarter.

DBS analyst Jason Sum has upgraded his call to “buy” with a target price of $1 from 70 cents, as he sees “normality” not too far away. He also expects a core Ebitda of $75 million to $100 million on a quarterly basis, even in the absence of tourists.

“Furthermore, recent successful breakthroughs on the Covid-19 vaccine front underpins our optimism on a swift turnaround in travel activity in 2HFY2021, and we now expect FY2021 Ebitda to be at around 74% of 2019’s level,” he adds.

While he acknowledges that his FY2021 and FY2022 Ebitda evaluations — at 14.4% and 7.3% respectively — are above consensus estimates, Sum expects pent-up demand to “quickly materialise” once the travel restrictions are lifted.

Furthermore, he sees the counter trading at an “unjustifiably steep discount to its regional peers” at around 7.7x FY2021 EV/Ebitda, which is around 0.8 standard deviations (SD) below its five-year average.

For CGS-CIMB’s Cezzane See and OCBC’s Chu Peng, Genting Singapore’s recovery was better than expected, as they maintained their “add” and “buy” calls on the counter.

See and Chu have also upped their target price estimates to 86 cents (from 73 cents) and 96 cents (from 68 cents) respectively. See attributes this to the “significant cost containments and potentially higher-margin mass gaming business in this quarter”.

With the city-state gradually re-opening the economy and its borders, See foresees better prospects for Genting Singapore, with a projected revenue for 4QFY2020 of “at least” $307.4 million. While Genting Singapore’s further recovery will depend on the return of tourists, See says its strong balance sheet will tide it through the tough times.

RHB analyst Juliana Cai is however more cautious on her outlook, even as she upgrades her call on Genting Singapore to “neutral” from “hold”.

Like the rest of the analysts, Cai has upped her target price to 72 cents from 62 cents previously, as she sees better days ahead for Genting Singapore following the “strong base line formed in 3QFY2020”.

The quarterly business update, Cai says, suggests that Genting Singapore remains able to generate an annualised Ebitda of $500 million to $600 million — even in the absence of tourist spending and capacity limitations, which is a plus.

“The positive operating cash flow generated, coupled with its existing net cash of $3.6 billion as at June 30, gives confidence that the group has sufficient capital to fund its Resorts World Sentosa expansion (RWS 2.0) mega capex of $4.5 billion over the next four to five years,” she adds.

For more stories about where the money flows, click here for our Capital section

Cai expects Genting Singapore to resume distributing dividends, possibly two cents per share on its improving prospects, which include the returning of tourists and positive vaccine news.

Maybank’s Yin Shao Yang says while Genting Singapore’s results performed better than expected, he is keeping his “hold” call, albeit with a slightly higher target price of 78 cents, from 76 cents. In his view, it is “not every day that [Genting Singapore] outshines Marina Bay Sands (MBS)” as RWS generated more Ebitda than MBS for the first time since 1QFY2011.

Genting Singapore’s 3QFY2020 core net profit has shot past his expectations as it was expected a net loss for the counter for the FY2020.

“Gleaning insights from MBS’ 3QFY2020 results, we gather that high margin slot machine gross gaming revenue or GGR (around 20%-25% of GGR) did not fall much y-o-y as local gamblers had to gamble in Singapore as they could not cross into Malaysia to do so,” he notes. — Felicia Tan


Price target:

UOB Kay Hian “buy” 82 cents

Exposure to China’s auto market and high TV demand

UOB Kay Hian analysts Llelleythan Tan and John Cheong have initiated coverage on InnoTek with a “buy” call and target price of 82 cents, as they cheer the precision metal parts maker’s exposure to high growth automobile, TV and office automation industries of China.

“According to our forecasts, strong contributions from InnoTek’s automobiles and TV panels segment will help boost revenue for the rest of FY20 due to robust Covid-19 induced demand, before gradually increasing in 2021-2022,” say the analysts. They expect 2HFY2020 earnings per share (EPS) to grow by 229% h-o-h and 19.4% y-o-y in 2021.

The company boasts a net cash position of $72.9 million, which is equivalent to 60% of its market value, from which InnoTek has been paying a steady, growing stream of dividends. The analysts are also positive on InnoTek’s successful restructuring initiatives.

Under its current CEO Lou Yiliang, who joined in end 2015, the company managed to turn from a net loss of $16.3 million in 2015 to decade-high annual net profits of $20.2 million and $16.7 million in 2018 and 2019 respectively.

The company’s strong major shareholder backing is also a plus. “The track record of the major shareholder, the Chandaria family who is involved in the founding of Venture Corp, has been underappreciated by the market. Mr Neal Chandaria has been the chairman since 2017 to date, during which InnoTek has seen its most profitable years,” say Tan and Cheong.

“InnoTek is currently trading at 6.3x 2021 P/E (excash P/E of 2.5x), which is unjustified based on its resilient business model, high net cash position and high margins as compared to its peers,” they add. “We believe that InnoTek should be trading nearer to its regional peers’ multiple of 10.3x 2021 P/E. Risks include demand disruption from Covid-19, competition and adverse regulatory changes.” — Felicia Tan

Silverlake Axis

Price target:

CGS-CIMB “add” 38 cents

The worst is over, bigger order book

CGS-CIMB’s Ong Khang Chuen is maintaining his “add” call on Silverlake Axis despite its 1QFY2021 earnings falling short of expectations.

Core earnings for the financial software provider’s 1QFY2021 ended Sept 30 was RM33 million ($10.81 million), just 17% of his FY2021 estimates.

“The key surprise was weaker-than-expected topline (–5.5% q-o-q, –9.8% y-o-y), which management attributed to temporary disruptions arising from a cybersecurity incident in September,” says Ong in a Nov 13 note, where he trimmed the price target by one cent to 38 cents.

He also notes that margins were pressured due to unfavourable revenue mix and higher tax.

See: The worst is over for Silverlake Axis, 'buy' despite 1Q21 dip: CGS-CIMB

While large core banking deals continue to be a challenge to close due to the cautious business environment, management noted that its banking clients continue to spend on smaller incremental enhancement.

During the quarter, the company won RM80 million worth of new orders, bringing its total to RM350 million. Management remains confident of securing more in the coming quarters, Ong notes.

“Recurring revenue segments should also resume growth at high single digits on a y-o-y basis with operations back to normal in 2QFY2021. We remain confident that Silverlake can achieve topline/core net profit growth of 5.3%/21.2% y-o-y in FY2021,” he says. — Jovi Ho

Hutchison Port Holdings Trust

Price target:

DBS Group Research “buy” US 22 cents

Biden victory may be a re-rating catalyst

With US and China trade tensions easing and American media outlets calling a victory for Democratic candidate Joe Biden in the US Presidential election, DBS Group Research’s analyst Paul Yong predicts a further re-rating for Hutchison Port Holdings Trust (HPHT), which controls two of the world’s busiest container port cities by throughput in Kwai Tsing in Hong Kong and Yantian Port in Shenzhen, China.

“We have raised our FY2020 and FY2021 earnings [forecasts] by 10.3% and 3.4% respectively after factoring in higher throughput volumes for 2H2020,” Yong writes in his Nov 17 note, as he kept his “buy” call but with a higher target price of US 22 cents ($0.29), from US 14 cents previously.

See:Will a Biden victory be a re-rating catalyst for Hutchison Port Holdings Trust?

After declines of 12.2% and 2.6% y-o-y at Yantian and Kwai-Tsing respectively in 1H2020, volume growth for 10M2020 ended October came in at 0.2% for Yantian and 0.5% for Kwai Tsing, as throughput volumes saw strong rebounds since June.

Yong anticipates higher dividends from FY2022 onwards, thanks to better earnings and an improved balance sheet. The trust is also unlikely to extend its five-year HK$1 billion ($173.25 million) per annum debt repayment plan beyond 2021, allowing it to pay more dividends.

The DBS analyst therefore sees HPHT raising its total dividend payout to 47% in FY2022 at HK$0.16 per share from 36% to 38% of Ebitda from FY2019-FY2021. The key risk to this rosy picture is the onset of a global recession, which would materially affect HPHT’s trade and throughput numbers.

Should this take place, the trust’s earnings and cash flows would be weakened, thus affecting dividend yields. As at Nov 18, HPHT is trading at a P/E ratio of just over 14 times and has a dividend yield of just over 15%. — Ng Qi Siang

Hyphens Pharma International

Price target:

PhillipCapital “accumulate” 36.5 cents

Earnings below estimates

PhillipCapital analyst Tay Wee Kuang has maintained his “accumulate” call on Hyphens Pharma International but with a reduced target price of 36.5 cents, from 49.5 cents previously.

On Nov 11, the pharmaceutical distributor posted earnings of $0.8 million, down 53.0% y-o-y for the 3QFY2020, and $5.1 million for the 9MFY2020 ended Sept 30, up 5.4% y-o-y.

Hyphens’ 9MFY2020 earnings came 17% below Tay’s estimates due to a $0.6 million mark down in obsolete inventory, including a net realisable value write-down of $80,000 under cost of sales for personal protective equipment, that had to be marked down due to oversupply.

Covid-19 test kits that were obtained due to high demand from widespread testing in Singapore had to be written off after the government centralised its supply of test kits.

Hyphens says it is exploring options to re-sell the kits to other markets. However, about $0.3 million in value was written off with $0.2 million remaining on the books.

The remaining amount may be written off if no buyers are found. Another $0.1 million worth of flu vaccines had to be written off due to the lack of demand following travel restrictions, while $0.2 million was written down for an assortment of products due to lockdowns in different markets, which affected demand.

About $217,000 in foreign exchange losses were also recognised due to the weakness of the Singapore dollar against the US dollar and Euro, as well as the depreciation of the Indonesian rupiah and Philippine peso.

See:Talkmed's walk to begin once Covid-19 bug simmers : RHB

On the upside, Hyphens saw its proprietary-brand revenue grow 23% y-o-y as it continues to move its sales online. Revenue was down 2% q-o-q due to the previous quarter’s recognition of $1 million of exceptional corporate sales of Ocean Health supplements.

On a like-for-like basis, revenue would have been up 26% q-o-q. As the company continues to expand its proprietary-brand business with the distribution of Ocean Health in Sri Lanka and another for Ceradan in China, Tay says he expects the company to continue investing in this business on account of better margins.

He adds that he expects Hyphens’ inventories, receivables and payables to normalise in FY2022 after the company’s reorganisation of its operations.

To this end, Tay has cut his estimates for Hyphens’ earnings in FY2020 and FY2021 by 20% to “reflect a total write-off of Covid-19 test kits in the fourth quarter and a pushout in recovery to FY2022”. “We have also reduced margin expectations from their high base in FY2019 and incorporated higher expenses from possible reinvestments in its own-brand business,” he adds. — Felicia Tan


Price target:

RHB “hold” 49 cents

Medical tourists stay away

RHB analyst Jarick Seet has downgraded his call on medical oncology and stem cell services provider TalkMed to “hold” from his previous “buy” call, as overseas patients — who form the bulk of the business — stay away because of travel curbs.

For 3QFY2020 ended Sept 30, TalkMed’s earnings dropped 39.2% y-o-y to $5.2 million, on the back of a 23.2% y-o-y drop in revenue to $14.1 million. “We think recovery will not be imminent, as the formation of travel bubbles with other countries will likely be slow,” adds Seet, who has trimmed his FY2020- FY2021 earnings by 13%.

While he expects TalkMed to continue paying out dividends as it has done in the past, he reckons the dividend yield for FY2020 will nearly halve to 2.7% from 5.1% of FY2019’s, no thanks to the drop in earnings.

On this note, Seet has lowered his target price on the counter to 49 cents, from 53 cents previously. “If not for Covid-19, earnings recovery would have continued, as we understand that executive director and CEO Dr Ang Peng Tiam’s utilisation also increased significantly year-on-year,” says Seet. — Amala Balakrishner

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