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The Edge Singapore
The Edge Singapore1/10/2020 6:30 AM GMT+08  • 10 min read
Brokers’ Digest
UMS Holdings
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UMS Holdings

Price targets:

$1.13 BUY (Maybank Kim Eng Research)

$1.08 BUY (DBS Group Research)

79 cents HOLD (CGS-CIMB Research)

Maybank Kim Eng Research is keeping its “buy” call on precision metals engineering firm UMS Holdings with an unchanged target price of $1.13, on the back of an impending recovery in the semiconductor industry.

According to global industry association Semiconductor Equipment & Materials International (SEMI), global semiconductor manufacturing equipment sales is expected to turn around from an estimated 10.5% drop in 2019 to grow 5.5% to US$60.8 billion ($82.0 billion) in 2020 – before hitting a new high in 2021.

“Further, SEMI sees upside if macro conditions improve and trade tensions ease,” says analyst Lai Gene Lih in a Jan 2 report. “We believe this validates our bullish thesis on UMS.”

Lai forecasts that UMS, which manufactures high precision components and modules found in front-end semiconductor equipment, will see Patmi growth of 31% in FY2020 ending Dec 31, 2020. This, he says, will be driven by sustained investments form logic and foundry end-customers, and recovery from memory end-customers.

“SEMI sees upside if the macro economy improves and trade tensions subside in 2020. If this plays out, we see a bull case fair value of $1.31 for UMS,” says Lai. This best case scenario represents a potential upside of 31% for UMS, which saw its shares close at $1.00 on Jan 8.

At the centre of the bullish sentiment on UMS is its “entrenched relationship” with its key customer, Applied Materials (AMAT), which is estimated to have held a 19% share of the global wafer fab equipment (WFE) market in 2018.

“AMAT remains optimistic of its long-term competitive position,” Lai says. “In turn, we expect UMS, having been AMAT’s supplier since 1999, to be a beneficiary of AMAT’s positive long-term prospects.”

At the same time, Lai also points out that UMS will see growth on the back of 39%-owned associate JEP Holdings. “Through associate JEP, UMS is expanding precision metal engineering to non-semiconductor sectors such as aerospace, which sees tailwinds from outsourcing trends,” Lai says.

In a recent interview with The Edge Singapore, UMS chairman and CEO Andy Luong, who is also the CEO of JEP, had noted the merits of diversification.

“[JEP] needed financial support, and the acquisition was the best way to help it out and diversify [UMS’] business at the same time,” Luong noted, adding that UMS’ focus on only the semiconductor industry could be “dangerous to some extent”.

In its latest results, UMS saw its share of profits from JEP jump 82% y-o-y to $0.7 million.

“The acquisition has definitely put us in a better place than other companies that are solely focused on one [industry],” said Luong. — By Stanislaus Jude Chan

Centurion Corp

Price targets:

61 cents INITIATE ADD (CGS-CIMB Research)

47 cents NEUTRAL (RHB Group Research)

52 cents BUY (DBS Group Research)

CGS-CIMB Research is initiating coverage on Centurion Corporation, the provider of purpose-built worker accommodation (PBWA) and purpose-built student accommodation (PBSA), with an “add” recommendation and a target price of 61 cents.

In particular, lead analyst Ervin Seow likes Centurion’s consistent growing of its accommodation capacity through developments and acquisitions.

As of 3QFY2019 ended Sept 30, 2019, the group has a total of close to 65,000 beds, spread across 32 properties in six countries. PBWA contributed to 67.1% of group revenue in FY2018, with PBSA accounting for the remaining 31.4%.

“We think the under-supply in PBWA and PBSA segments could continue due to tighter regulations and enforcement in PBWA and growth in university enrolment,” Seow says in an initiation report on Jan 7.

Centurion is expected to see a further 15.2% growth in capacity over the next two years, with the addition of 3,600 beds at Tampoi II and 177 beds at Archer House in FY2020, followed by another 6,100 beds at Juru in FY2021.

As such, Seow is forecasting earnings growth of 7.7% for FY2020 and 13.8% in FY2021.

“Going forward, we think there is strong potential for further growth of PBWA in Malaysia due to regulations relating to a minimum standard of housing for workers that reduce non-PBWA accommodation supply, as well as strong construction and manufacturing activity growth that should translate into stronger tenant demand,” says Seow.

Meanwhile, he believes Centurion’s asset-light fund management platforms provide a good opportunity for the group to scale up quickly and recycle capital.

The group now has two PBSA funds with about $200 million in commitments and seven assets.

In the long term, Seow sees the possibility of Centurion continuing to build its portfolio, and working towards a spin-off of its PBSA assets into a REIT, on the back of strong investor interest in the asset class.

“At its current price, we estimate Centurion offers 39% upside potential with a FY2020F dividend yield of 5.4%,” says Seow. — By Samantha Chiew

ESR REIT

Price targets:

60 cents BUY (RHB Group Research)

60 cents ADD (CGS-CIMB Research)

52 cents HOLD (Daiwa Securities Research)

RHB Group Research is bullish on ESR REIT, as Singapore’s industrial sector shows signs of bottoming out.

After seven straight months of decline, Singapore’s Purchasing Managers’ Index (PMI), which is used as an indication of manufacturing sentiment, recorded a marginal expansion in December 2019. The positive turn comes as Jurong Town Corporation (JTC) in its latest 3QFY2019 report saw industrial rental rates edge up 0.1% y-o-y along with stable occupancy.

The way RHB analyst Vijay Natarajan sees it, the industrial sector turnaround will bode well for ESR REIT.

“We believe ESR REIT’s well-diversified and sizeable industrial portfolio is better-positioned to tap into any demand growth,” Natarajan says in a Jan 7 report.

In particular, Natarajan points to ESR REIT’s asset enhancements as well as potential acquisitions as the key drivers ahead.

He notes that ESR REIT is awaiting regulatory approval for the partial redevelopment of 7000 Ang Mo Kio Avenue 5.

“The new industrial space will have a gross floor area (GFA) of close to 270,000 sqft, with an estimated yield-on-cost of around 9%,” Natarajan says. “The site also has an additional 225,000 sqft of unutilised space for future developments.”

The analyst notes that ESR REIT has also identified six other assets for redevelopment, on top of rejuvenation plans for its key assets.

“Overall, we are positive on its redevelopment plans and believe it is a cost-efficient way to unlock unitholder value and future-proof assets,” he adds.

At the same time, Natarajan likes ESR REIT for its potential to “leverage and grow” on the back of its sponsor’s strength.

Sponsor ESR Group is one of the largest Asia Pacific-focused logistics players, with more than US$20 billion ($27 billion) in assets under management.

“The strong sponsor’s expertise should help in terms of operational expertise, and eventually help with overseas market growth at the opportune time,” Natarajan says. “Besides these, the sponsor also has stakes in other industrial S-REITs – which may lead to M&A growth opportunities in the medium term.” — By Stanislaus Jude Chan

Singapore Press Holdings

Price targets:

$2.30 HOLD (UOB Kay Hian Research)

$2.22 HOLD (CGS-CIMB Research)

$2.19 HOLD (DBS Group Research)

$2.28 HOLD (OCBC Investment Research)

UOB Kay Hian is raising its target price for Singapore Press Holdings (SPH) by 2.2% to $2.30, after the group in December last year acquired seven purpose-built student accommodation (PBSA) assets in the UK. However, the brokerage is keeping its “hold” call on SPH.

“While asset quality looks relatively assured, the decline in its media business does not appear to be abating,” UOB lead analyst Lucas Teng says in a Jan 6 report.

SPH announced Dec 23 that it is acquiring the properties – five operational PBSA assets with a capacity of 1,662 beds, and two developmental assets with 721 beds – for GBP448 million ($807 million).

According to Teng, this brings SPH’s total portfolio to over 7,726 beds with total asset under management (AUM) of a “sizeable” $1.4 billion.

The analyst notes that the new operational assets are “premium assets” and enjoy “strong tenure rates” of close to full occupancy. However, he adds that the recent acquisitions have a slightly lower net initial yield of 4.8-5.6%.

In comparison, SPH’s initial acquisition of the Mayflower portfolio in September 2018 had a net initial yield of 6.3%, while its purchase of the Privilege portfolio in April 2019 had a net initial yield of 5.2-5.5%.

Meanwhile, Teng cautions that SPH’s core media business is “not out of the woods yet”.

“According to our page count of the Straits Times for 1QFY2020 ended Nov 30, 2019, total page count was down 11.7% y-o-y, a similar rate of decline as in the previous quarter,” Teng says. “The three segments – Recruit, Classifieds, and Display – saw a 25%, 22% and 9% y-o-y drop in page counts respectively and does not appear to be abating yet.” — By Stanislaus Jude Chan

Consumer sector

Thai Beverage

Price targets:

$1.08 OVERWEIGHT/ATTRACTIVE (Morgan Stanley Research)

80 cents REDUCE (Phillip Securities Research)

$1.04 BUY (DBS Group Research)

$1.30 ADD (CGS-CIMB Research)

Koufu Group

Price targets:

88 cents BUY (DBS Group Research)

87 cents INITIATE BUY (SAC Advisors Research)

95 cents BUY (UOB Kay Hian Research)

Delfi

Price targets:

$1.51 BUY (DBS Group Research)

$1.68 BUY (RHB Group Research)

Sheng Siong Group

Price targets:

$1.39 BUY (RHB Group Research)

$1.32 ACCUMULATE (Phillip Securities Research)

$1.32 BUY (DBS Group Research)

$1.37 ADD (CGS-CIMB Research)

DBS Group Research predicts that Singapore’s gross domestic product (GDP) will be lifted by 1.4% in 2020F, after signs of bottoming out with a 0.6% growth in 2019F. And this could bode well for consumer stocks.

Even though retail sales in Singapore recorded an overall drop in 2019, the brokerage notes that food and beverage (F&B) food service and supermarket sales had largely improved.

“Restaurants and fast food outlets have done well in recent months,” says lead analyst Alfie Yeo in a Jan 6 report.

Meanwhile, the online components of retail sales have also grown, and now stands at 6% of total retail sales, compared to just 4% at the beginning of 2018.

“Based on our coverage of Singapore’s downstream consumer sector, we are projecting that earnings will grow by close to 10% in FY2020F, on margin expansion and revenue growth of 6.5%,” Yeo says. “Companies under our coverage are expected to ring in productivity gains, better sales mix and a more efficient operational expenditure.”

The analyst remains more positive on companies that have more domestic exposure and expects margins to improve slightly on productivity initiatives along with more robust domestic-driven spending on consumer staples.

Meanwhile, he remains cautious on companies with significant exposure in China due to a potential slowdown and rising competition.

“We prefer stocks with clear growth strategies in the Asean region as well as stable earnings, strong cash flows or balance sheets, and attractive valuations,” Yeo adds.

DBS’s top picks in the Singapore consumer sector are Thai Beverage, Koufu Group, Delfi, and Sheng Siong Group.

The brokerage has increased its target price on ThaiBev to $1.04 from 91 cents, spearheaded by steady 11% growth in FY2020 net earnings as well as improved contributions from Vietnam’s Saigon Beer Alcohol Beverage Corp (Sabeco) and lower losses from non-alcoholic beverages.

Meanwhile, Yeo is also positive on Koufu on the back of the upcoming opening of two foodcourts in FY2020, including one in Macau.

The analyst notes that the group also has an integrated facility on the way, which is expected to obtain its temporary occupation permit by 1HFY2020.

“We continue to like Koufu for its stable earnings, decent yield of 3.4%, decent cashflow generation, strong balance sheet, and steady store expansion plans,” Yeo says.

At the same time, the analyst likes chocolate confectionery company Delfi for its attractive valuations amid an earnings turnaround.

“We expect its earnings growth to accelerate via margin expansion through premiumisation, and regional growth through higher penetration of the Van Houten brand,” Yeo says.

He adds that Delfi could be a potential takeover target, due to its dominance in Indonesia’s general trade channel for chocolate confectionery.

With supermarket sales dominating Singapore’s retail spending last year amid the slowdown in GDP growth, Yeo is also maintaining his bullish stance on Sheng Siong.

“We continue to see growth being driven by more new stores,” Yeo says, noting that the group had opened five new supermarket outlets in 2019, with another one due to open in 1QFY2020. — By Samantha Chiew

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