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Brokers' Digest 918

The Edge Singapore
The Edge Singapore • 6 min read
Brokers' Digest 918
JapfaPrice targets:80 cents UPGRADE BUY (UOB Kay Hian Research)69 cents ADD (CGS-CIMB Research)72 cents BUY (Maybank Kim Eng Research)
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Japfa
Price targets:
80 cents UPGRADE BUY (UOB Kay Hian Research)
69 cents ADD (CGS-CIMB Research)
72 cents BUY (Maybank Kim Eng Research)

UOB Kay Hian is upgrading agri-food company Japfa to “buy” – from “hold” previously – and raising its target price by 60% to 80 cents. This is due to a significant rise in Japfa’s average selling price for its three key segments – swine, raw milk and broiler – since 4QFY2019 ended December 2019.

Notably, swine prices in Vietnam have exceeded its five-year high due to the African Swine Fever (ASF) outbreak.

“We believe the development of ASF in Vietnam is somewhat similar with China, where the number of affected cases will reach its peak in the first six months and then start to improve,” says lead analyst John Cheong in a Jan 20 report.

“Also, we understand that the affected swine is within Japfa’s expectation of less than 25% of its total swine population. We estimate that on a net basis, the profitability of Japfa’s Vietnam swine segment should benefit, as the spike in swine ASP should more than offset the volume decline,” he adds.

The group’s core profit for its swine segment is expected to reach US$28 million ($38 million) in 2020, a significant jump from just US$3 million in 2019.

Meanwhile, raw milk price in China has also exceeded its five-year high since 3QFY2019 due to undersupply. Cheong believes this is because of a prolonged low ASP environment, which has not incentivised the building of new dairy farms.

The analyst notes that dairy used to be Japfa’s most stable segment due to the stability of raw milk ASP in China.

On the other hand, there are signs of ASP recovery in Indonesian broilers due to changes in government policy.

In 3QFY2019, Indonesia’s Ministry of Agriculture put in place additional culling measures, including orders to 45 poultry breeding companies to cull fertilised eggs and parent stock breeding chickens. Since the implementation of this policy, there has been a sustained recovery in broiler ASP throughout 4QFY2019.

“We raise our 2019, 2020 and 2021 net profit forecasts by 8%, 38% and 31% respectively after raising our net profit forecasts significantly for Japfa’s Vietnam swine segment and marginally for the China dairy segment on higher-than-expected ASPs which will lead to higher operating margins,” says Cheong. — By Samantha Chiew

Boustead Singapore
Price targets:
92 cents INITIATE BUY
(UOB Kay Hian Research)
$1.00 ADD (CGS-CIMB Research)

Boustead Projects
Price targets:
$1.18 INITIATE BUY (UOB Kay Hian Research)
$1.24 ADD (CGS-CIMB Research)

UOB Kay Hian is initiating coverage on both infrastructure-related engineering and technology group Boustead Singapore as well as its subsidiary, real estate solutions provider Boustead Projects, with “buy” recommendations.

“[Boustead Singapore] offers reliable prospects from its geospatial segment, which rides on sustainable industry tailwinds through the proliferation of location-based data,” says lead analyst Lucas Teng in a Jan 16 report.

Boustead Singapore is the exclusive distributor for Esri’s world-leading ArcGIS technology to major markets across Australia and parts of Southeast Asia. Esri accounts for more than 45% of the worldwide geographic information system market.

“We opine that the industry offers sustainable prospects as its technology creates digital infrastructure solutions for smart nations in their planning and management of key infrastructure and resources, a rising trend along with location-based data,” Teng says. From FY2015 to FY2019, the group’s geospatial segment saw revenue growth at a CAGR of 2%. The segment now contributes to around a quarter of the group’s total revenue.

“For the geospatial segment, we are expecting a modest single-digit growth rate in the light of favourable industry trends,” Teng says. “Overall, we are projecting a core net profit CAGR of 5.2% for FY2019-2022F.”

Teng notes that Boustead Singapore’s real estate segment saw revenue grow 68% in 1HFY2020. And he reckons the “robust growth” is set to continue as the group’s large-scale projects are progressively completed.

Meanwhile, Teng points out that subsidiary Boustead Projects – the property arm that was spun-off from Boustead Singapore – is favoured for its “niche expertise” and “competitive advantage” in the Design-and-Build segment.

However, he says it is Boustead Projects’ lesser-known segment – the real estate business – that could propel it to the next level.

“Boustead Projects’ portfolio of 24 wholly-owned and jointly-owned properties – 20 completed and four under construction – has hit a sizable asset base,” Teng says in a separate report on Jan 16. He notes that the market value of Boustead Projects’ completed properties is over $800 million, of which wholly-owned assets made up around $366 million.

“Monetising the asset portfolio will be a highly anticipated catalyst,” Teng says. “A spin-off into a REIT platform could also help unlock value for Boustead Projects in various forms, such as receiving recurring management fees.” — By Stanislaus Jude Chan

Mapletree North Asia Commercial Trust
Price targets:
$1.37 BUY (OCBC Investment Research)
$1.32 BUY (HSBC Global Research)
$1.30 BUY (DBS Group Research)
$1.29 ADD (CGS-CIMB Research)

Even as the closure of Hong Kong’s Festival Walk mall burned a hole in Mapletree North Asia Commercial Trust’s (MNACT) results for 3QFY2020 ended December 2019, OCBC Investment Research remains optimistic on the REIT’s outlook.

On Jan 17, MNACT announced a distribution per unit (DPU) of 1.67 cents for 3QFY2020, down some 13.3% from 1.93 cents a year ago. This had included a distribution top-up to partially offset the impact of Festival Walk’s closure.

Festival Walk, which is MNACT’s most valuable asset, had suffered “extensive damage” amid the Hong Kong protests. Amid worsening city-wide disruptions, Festival Walk had shut its doors on Nov 12, with the REIT’s manager saying that damage assessments were ongoing.

Revenue for the quarter slumped 36.3% to $67.3 million on the back of lower contributions from Festival Walk, Gateway Plaza in Beijing, China, as well as one of its Japan properties. Consequently, net property income for the quarter fell 40% to $50.8 million.

However, OCBC believes the worst is over for MNACT. The brokerage says sequential improvements are in the pipeline, especially as the REIT reopened Festival Walk on Jan 16 – months ahead of schedule.

Even with the 3QFY2020 decline, OCBC’s analysts note that MNACT’s results were “in line with expectations”. The brokerage adds that on a 9MFY2020 basis, the REIT’s DPU amounted to 75.3% of its FY2020 forecast.

“MNACT highlighted that it will no longer be providing any distribution top-ups in 1QFY2021, which is within our expectations. The distribution top-up for 4QFY2020 will still be in place,” OCBC says. “There is no visibility on when the insurance reimbursements would come in. As the bulk of the period of Festival Walk mall’s closure was in 3QFY2020, we believe the worst is likely over for MNACT, although uncertainties remain.”— By Uma Devi

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