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Brokers' Digest 920

The Edge Singapore
The Edge Singapore • 12 min read
Brokers' Digest 920
 UnUsUaLPrice targets:38 cents BUY (RHB Group Research)44 cents BUY (UOB Kay Hian Research)Year-to-date, the share price of UnUsUaL has plunged some 32% as the group was forced to postpone large-scale events such as the JJ Lin concert
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Asian Pay Television Trust

Price targets:

16.5 cents NEUTRAL (Phillip Securities Research)

Mainboard-listed Asian Pay Television Trust (APTT) is a shadow of what it used to be.

From its IPO of 97 cents in 2013, the Singapore-based business trust traded below 20 cents for the whole of last year. The counter closed at 16.7 cents on Feb 11, giving it a total market capitalisation of around just $241.3 million.

But market watchers believe there are some positive signs that APTT could be flickering back to life.

“Some stability [is] creeping in,” says Paul Chew, head of research at Phillip Securities Research.

APTT saw its total revenue slide 6.5% to $74.3 million for 4QFY2019 ended December, on the back of declines across all three segments.

Revenue from the group’s basic cable TV segment fell 7.6% to $59.1 million during the quarter, while broadband revenue dipped 1.5%to $12.0 million and premium digital cable TV revenue was down 5.0% to $3.2 million.

This brought full-year revenue for FY2019 to $292.6 million, some 6.8% lower than FY2018 revenue of $313.9 million.

4QFY2019 Ebitda fell 2.4% to $42.9 million, despite a 2.4 percentage point improvement in Ebitda margin to 57.8%.

“4QFY2019 revenue and Ebitda were around 5% better than our expectations,” says Chew.

In particular, the analyst points to average revenue per user (ARPU) from its cable TV business, which was flat q-o-q after 13 consecutive quarters of decline. APTT also saw a modest rise in broadband revenue q-o-q.

“We were surprised by the stability in certain operational data,” Chew says. “Cable TV ARPU finally stopped sliding albeit subscribers are still contracting... at a rate of around 5,000 per quarter.”

“Broadband subscribers responded well to the lower prices offered, which helped to keep revenues stable,” he adds. Chew notes that the pricing strategy resulted in a 12% y-o-y drop in broadband ARPU, even as the number of broadband subscribers rose 10% y-o-y in 4QFY2019.

On Feb 11, the group announced that Taiwanese firm Da Da Digital Convergence Co is eyeing the acquisition of a 65% stake in Dynami Vision – the sole shareholder of APTT’s trustee-manager.

Da Da Digital is controlled by industry veteran Dai Yung Huei, who is the founder of Taiwan-listed cable television systems and broadband services provider, Dafeng TV.

The deal is expected to open doors for APTT to tap Taiwan’s upcoming 5G rollout.

“In view of the industry changes in the 5G era, there is potential to create synergies with APTT,” Dai says in a statement. “Clearly, there are opportunities for both parties to collaborate and cover each major metropolitan area in Taiwan.” — By Stanislaus Jude Chan

NetLink NBN Trust

Price targets:

$1.10 BUY (OCBC Investment Research)

$1.05 BUY (UOB Kay Hian Research)

$1.05 BUY (DBS Group Research)

$1.11 OUTPERFORM (Daiwa Capital Markets)

$1.00 OVERWEIGHT/IN-LINE (Morgan Stanley Research)

$1.09 BUY (HSBC Global Research)

Analysts remain bullish on NetLink NBN Trust, after the fibre network infrastructure operator posted a set of results for 3QFY2020 ended December that was within expectations.

NetLink Trust on Feb 10 reported a 9.6% jump in 3QFY2020 earnings to $21.5 million, as revenue rose 2.9% to $91.6 million on the back of higher residential revenue.

Residential connections revenue climbed 12.8% to $58.7 million in 3QFY2020 – accounting for 64.1% of total group revenue. However, the increase was partially offset by lower installation-related revenue, diversion revenue as well as ducts and manhole service revenue.

Going forward, the group says it remains fully supportive of Singapore’s objectives towards the deployment of 5G infrastructure and growth of the 5G innovation ecosystem.

It adds that it is monitoring the development of the 5G network in Singapore and will explore opportunities associated with the new market development.

“We continue to believe that Singapore’s 5G rollout should be a growth driver for [NetLink Trust’s] Non-Building Address Points (NBAP) connections, as it goes beyond its existing trials with M1 and TPG Telecom,” said OCBC Investment Research in a note on Feb 11.

Meanwhile, UOB Kay Hian lead analyst Chong Lee Len believes the stock offers good earnings visibility and sustainable dividend yield of 5% for FY2020 to FY2021.

“The stock has outperformed the STI by 8% year-to-date and we expect further outperformance as investors seek shelter in high dividend yielding stocks amid external volatility,” Chong says.

The analyst notes that NetLink has a low gearing with gross debt/Ebitda at 2.4 times. Assuming NetLink keeps within the threshold of 4 times for gross debt/Ebitda, Chong estimates that this gives the group sufficient debt headroom of $400 million for FY2020 to finance further expansion.

Chong sees NetLink as a “clear beneficiary” of the 5G rollout on the back of higher connections and higher installation-related revenue. — By Stanislaus Jude Chan


Price targets:

38 cents BUY (RHB Group Research)

44 cents BUY (UOB Kay Hian Research)

Year-to-date, the share price of UnUsUaL has plunged some 32% as the group was forced to postpone large-scale events such as the JJ Lin concerts in Australia and Hong Kong. Other events in Asia are also likely to be affected in tandem with the escalating coronavirus outbreak.

Yet, instead of flagging the group’s low share price as a point of caution for investors, RHB Group Research cites this to be an “opportunity for investors” to accumulate shares “at a more attractive price” for longer-term holding.

In a Feb 12 report, analyst Jarick Seet notes that the effects of the cancellation of Asian concerts are likely to be mitigated by the management’s strategy of shifting its focus to Western markets such as the US for the rest of FY2020.

“We expect the company to secure more new concerts with renowned Cantopop artists for 2020, as well as well-known family entertainment shows to further build on its 2020 pipeline,” says Seet.

Based on historical trends, he observes that UnUsUaL has worked with Disney for multiple family entertainment projects, and has presented some 48 Disney on Ice shows in South Korea and Taiwan.

“We believe that UnUsUaL will continue to expand its scope with Disney to promote more of their titles in Asia, especially in 2021,” says Seet.

“We also expect the company to continue exploring tie-ups and JVs to further expand its concert business globally, especially in the Western markets, and focus less on Asia to reduce the concentration risk of the novel coronavirus,” he adds.

Looking ahead, Seet envisions that UnUsUaL’s 3QFY2020 ended March should be “strong” due primarily to revenue contributions from JJ Lin’s two-night fully sold-out concert at the National Stadium, which was also some four times the capacity of his concert in 2018. In addition, Eric Chou’s concert is expected to boost the group’s financial metrics for the quarter.

However, Seet opines that it will be 4QFY2020 that will bear the brunt of the virus outbreak as the group grapples with the postponement of JJ Lin’s Australia and Hong Kong concerts. The ongoing Hong Kong protests could also result in the group having to shelve some of its other events in the city, which could cumulatively result in a loss of income for the quarter.

“All in all, we expect the postponement of concerts to result in FY2020F-FY2021F to be cut by 23% and 23% respectively,” says Seet. — By Uma Devi

CapitaLand Commercial Trust

Price targets:

$2.29 UPGRADE OUTPERFORM (Daiwa Capital Markets)

$2.20 OUTPERFORM (Macquarie Global Research)

$2.30 BUY (UOB Kay Hian Research)

$2.30 BUY (DBS Group Research)

Daiwa Capital Markets has altered its view on CapitaLand Commercial Trust (CCT) by almost 180 degrees, on the back of the REIT standing to benefit from “favourable terms” for its merger with CapitaLand Mall Trust (CMT).

The merger will generate a diversified commercial REIT to be named CapitaLand Integrated Commercial Trust (CICT), with a market capitalisation of $16.8 billion and a combined property value of $22.9 billion.

After obtaining the necessary approvals, the proposed merger is expected to be completed before the end of 2QFY2020.

The brokerage has not only upgraded CCT to an “outperform” from the previous “sell” recommendation, but has also raised its target price by some 42% to $2.29, representing a 12.3% upside for the stock.

In a Feb 7 report, lead analyst David Lum identifies positive impact of the merger on CCT that could bolster its financial and operational metrics further.

“We revise our financial and distribution per unit (DPU) forecasts and introduce our 2022 forecasts after incorporating the 4Q19 results and fine-tuning our rental-reversion assumptions,” shares Lum. “Although office spot rents could be peaking, we still expect most of the Singapore office properties to enjoy rental reversions of 10-20% for FY2020-FY2022E.”

Lum opines that a strong y-o-y DPU growth is in the pipeline for the group for FY2021FY2022E, led by the progressive income contribution from CapitaSpring, which is scheduled for completion in 1HFY21. Other contributors include CCT’s 45% stake in the Glory Trust Structure, as well as rent from WeWork’s lease in 21 Collyer Quay.

With the merger, Lum believes that CICT is likely to provide a stronger and sounder platform for sustainable DPU-accretive acquisitions with a Singapore focus.

“We also believe CICT stands a better chance of enjoying a lower cost of equity through cycles than either CCT or CMT,” says Lum, adding that apart from enjoying yield compression, the REIT will be more defensive during an office downturn. — By Uma Devi

Singapore Post

Price targets:

99 cents HOLD (UOB Kay Hian Research)

95 cents NEUTRAL (Credit Suisse Research)

85 cents HOLD (DBS Group Research)

96 cents HOLD (OCBC Investment Research)

Analysts are cutting their target prices on Singapore Post (SingPost) by as much as 11.5%, as the group’s post & parcel and logistics segments remain weak.

The recommendations come after SingPost on Feb 7 announced a 39.3% plunge in earnings for 3QFY2019/20 ended December 2019 to $30.5 million, mainly due to the absence of exceptional gains amounting to $31.8 million recognised a year ago.

Excluding one-off items as well as losses from discontinued operations, underlying net profit for 3QFY2019/20 was $31.2 million, some 5.1% lower than $32.9 million a year ago.

“Domestic letter volumes have seen accelerated decline in the last few quarters, while challenges in freight arising from ongoing trade war and potential impact on global supply chains arising from the coronavirus situation are near-term concerns,” said DBS Group Research lead analyst Lim Rui Wen in a Feb 7 report.

Further, the way Lim sees it, SingPost faces two key headwinds: higher terminal dues adversely affecting international mail volume which has been the key growth driver so far, and higher operating costs in order to improve service quality in Singapore.

For 3QFY2019/20, SingPost reported that operating expenses had increased 3.5% to $318.4 million “due to significant investments to improve service levels”.

Labour & related expenses also climbed 3.9% on the back of higher remuneration and the hiring of additional postmen for its Singapore postal operations.

On the ground, however, customers have been far from convinced of SingPost’s service quality.

Investor confidence has also remained battered, following some bad publicity on service lapses, including a series of incidents where postmen were caught dumping mail instead of delivering it. SingPost had been fined a total of $400,000 by the authorities for failing to meet delivery standards in 2017 and 2018.

“We continue to see the decline in letter mails this quarter and are likely to see this structural headwind continue,” said OCBC Investment Research analyst Chu Peng in a Feb 10 report.

“While we see domestic ecommerce-related volumes growing double-digit, it grew from a much lower base than that of letter mail which continued to form the majority of revenue and volume.”

Over at UOB Kay Hian, analyst Lucas Teng has cut his earnings forecasts for FY2020 to FY2022 by 4.0% to 4.8%.

“We factor in a larger decline in domestic postal given the accelerated drop in letter mails seen this quarter,” Teng says. “Going forward, we expect domestic postal costs to be trimmed to help arrest the top-line decline, though it will take some time to see its effects.” — By Stanislaus Jude Chan

CapitaLand Retail China Trust

Price targets:

$1.75 BUY (DBS Group Research)

$1.57 DOWNGRADE HOLD (OCBC Investment Research)

$1.70 OVERWEIGHT (JPMorgan Research)

$1.46 HOLD (Daiwa Capital Markets)

Units in CapitaLand Retail China Trust (CRCT) have shed some 5.5% since Jan 24 to close at $1.54 on Feb 12. But the share price weakness comes as no surprise.

With 13 malls in China, including CapitaMall Minzhongleyuan in Wuhan, CRCT has high exposure to the novel coronavirus that originated from the city in central China.

While CRCT’s mall in Wuhan will only reopen “when local conditions permit”, the rest of its 12 malls are still operating albeit with shorter operating hours.

The trust said that its Wuhan mall represented less than 3% of its portfolio value as at Sept 30, 2019, and contributed approximately 0.5% of its net property income for 9MFY2019.

As such, CRCT does not expect the temporary closure of its Wuhan mall to have a material impact on its financial performance for FY2020 ending December.

Overall, OCBC Investment Research analyst Chu Peng says: “Management saw a significant drop in traffic during CNY period this year and will likely to see a clearer picture after the Chinese New Year holiday when more people return to work. Given the on-going coronavirus situation in China, we could see dampened sentiment and continued declines in shopper traffic and tenants’ sales in 1HFY2020, which would pressure CRCT’s overall performance.”

However, this is a good time for investors to accumulate CRCT on dips, according to DBS Group Research.

“While short-term overhanging risks persist, we remain excited with its long-term milestones which remain intact as portfolio rejuvenation efforts are expected to unwind this year. We expect a strong DPU growth coming from the acquisition of three sponsor malls, while the Hohhot asset swap will underpin a stronger growth profile in the medium term,” the brokerage says. — By Samantha Chiew

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