Advanced Info Service
UOB Kay Hian ‘buy’ THB244.00
Positive outlook on latest acquisition
UOB Kay Hian is keeping its “buy” call on Advanced Info Service (AIS), the Thai associate company of Singapore Telecommunications (Singtel), following approval from its board of directors on its latest acquisition plan.
On July 4, AIS announced that it will be acquiring two broadband entities for THB32.42 billion ($1.27 billion). Of the total consideration, THB19.5 billion will be spent to acquire a 99.87% stake in Triple T Broadband (TTTBB), while THB12.92 billion is allocated to acquire a 19% stake in Jasmine Broadband Internet Infrastructure Fund (JASIF).
Under the agreement, the key precedent conditions consist of the shareholders’ approval from the seller, Jasmine International, to sell their stakes in TTTBB and JASIF, which is expected to take place around September. This deal will then have to be approved by the National Broadcasting and Telecommunication Commission (NBTC). AIS expects the deal to be completed within 1Q2023.
This transaction will be funded by debt, given AIS’ sufficient debt headroom. The group has also maintained its dividend policy of at least a 70% payout of net profit.
Analyst Chaiwat Arsirawichai is positive about this deal and has kept his target price of THB244.00 on AIS.
“We are positive on this deal as this acquisition will enhance AIS’ access to the fixed broadband (FBB) market in the upcountry and non-city areas, in which TTTBB is the leader in terms of area coverage,” says the analyst.
He also expects synergetic benefits from the deal, such as cross-selling; up-selling; cost savings from economies of scale, especially selling and marketing expenses; as well as lower investment costs in some duplicate or overlapping areas, of which around 50% are located mainly in Bangkok and big cities.
Moreover, Arsirawichai also expects an improvement in the competitive market landscape as there will be fewer key players in the FBB market.
Once the deal is completed, AIS estimates its FBB market share to be around 35% which will bump up its position to second from currently fourth. TrueOnline is currently the market leader with a 38% market share as of 1Q2022.
The analyst expects the deal to also be accretive as he predicts AIS’ financial status to remain healthy with a strong operating cash flow of THB 80 billion per year together with TBH 6.0 billion and THB 8.5 billion of operating cash flow from JAS and JASIF respectively. However, there should be no earnings impact for AIS in the short term, but the upside is expected in the medium-to-long term. — Samantha Chiew
RHB Group Research “neutral” $10.70
Higher-than-expected SDAV in June
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RHB Group Research analyst Shekhar Jaiswal is keeping his “neutral” call on Singapore Exchange (SGX) following the release of its market statistics for June.
“We maintain ‘neutral’, as [SGX’s] forward P/E is in line with the historical average despite the expectation of earnings growth in FY2023– 2024,” he writes in his July 14 report.
According to Jaiswal, the counter currently offers a “modest” yield of 3.3% compared to the benchmark Straits Times Index’s (STI) yield of 4%.
However, the analyst has raised his target price to $10.70 from $10.40 after lifting earnings estimates for FY2022–FY2024 by 2%–3%.
According to the analyst, the higher earnings estimates were attributable to the higher-than-expected securities daily average value (SDAV) for June and 4QFY2022.
The higher target price is based on a target P/E of 22x FY2023’s earnings per share (EPS), in line with its historical average P/E.
“We view our target P/E as reasonable — given the expectation of a modest rise in profits in FY2023. The target price includes an environmental, social and governance (ESG) premium of 8% over its fair value of $9.90,” the analyst writes.
“Although SGX’s June SDAV of $1.17 billion decreased 4% y-o-y and 23% m-o-m, it brought the FY2022 SDAV to $1.27 billion, which was [around] 4% higher than our estimate of $1.22 billion,” he continues.
During the month, trading activity for derivatives rose strongly in June, with the daily average volume (DDAV) of derivatives increasing 24% y-o-y but down 9% m-o-m to 1.1 million contracts. The higher trading activity was due to the sustained volatility in global markets, which drove the institutional demand for portfolio risk management, the analyst notes.
In the FY2022, the analyst estimates that SGX will report a profit of $459 million and $640 million in ebitda. This is higher than the street estimates of $438 million and $611 million respectively.
Jaiswal’s revenue estimate of $1.11 billion is also higher than the consensus estimate of $1.09 billion.
Despite Jaiswal’s positive sentiment, the analyst warns that SGX could see higher-than-expected operating costs for FY2022 and a slower ramp-up in revenue contributions from acquisitions.
On the other hand, a higher-than-estimated SDAV from the potential pipeline of exchange-traded funds (ETFs), REITs and special purpose acquisition company listings; and continued global macroeconomic uncertainties leading to higher derivatives volumes, are catalysts to the counter’s share price. — Felicia Tan
Raffles Medical Group
CGS-CIMB Research ‘add’ $1.27
Upgrade call but muted outlook
CGS-CIMB Research analyst Tay Wee Kuang has upgraded his recommendation on Raffles Medical Group to “add” from “hold” previously.
However, Tay has lowered his target price estimate to $1.27 from $1.33 previously. The new target price is pegged to an FY2023 EV/ Ebitda of 16x, 0.5 standard deviation below its five-year historical mean.
Tay says the lowering reflects the “valuation overhang from an extended gestation period of its new China hospitals”.
The revised valuation, which is now deemed more “palatable” due to a change in Tay’s valuation methodology, has led to the upgrade in the recommendation, he says.
“The change in valuation method from sum-of-the-parts (SOTP) previously is due to a lack of information regarding Raffles Medical’s China operations,” he adds.
Further to his report, Tay is negative about the group for the time being.
As at July 9, the analyst notes that the group’s share price has fallen some 18% ytd as he believes investors are “wary” of the earnings gap left behind by Covid-19-related services in the FY2021 ended December 2021.
During the year, the group saw its Covid-19-related services contributing at least 20% to its revenues. And with the endemic in sight, Tay expects revenue from Covid-19-related services to decline by [around] 60% in his FY2022-FY2024 forecasts.
“Even though the latest wave of infections suggests that the Singapore government could once again step up collaboration efforts with private healthcare providers like Raffles Medical Group, we believe the intensity of such efforts will be much lower, given the smaller scale of operations for Covid-19 testing, vaccinations, as well as management of community facilities,” he says.
That said, the return of the group’s business as usual cases will offset the earnings gap, with Tay estimating a decline of 10% in Raffles Medical’s core net profit in 1HFY2022.
“We believe the recovery has been primarily driven by the return of domestic patients undergoing elective treatments that had been deferred over the last two years, and the partial return of foreign patients as medical tourism ramps up as Singapore reopened its borders more extensively in April,” he adds.
In China, Tay expects operations at the group’s new hospitals in Chongqing and Shanghai to delay their ebitda breakeven by a year due to the sporadic lockdowns in various parts of the country during the 1HFY2022.
The analyst sees the group breaking even for its China hospitals only in FY2024.
Even though the Covid-zero stance in China has prolonged gestation woes, Tay notes that the group’s start-up costs are managed by opening bed capacities in phases.
“Raffles Medical had also shared that it was able to contain costs within its guided range of ebitda losses through cost control measures,” he adds. — Felicia Tan
EC World REIT
DBS Group Research ‘buy’ 70 cents
Unique opportunity to accumulate
DBS Group Research believes that there is currently a unique opportunity to accumulate EC World REIT as analysts Dale Lai and Derek Tan have kept their “buy” recommendation on the stock with a target price of 70 cents.
A close to 40% ytd slide in share price owing to perceived refinancing issues has sprung up a unique opportunity. “We see planned balance sheet recapitalisation by end of 2022 to be positive with the proposed sale of two properties to sponsor which will potentially allow unitholders to crystalise net asset value (NAV) and receive a one-off dividend ranging between 10 cents to 18 cents, and reduce reliance on master-leases to sponsor to be overall positive,” they say, as they predict the REIT to still deliver yields of about 8% post-sale.
On June 1, the REIT managed to obtain an 11-month extension for its offshore loans, with the extension expiring on Apr 30, 2023. On June 29, the REIT announced the extension of its onshore loans to Apr 30, 2023. This was on the back of new policies introduced by the China government to slow credit growth among property developers.
As part of the loan extension, the sponsor took an undertaking to commence refinancing of both the offshore and onshore facilities immediately and to also ensure that at least 25% of the outstanding facilities are repaid by Dec 31.
Since then, the REIT is looking to divest Beigang Logistics Stage 1 and Chongxian Port Logistics. The bulk of the proceeds from the divestments would then be used to repay loans as stated in the loan extension undertaking.
However, will the proposed divestment to sponsor be approved by shareholders?
With the manager entering into an MOU with the sponsor for the sale of two assets, funds received by the REIT will be more than sufficient to pare down 25% of its loans by December and pay a special dividend to unitholders, according to the analysts. Given that it’s an interested party transaction (IPT), they envision unitholders should only accept a deal that is close to its NAV.
They add: “As the combined valuation of the two properties as at Dec 31, 2021, was about $432.8 million, we expect the divestments to generate more than the required amount to pare down 25% of outstanding loans. After accounting for taxes and transaction costs for the divestments (assumed to be 25% of the value), EC World REIT would have excess funds of about $150 million after repaying the loans as stipulated in the terms of the extension of the loan facilities.”
Meanwhile, the analysts are also positive on EC World REIT as its inherent organic growth in the portfolio is underpinned by master leases. With built-in rental escalations ranging from 1.0% to 2.5% for its master leases, this ensures organic growth in the REIT’s earnings. Moreover, its multi-tenanted assets that cater to the fast-growing logistics industry also have the potential to deliver revenue growth. — Samantha Chiew
Jason Marine Group
SAC Capital ‘unrated’
Orders are returning
SAC Capital analyst Lim Shu Rong is positive about Jason Marine Group’s prospects as enquiries from its customers have picked up following the reopening of borders.
More projects are also coming back on stream after a slowdown in the past two years, Lim notes in her unrated report dated July 8.
“Local output of marine and offshore engineering work in April has risen 27.6% y-o-y and 18.3% from January to April,” Lim notes, adding that higher crude prices, shipbuilding order book and easing of travel restrictions are tailwinds for the sector.
Therefore, Lim believes that the group’s order intake could return to pre-pandemic levels.
She adds that the group’s office in Italy will “better position them to enter the European Union (EU) market and expand their outreach to EU customers”.
“Vessel owners are also placing more importance on cybersecurity, prompting more upgrades/replacements to their navigation and communication systems. This trend is likely to benefit the group as well,” Lim continues.
That said, the group faces execution challenges from the component and equipment shortages, which might delay revenue recognition and risk cost overrun.
During the FY2022 ended March 31, Jason Marine Group reported revenue of $30.9 million, up 3% y-o-y.
Net profit, however, fell 23% y-o-y to $0.2 million, due to a decrease in government grants and the one-off termination payment in the FY2021.
During the year, Lim notes that the group reflected lower project-based revenue (–7%) as the group was unable to secure the equipment hence hampering the progress of its projects.
“Nevertheless, these shortages are short-term concerns and likely to ease as chip capacities redistribute following a slowdown in consumer electronics demand,” she says.
“In view of market uncertainty and volatility, the group has drawn down a $5 million loan solely for working capital needs. The loan is fixed at 2%–2.5% per annum over a five-year tenure,” she adds.
Lim is also positive about the group’s “sound and healthy” balance sheet with its net cash balance of $14.7 million as at end March. Its net cash represents some 89% of its market cap. — Felicia Tan