Alibaba Group Price target: UOB Kay Hian “buy” US$308

Lower price target on softer growth seen

UOB Kay Hian Research analyst Julia Pan has maintained her “buy” call on Alibaba Group, albeit with a lower target price of US$308 ($415.90) from her previous estimate of US$313.

The lower target price implies 31 times FY2022 forward earnings against 22% EPS CAGR from FY2022 to FY2025, Pan writes in a July 9 report. She has also lowered her EPS for the 1QFY2022 and FY2022 by 10% and 2% respectively due to lower e-commerce sales in the 1QFY2022 ended June.

Pan believes that Alibaba’s growth is also likely to be impacted by its lost collaboration with TikTok, estimated to be worth US$800 million annually, representing less than 9% of Alibaba’s cloud revenue in FY2021.

In addition, a delay in contract signing due to the restructuring of the group’s cloud business unit is likely to further impact the group’s cloud revenue growth in FY2022.

“As such, we expect AliCloud’s revenue to grow 35% y-o-y to RMB16.7 billion ($3.48 billion) in 1QFY2022 with an adjusted Ebita margin of –1%,” says Pan.

However, Pan expects strong momentum from the group’s Taobao deals segment, which has a total addressable market of RMB15 trillion but with penetration rate of less than 10%.

According to Pan, the market expects this penetration to reach 30–40%, implying a market opportunity of RMB4.5 trillion to RMB6 trillion.

“Taobao Deals is building a full-category direct sourcing supply system focusing on grocery goods, aiming to become the largest value-for-money integrated e-commerce platform. Taobao Deals achieved a monthly average user (MAU) of 150 million in March 21, which was the same level as PinDuoDuo in 2017 (when its gross merchandise value (GMV) was RMB141 billion and revenue was RMB1.7 billion),” says Pan.

That said, she does not expect Taobao Deals and the community grocery segment to contribute “meaningful revenue” in the FY2022.

Alibaba has set a goal of adding 100 million annual active customers (AAC) from 891 million in FY2021 to achieve 1 billion AAC in China in FY2022.

This will be done through multiple channels including Taobao, Ant Financial and CPG. The group also aims to double its AACs overseas from 240 million in the 4QFY2021 “in the next few years”.

The entering of Hema Bazaar and Nicetuan in Alibaba’s WeChat Mini-programs in April will help the group acquire users in a “cost-effective” manner.

To this end, Pan has pegged the successful listing of Ant Group, improving the profitability of its cloud business and the continued growth from the group’s expansion as potential share price catalysts.

On the flip side, risks to the counter include the increasing number of e-commerce competition from PinDuoDuo, JD.com and TikTok, as well as a higher number of merchants’ acquisition channels. — Felicia Tan

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UG Healthcare Price target: RHB “neutral” 57 cents CGS-CIMB “add” $1.20

EMCO to impact production

Analysts from RHB Group Research and CGSCIMB Research have given mixed reactions to UG Healthcare’s announcement on July 12 that it is putting a temporary operational halt to its plants in Seremban temporarily due to Malaysia’s Enhanced Movement Control Order (EMCO) from July 9 to July 22.

RHB Singapore views the development as negative to UG Healthcare’s near-term earnings, given how the closure will crimp production by 80 million pieces of gloves, or 2.35% of the total.

This is on top of the estimated productivity loss the group previously announced, bringing the total reduction in productivity to approximately 165 million pieces of gloves or 4.85% of its annual production capacity of 3.4 billion pieces.

To that end, the team has lowered their FY2022 ending June earnings forecast to $55 million, to reflect a lower utilisation rate assumption.

“We have assumed a lower utilisation rate to 85% for FY2022 from 90% due to the EMCO. FY2021 earnings are not affected, given that UG Healthcare’s financial year-end is in June. We also maintain our FY2023 earnings, as we expect the EMCO to be over eventually,” the team writes in a July 13 research note.

The team also views that average selling prices (ASPs) for gloves have peaked in 1QFY2021, given the rising competition from new gloves supply in the market.

Given these factors, RHB has kept its “neutral” rating for UG Healthcare but with a lower target price of 57 cents, down from 61 cents previously.

Meanwhile, CGS-CIMB analyst Ong Khang Chuen has also lowered his EPS forecasts to reflect the lower production. “We believe the negative impact will mainly be reflected in 1QFY2022 and our preliminary estimates point towards c.5.6% downside to our FY2022 EPS forecasts,” he says.

However, Ong sees “limited share price reaction to UG Healthcare’s latest announcement, as it has trended in line with peers since [the] announcement of Selangor EMCO,” he says in a Singapore rubber gloves sector research note on July 12.

He maintains his “add” call for UG Healthcare with a target price of $1.20, citing its undemanding valuation at 4.6 times 2022 earnings while being supported by net cash of $50 million.

Overall, Ong remains neutral on the rubber gloves sector, the downtrend in ASP and near-term uncertainties on output. — Atiqah Mokhtar

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Starhill Global REIT Price target: DBS Group Research “buy” 75 cents

Earlier than expected DPU recovery

A brightening outlook is on the horizon for Starhill Global REIT (SGREIT), which has stakes in Orchard Road malls Wisma Atria and Ngee Ann City, with a possible index inclusion in September lifting prospects for the REIT.

In a July 13 note, DBS Group Research analysts are upgrading SGREIT to “buy” with a target price of 75 cents.

“SGREIT portfolio operational metrics should improve as the economy re-opens. We see DPU hitting close to pre-pandemic levels earlier than anticipated, with the return of tourist-led spending as a catalyst for the REIT,” write DBS Group Research analysts Geraldine Wong, Derek Tan, Dale Lai and Rachel Tan.

SGREIT invests in income-producing upscale retail or office assets in the Asia Pacific region. In Singapore, SGREIT owns portions of Ngee Ann City and Wisma Atria. It also owns assets in China, Japan, Malaysia and Australia.

Central Orchard malls will enjoy upside when borders reopen. Tenant sales at SGREIT’s Wisma Atria increased to about 84% of pre-Covid-19 levels in 3QFY2021 ended December 2021, which is a positive surprise, note the analysts, even when the borders have yet to open. “We anticipate strategic upgrades at selected malls in Wisma Atria and Malaysia to drive tenant sales.”

Retail master leases and office leases make up approximately 46% and 15% of SGREIT’s annual revenue, allowing SGREIT to channel its focus to actively managed retail leases within Wisma Atria and Ngee Ann City.

“As businesses gradually reopen, SGREIT’s healthy portfolio occupancy of 99.5% (SG retail) with minimal lease expiries of 4.5% in 2Q2020 allows the REIT to focus on ramping up operations and resume rental collections. Government cash grants and other sources of support from the enhanced Jobs Support Scheme and bonus payouts for digitalisation will further fortify food and retail businesses to help them cope in these uncertain times,” write the analysts.

SGREIT also faces a possible index inclusion in September. “The recent changes in indexation rules for the EPRA NAREIT Developed Asia Index puts SGREIT in the front seat for possible inclusion in the upcoming September review,” writes the analysts.

DBS Group Research’s discounted cash flow valuation factors in 6% weighted average cost of capital (WACC) to derive a target price of 75 cents with no acquisitions assumed. “Our target price assumes a 0.56x P/B and a forward 8.0% dividend yield, with a DPU growth of 8% from FY2020 and FY2021.” — Jovi Ho

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Singtel Price target: RHB “buy” $3.00

Singtel is back on the line

RHB Group Research is keeping its “buy” call on Singapore Telecommunications (Singtel), albeit with a lower target price of $3.00 from $3.30 previously, while keeping the stock as its preferred Singapore telco pick.

In a July 13 report, the RHB research team says, “We believe share price re-rating catalysts could come from mobile revenue hitting an inflection point in 1QFY2022 ending March 2022; good enterprise ICT momentum from strong public sector pipeline; and value unlocking from asset sales.”

To that end, the team expects the y-o-y decline in mobile revenue to bottom out in 1QFY2022 due to the low base effect arising from the imposition of the “circuit breaker” in 2Q2020 and stronger economic activities under Singapore’s Phase Three reopening.

Singapore mobile revenue slumped 23% y-o-y in FY2021 and was down 18% y-o-y in 4QFY2021, with travel restrictions pummeling roaming and prepaid revenues. A stronger recovery would nonetheless still come from the progressive relaxation of international travel into 2022, which should drive a rebound in roaming and prepaid sales.

The research team has adjusted FY2022– FY2023 core earnings estimates by between –2% and 11% to factor in a more restrained recovery in mobile revenue and margins in the medium term, with the recovery thesis to gather pace in FY2023.

Meanwhile, Optus’ consumer revenue and ebitda have been hit by lower national broadband network (NBN) migration revenues and fixed retail margins over the past two years. Excluding NBN migration revenues, underlying revenue was steady while ebitda narrowed 5% y-o-y in 2HFY2021.

“We expect the y-o-y recovery in mobile revenue to follow through in 1QFY22 from a higher penetration of the ARPU-accretive Optus Choice Plans alongside market price repair. We note Optus’ price increase in May was followed suit by TPG Telecom recently, which should instill greater market price discipline,” says the team.

On the enterprise front, NCS has been repositioned as an Asian business-to-business (B2B) digital services champion with the regionalisation of its business targeting more private sector accounts, on top of its mainstay in the Singapore Government sector. The focus would be on driving new and digital capabilities/solutions (data analytics, AI), cloud and cyber security.

“We see potential to further scale-up digital revenue streams given the structural shift in revenue and enterprise digitalisation efforts. Stronger ICT contributions will continue to buffer the weakness in legacy carriage revenue, supported by NCS’s $1.3 billion public sector pipeline secured,” says the team. — Samantha Chiew

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Singapore Exchange Price target: UOB Kay Hian “buy” $12.35

Keep ‘buy’ for SGX despite potentially weaker 2H21

The Singapore Exchange (SGX) could post a marginally weaker set of results for 2HFY2021 ended June 30, according to UOB Kay Hian.

This comes ahead of the bourse operator’s FY2021 results ended June 30, which are expected to be released on Aug 5.

The brokerage has forecast SGX to record a y-o-y decline of 0.3% and h-o-h decline of 0.3% in revenue to $572 million for 2HFY2021.

It has also forecast SGX to record a y-o-y decline of 8%, albeit with a h-o-h increase of 3%, in adjusted earnings to $235 million for the half-year period. Nevertheless, there may be some bright spots.

“The aspect to watch out for would be contribution from the [company]’s Data, Connectivity and Indices segment which should see an increased contribution from its acquisition of Scientific Beta,” UOB Kay Hian analyst Lucas Teng writes in a note dated July 13.

For now, UOB Kay Hian has maintained its “buy” rating for the stock with an unchanged target price of $12.35.

The brokerage believes that SGX’s opportunities for growth lie in foreign exchange.

As a result, it has forecast the company’s FY2020–FY2023 revenue to grow at a compounded annual rate of 9%.

SGX, it says, has highlighted the increasing usage of multi dealer platforms and electronic communication network (ECN) in the over the counter (OTC) markets.

The company is looking to set up an OTC electronic communication network anchored in Singapore, building an integrated forex offering that combines both forex futures and OTC forex offerings, it adds. — Jeffrey Tan

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Raffles Medical Group Price target: RHB “buy” $1.35 CGS-CIMB “add” $1.40

Benefiting from Singapore’s reopening

Raffles Medical is set to benefit from Singapore’s reopening, says RHB Securities analyst Shekhar Jaiswal.

Raffles Medical provides Covid-19 testing at its 36 clinics. It was also one of the six firms to be awarded contracts to provide testing services at regional screening centres and dormitories. The gradual reopening of borders bodes well for the company as it operates clinics and offers Covid-19 testing at Changi Airport. In addition, it runs 15 vaccination centres — each of which has a daily capacity of 2,000.

Jaiswal believes the number of doses will pick up given the government’s aim to have around 67% of Singapore’s population vaccinated by Aug 9.

In line with this, he expects the company’s earnings ro rise by 3% to 6% between 2021 and 2023 while profit CAGR hits 25% between 2020–2023.

The strong earnings growth will be aided by local patient load at its healthcare operations returning to pre-pandemic levels and revenue support from the vaccination drive and Covid-19 testing into early 2022.

The likely return of foreign patients to Singapore in 2022 and Raffles Medical’s Chongqing hospital achieving ebitda breakeven in 2022 are also likely to be key earnings drivers, mulls Jaiswal.

Tay Wee Kuang, an analyst at CGS-CIMB agrees with Jaiswal’s hypothesis.

He expects Raffles Medical’s healthcare services revenue ex-Covid-19-related services to grow by 20% in FY2021 to levels comparable to that seen in FY2019.

And as the domestic population continues to be inoculated, Tay foresees that the eventual reopening of borders will bring in more foreign patients in, who typically make up 20% of revenue pre-Covid-19.

To Jaiswal, Raffles Medical’s “valuation remains compelling” since it has delivered 18% returns this year and has outperformed the Straits Times Index (STI) by 7%.

He is maintaining his “buy” call on the company at a revised target price of $1.35. This is up 6 cents from his previous $1.29 call and is believed to give it a 15% upside and 2% yield in 2022.

Tay is also maintaining his “add” call at a higher target price of $1.40. This is up from his previous $1.22 target and is expected to give the counter a 15.8% upside. — Amala Balakrishner

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Broker's Digest: Alibaba, UG Healthcare, Starhill Global REIT, Singtel, SGX, Raffles Medical Group

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