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Broker's Digest: CDL, Raffles Medical Group, PropNex, Centurion Corp, Top Glove

The Edge Singapore
The Edge Singapore9/23/2021 08:00 PM GMT+08  • 10 min read
Broker's Digest: CDL, Raffles Medical Group, PropNex, Centurion Corp, Top Glove
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City Developments
Price target:
PhillipCapital “buy” $9.19
HB “buy” $8.50

Trading at attractive RNAV; Sincere woes no longer

PhillipCapital reinitiated coverage on City Developments (CDL) on Sept 20 with a “buy” call and a target price of $9.19.

According to analyst Natalie Ong, the counter is trading at an attractive 49% discount to the brokerage’s RNAV per share of $14.14.

“Asset monetisation and faster-than-expected recovery in the hospitality portfolio are potential catalysts for CDL while recent asset enhancement initiatives and redevelopments should strengthen income stream and portfolio,” she writes.

To Ong, there are several upsides to CDL, including its strong development pipeline that could catch Singapore’s property upcycle.

Year to date, CDL has picked up two plots of land, being the Northumberland Road government land sale (GLS) and the Tengah Gardens executive condominium (EC) site.

CDL also has a pipeline of 1,121 units that have not been launched yet. The units include the residential units from its redevelopment projects, Canninghill Piers (Liang Court) and Fuji Xerox.

“Based on our forecasts, these two redevelopment projects should yield CDL respectable margins above 30%. Including the unsold units from earlier launches, we estimate that CDL has 1,746 units to be monetised, translating to FY2022/2023 gross development value (GDV) of $2.1 billion/$1.0 billion,” says Ong.

In a Sept 17 report, RHB Group Research analyst Vijay Natarajan has kept “buy” on CDL with a target price of $8.50, given how the complete exit from Sincere Property Group is a “positive move”. The move now allows CDL’s management to refocus on its key strengths, namely the Singapore market and its hospitality business.

The exit will also enable CDL to avoid being engaged in a long-drawn bankruptcy reorganisation of Sincere, and protects the group from the future guarantees of litigations against Sincere from its creditors.

On this, Natarajan has estimated the fair value of the 10% stake added in Shenzhen Technology Park to be $30 million, which will be adjusted against Sincere’s current carrying value of $117 million in CDL’s books (which are mainly in the form of debt instruments).

“[CDL’s] valuation is fairly cheap — the stock is trading at 25%/55% discounts to book value and RNAV, at –1 standard deviation (s.d.) from its long-term average,” he writes.

CDL’s acquisition of the two residential sites is a “right step” to take, according to Natarajan. This is considering the group’s “strong track record, brand presence, strong residential momentum and falling supply levels in Singapore”.

CDL’s launch of Canninghill Piers in 4Q2021 is also expected to do well due to the lack of new launches in the area. To Natarajan, its hospitality business remains the wild card, with its hotel operations remaining impacted by the Covid-19 pandemic with an ebitda loss of $47 million for the 1HFY2021 ended June. — Felicia Tan

Raffles Medical Group
Price target:
RHB “buy” $1.45

Imminent reopening of borders brings opportunities

RHB Group Research is maintaining its ‘buy’ call and target price of $1.45 on Raffles Medical Group. This is expected to give the counter a 4% upside from its $1.39 price, analyst Shekhar Jaiswal writes in a Sept 21 note.

His move comes despite the tapering of the vaccination programme in Singapore.

“This would lead to lower 2H2021 revenue for its healthcare business,” notes Jaiswal.

Raffles Medical operates 14 vaccination centres, compared to 15 previously.

The way Jaiswal sees it, the drop in revenue should be partially offset as the government looks to treat Covid-19 as endemic and gradually reopens borders. With this, the healthcare provider is expected to benefit from a gradual return of patients to clinics as well as the entry of foreign patients, notes Jaiswal.

He adds that the group stands to gain from being the exclusive healthcare service provider at Changi Airport as well as the sole provider of Covid-19 polymerase chain reaction (PCR) tests for air travellers into Singapore.

The group also administers Covid-19 PCR tests on the third and seventh day of a visitor’s arrival.

As Singapore looks to treat the coronavirus as endemic, Jaiswal expects Covid-19 PCR tests to be done more frequently at workplaces. This, he says, will supplement the antigen tests which tend to be less accurate.

Meanwhile, the group’s earnings are slated to get a lift from its Chongqing Hospital in FY2022 which is seen to breakeven in terms of ebitda. For now, it is actively supporting the health ministry’s efforts in coping with Covid-19, such as operating the 50-bed community care facility at Singapore Expo.

Set up by the health ministry, community care facilities or CCFs serve to augment the capacity of hospitals. These facilities cater to Covid-19 patients who are generally well, but have underlying health conditions that require close monitoring. — Amala Balakrishner

Price target:
DBS Group Holdings “hold” $1.83

Rich valuation amid possibility of cooling measures

Despite a “hot” property market, DBS Group Research has initiated coverage on PropNex with a “hold” recommendation and a target price of $1.83, implying a 3% upside.

“Our ‘hold’ recommendation is mainly premised on the stock’s rich valuation in the face of possible property cooling measures with the property market rising,” analysts Chung Wei Le and Ling Lee Keng say in a Sept 17 initiation note.

They highlight that PropNex is currently trading at 11.7 times earnings for FY2022 ending December, which is close to its all-time high and two standard deviations above its historical mean.

“When compared to its peers, it is trading at a 12% premium to its closest peer, APAC Realty, and is in line with its two other international peers’ average of 11.8 times,” they add.

Chung and Ling believe that the risk of policy intervention in the property market is “high”, noting that the Singapore residential property price index (PPI) is up 8.9% since the last set of cooling measures in 2018. The last time the cooling measures were invoked in July 2018, the PPI had risen 9% while in the past year, the PPI had risen by 7.1%.

Barring cooling measures, the analysts anticipate property prices could continue rising in 2022, driven by pent-up demand for residential property, more property upgrades due to higher prices, and the low interest rate environment. In addition, construction delays, a smaller pipeline of new launches, and depleting inventory of unsold new launches are also likely to continue supporting prices.

Chung and Ling expect total transaction value to increase by 6.3% in FY2022, with PropNex to benefit given its expanding market share across segments. In FY2020, PropNex reported it had a market share of 48.8% in the private new launch market, 48.3% in private resale, and 57.3% in HDB resale.

“We are projecting a slight increase in its market share to 50.5% (private new launches), 50.5% (private resale), and 58.5% (HDB resale) in FY2022 due to the market leader effect,” the analysts remark.

However, they also caution that PropNex’s growth will likely start slowing from 2022 onwards, as lower inventory translates to a smaller market for PropNex to capture.

In addition, they anticipate PropNex’s gross profit margins to dampen in FY2022 as resale transactions grow following the lower supply of new launches. “We expect gross profit margins to decline from 11.1% in FY2021 to 10.9% in FY2022 due to the higher contribution from the resale segment,” they say. — Atiqah Mokhtar

Centurion Corp
Price target:
RHB “neutral” 36 cents

Pandemic headwinds remain

RHB Group Research analyst Jarick Seet has maintained “neutral” on Centurion Corporation as headwinds for workers’ and students’ accommodations remain amid the ongoing Covid-19 pandemic.

To date, the number of Covid-19 cases in Singapore and Malaysia, where Centurion operates, is still on the rise.

In his report dated Sept 19, Seet has also lowered his target price to 36 cents from 41 cents previously despite the “resilient” numbers posted in the 1HFY2021 ended June. During the six-month period, the dormitory operator saw earnings decline by 58% y-o-y to $8.7 million, while revenue dipped 3% y-o-y to $64.7 million.

“If not for the $14.49 million fair value loss on its properties, 1HFY2021 would have been fairly decent, despite all the Covid-19-related headwinds,” writes Seet.

However, student accommodation is still likely to be impacted by the ongoing travel restrictions. Universities now are also pivoting to deliver their courses via a hybrid of physical and online lectures.

“The average financial occupancy for its UK purpose-built student accommodation (PBSA) was 66% in 1HFY2021, compared to 74% in 1HFY2020. For the upcoming academic year 2021/2022, Centurion has pre-leased over half of its bed capacity,” notes Seet.

Headwinds for workers’ accommodations remain as well. In the 1HFY2021, Singapore registered lower occupancy owing to the restricted inflow of migrant workers and the availability of interim alternative housing to manage Covid-19 risks. This was mitigated by a stable occupancy rate in Malaysia, says Seet.

To this end, he expects the low occupancy rates to persist for Centurion owing to the number of Covid-19 cases in Singapore recently.

Rounding off, Seet concludes that he likes Centurion for its resilience. However, the impact of Covid-19 on its student and workers’ accommodation businesses should be factored in.

As it is, Seet does not see any immediate rerating catalysts, which are dependent on the resumption of travel and inflow of migrant workers. “An economic recession and a resurgence of Covid-19 infections [pose as key risks to the counter],” says Seet.— Felicia Tan

Top Glove
Price target:
UOB Kay Hian “hold” RM3.06

4QFY2021 earnings missed; Hong Kong listing possibly revived

UOB Kay Hian analyst Philip Wong has lowered his target price on Top Glove from RM3.70 ($1.19) to RM3.06 after its 4QFY2021 core net profit of RM608 million missed expectations and that average selling prices is seen to soften further. However, Wong expects a recovery in volume growth to cushion any accelerated ASP decline.

Wong notes that the scale of the Covid-19 vaccination rollout has eased demand while competition arising from China is “increasingly more prominent”.

That said, Wong expects sales volume to recover significantly, following new guidelines to resume 100% of production once over 80% of the workforce is fully vaccinated; as well as the lifting of the US export sales ban.

Management expects US demand to fully recover to pre-export sales ban by December, but Wong expects the company’s margins to contract as ASPs fall faster than raw material costs decline against lower economies of scale.

Furthermore, Wong notes that Top Glove’s outlook on capacity expansion has been scaled back to 162 billion pieces per annum by 2024, down from 205 billion in its previous guidance in 3QFY2021. This implies a 3-year capacity expansion CAGR of 17.4% for 2021–24.

Apart from that, management has indicated for ASPs to reach market equilibrium in early-2022. “This is well ahead of our previous expectation of mid-2022. Given the drastic deterioration in market demand-supply dynamics, we do not rule out further deferred capacity expansion by both Top Glove and its peers going forward,” Wong writes.

Separately, Top Glove is expected to resume its Hong Kong listing plans which was announced last October but deferred over then-unresolved withhold release order (WRO) by the US Customs and Border Protection.

Now that the WRO has been lifted, Top Glove is expected to finally complete its Hong Kong listing. It previously looked to raise RM4.17 billion at RM5.25 per share with a 9.7% dilution, but with its lower current share price and capex requirement, it is not imperative for Top Glove to raise as much, Wong thinks. — Lim Hui Jie

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