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Broker's Digest: Centurion, Food Empire, Frencken, Netlink NBN Trust, Thai Beverage, Singapore Airlines

The Edge Singapore
The Edge Singapore • 20 min read
Broker's Digest: Centurion, Food Empire, Frencken, Netlink NBN Trust, Thai Beverage, Singapore Airlines
SIA reported $2.68 billion in FY2024 earnings. Net profit rose 24% y-o-y while revenue rose 7% y-o-y to $19 billion. Photo: Bloomberg
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Hyphens Pharma

Price target:

SAC Capital ‘buy’ 38 cents

Maintaining positive outlook

SAC Capital analysts Daniel Ng Ming Ci and Matthias Chan have maintained a “buy” on Hyphens Pharma International 1J5 -

with a target price of 38 cents.

The analysts note that the company’s 1QFY2024 ended March results were within their expectations. For the quarter, Hyphens Pharma’s revenue increased by 44.4% y-o-y to $48 million, driven by improvement from all segments. Correspondingly, gross profit improved by 32.8%.

See also: UOBKH ups Keppel DC REIT’s TP to $2.20 after seeing silver lining for Guangdong data centres

However, gross margins decreased to 36.3% due to ongoing cost pressures and a higher sales mix of lower-margin products. Net profit after tax surged by 97.6% to $2.7 million, in line with higher revenue.

To this end, Ng and Chan’s positive outlook remains unchanged, expecting the announced initiatives to proceed as planned.

The proprietary brands segment, for instance, is anticipated to further its market expansion and penetration. This is highlighted by the partnership with 7-Eleven to offer Ocean health supplements at selected stores in Singapore, as well as the introduction of the Ceradan range into five Middle Eastern markets through an exclusive distributorship with Cooper Pharma.

See also: UOB Kay Hian raises Yangzijiang Shipbuilding's target price to $2.86

“Additionally, the recent licensing of Wynzora Cream — a proven treatment for plaque psoriasis in the US and Europe — for Asean countries from MC2 Therapeutics bolsters the segment’s growth potential. The speciality pharma portfolio continues to expand with the introduction of new products, including offerings from Laboratoires Gilbert and products from the medical aesthetics portfolio,” the analysts add.

Aside from easing inventory levels from distributors, SAC Capital remains cognisant of the uncertainties stemming from inflationary pressures leading to increased supply costs. — Khairani Afifi Noordin

Centurion Corp

Price targets:

RHB Bank Singapore ‘buy’ 69 cents

UOH Kay Hian ‘buy’ 77 cents

For more stories about where money flows, click here for Capital Section

In a sweet spot to keep outperformance

Analysts at RHB Bank Singapore and UOB Kay Hian have both kept their “buy” calls on Centurion Corp following its 1QFY2024 ended March results, along with higher target prices of 69 cents from 64 cents and 77 cents from 57 cents.

RHB’s Alfie Yeo writes: “We stay positive on Centurion Corp and see growth driven by higher bed capacity, occupancy, and rental rates. Centurion is in a sweet spot for purpose-built workers’ accommodation (PBWA) in Singapore, where demand for foreign workers outstrips dormitory bed supply.”

In 1QFY2024, Centurion booked a 30% y-o-y jump in revenue to $61 million, thanks to positive rental reversions and better occupancies. Its Singapore revenue increased by 37% y-o-y to $42 million, while Australia and the UK generated growth of $4 million and $10 million, up 25% y-o-y and 28% y-o-y respectively. Only revenue from its Malaysia assets remained flat at $5 million.

The company’s Singapore and Malaysia’s PBWA occupancies reached 99% and 96% respectively while its UK and Australia’s PBSA occupancies reached 99% and 90%, all of which outpaced Yeo’s expectations. Yeo has thus imputed higher bed and occupancy rates into his forecasts, leading to a 5% revision in earnings expectations from FY2024 to FY2026.

For Yeo, Centurion is “well-positioned” to yield better rental rates in Singapore due to the short supply of dormitory space,while its higher occupancy in Malaysia is expected to be fuelled by the increasing number of foreign workers.

Meanwhile, UOBKH’s Adrian Loh likes Centurion’s ability to pass on inflation and higher costs, thereby maintaining, or even expanding its margins. Over the current FY2024 and coming FY2025, Yeo expects margins in Singapore to further grow by the “low to mid-single-digit”.

Aside from Hong Kong, Loh sees Centurion getting more active in Australia. For example, its redevelopment of an asset in Melbourne is pending approval and Centurion’s controlling shareholder has purchased land in Sydney. Thus, any future development of PBSA assets could be sold to Centurion.

Following the 1QFY2024 results, Loh upgraded his earnings estimates for FY2024 to FY2026 by 9% to 12%, adding that future upgrades will depend on how rental rates move.

He has raised the dividend forecast to three cents a share for FY2024 to FY2026, or a 31% payout ratio and he expects Centurion’s share price, which has gained 32.1% year to date, to continue to outperform the STI, which managed just 2.3%. “Our new target P/E multiple of 7.9 times is based on the company’s 10-year P/E multiple, which we view as reasonable,” adds Loh. — Douglas Toh

Food Empire Holdings

Price targets:

Maybank Securities ‘buy’ $1.30

CGS International ‘add’ $1.73

UOB Kay Hian ‘buy’ $1.30

KGI Securities ‘outperform’ $1.35

Pressure on margins

Food Empire on May 9 reported its 1QFY2024 ended March business update. Its revenue for the first quarter came in 14.5% y-o-y higher at US$117.5 million, up from US$102.6 million ($138.06 million).

Sales in Russia, the company’s largest market, were negatively impacted by unfavourable forex movements as the ruble depreciated against the US dollar. However, in constant local currency terms, revenue in this market increased by 27.4%.

Food Empire also enjoyed strong growth in other key markets, such as Southeast and South Asia, up 35.3% and 33%, respectively. The group reports that prolonged geopolitical tensions and the macroeconomic environment have presented various challenges in global markets. While closely monitoring the potential impacts on its business, Food Empire remains cautiously optimistic. Consumer response to marketing and promotional activities has been encouraging, and sales remain strong in its core markets.

Following the results announcement, Maybank Research keeps its “buy” recommendation on Food Empire with a target price of $1.30. Despite the revenue growth in the first quarter, analysts Jarick Seet and Eric Ong believe that the rise in coffee bean prices and the initial operational cost of Food Empire’s new non-dairy creamer plant will hurt its margins this year.

“Hitting a good utilisation level and raising prices will take time before it benefits its P&L (profit and loss statement),” say the analysts, expecting about six months for the group to see financial impact from gradually raising prices. They believe that FY2024 earnings will likely suffer due to lower overall margins ahead of the recovery in FY2025.

Management has demonstrated its execution prowess many times, and analysts believe this will likely be just a short-term blip in earnings. “However, we believe the company’s valuations remain undemanding, and management’s track record of execution has been good,” they add. They also believe the stock is undervalued at 8.6 times FY2024 P/E, and the share buyback will likely continue. Management will likely continue to reward shareholders with attractive dividends, currently yielding around 7%.

Meanwhile, CGS International has kept its “add” call but with a lower target price of $1.73 from $1.84 previously. The first quarter results were in line with analyst William Tng’s expectations.

According to management, the group completed the expansion of its non-dairy creamer production facilities in Malaysia and began commercial production with the added capacity on April 1. They expect this increased capacity to contribute to revenue starting in the second quarter of FY2024 and to reach full utilisation over the next two to three years.

Food Empire has initiated the construction of an additional snack factory adjacent to its existing one in Malaysia. Upon completion and commissioning, management anticipates boosting production capacity for its snack business starting from FY2025.

Tng is cautious about margin pressures in FY2024 due to high coffee prices. The group plans to review its pricing strategy and adjust product prices to offset higher raw material costs, though this may take months to impact financials. As a result, Tng has lowered its gross profit margins and EPS forecasts. Overall, Tng is optimistic about the stock due to its potential to expand operations in Vietnam, grow its food ingredients business, and improve dividends with the end of its major capex cycle in FY2023.

On the other hand, UOB Kay Hian maintains its “buy” rating but has lowered the target price from $1.69 to $1.30. Analysts John Cheong and Heidi Mo share similar concerns about the impact of high coffee bean prices on margins. Consequently, they have reduced their gross profit margin forecasts for FY2024-FY2026.

Still, consumer demand remains strong. “With the strong levels of demand sustained amid inflationary pressures and currency volatility from geopolitical uncertainties, our forecast incorporates a 6%-7% increase in FY2024-FY2026 revenue,” say Cheong and Mo.

“While rising coffee bean prices are likely to impact margins moving forward, Food Empire continues to record revenue growth during the period, illustrating its strong brand equity. We, therefore, still like Food Empire for its growth prospects,” say the analysts.

KGI Securities has an “outperform” call on Food Empire but with a lower target price of $1.35 from $1.65 due to upward cost pressure and foreign exchange losses. “While demand remains robust for the group’s products, the group continues to face headwinds such as higher coffee prices and a strong US dollar,” says analyst Tang Kai Jie.

The analyst remains optimistic about Food Empire’s outlook, expecting demand to stay strong across key markets and the company to experience continued growth in 2024. Additionally, the company’s expansion plans are anticipated to boost sales. Following expected rate cuts, a weaker US dollar will likely support the company’s reported earnings.

The company maintains a strong cash position, demonstrating its ability to generate cash flow for future expansions and share buybacks. Its robust supply chain and market presence across multiple regions also provide a competitive advantage over its peers. — Samantha Chiew

Frencken Group

Price targets:

Maybank Securities ‘buy’ $1.77

UOB Kay Hian ‘buy’ $1.74

RHB Bank Singapore ‘buy’ $1.81

Riding semicon recovery

Analysts at Maybank Securities, RHB Bank Singapore and UOB Kay Hian (UOBKH) have all maintained their “buy” calls on Frencken Group E28 -

following the company’s strong 1QFY2024 ended March results.

While Maybank and UOBKH have kept their target prices of $1.77 and $1.74 unchanged, RHB analyst Alife Yeo has raised his target price of $1.81 from $1.80.

In his May 16 report, Yeo writes that Frencken’s 1QFY2024 revenue and earnings had met his expectations. He believes the company will continue to strengthen its revenue because it is a “beneficiary of the anticipated semiconductor recovery”.

He notes that the company’s 73% y-o-y growth in earnings to $9 million stems from its stronger topline and gross margins while its revenue growth was mainly driven by the mechatronics division, which leapt 14.4% y-o-y to $170 million, driven by growth in the semiconductor segment, which jumped 37.4% y-o-y led by robust sales of the company’s key European customer and modest sales growth from its Asia operations.

“Frencken’s 1QFY2024 revenue and earnings puts it on track to meet our earnings forecast. It guided that 1HFY2024’s revenue should be comparable to 2HFY2023,” writes Yeo.

He adds: “Beyond that, we anticipate a pick-up in activity, especially in the semiconductor segment and believe that 2HFY2024’s revenue will outperform 1HFY2024’s.”

Particularly on the company’s semiconductor segment, while the RHB analyst believes that a board-based recovery is still a distance away, near-term growth “should stem from customers expanding capacity in Europe and Asia” as Frencken’s customers continue to build up their inventory buffers for production equipment.

Maybank analyst Jarick Seet similarly points out that the company has relocated its US operations to a larger facility and expanded its motor business to support semiconductor equipment customers.

Beyond Frencken’s semiconductor segment, Seet expects 2QFY2024 and the subsequent quarters to be stronger q-o-q due to new net production introductions in its automotive, life science and medical segments.

He also sees a pick-up in its margins due to higher operating leverage. Seet is already encouraged by the company’s Southeast Asia utilisation, which has increased to 60%–70% from 50% in 3QFY2023.

He concludes: “We continue to like Frencken and believe it will remain a key beneficiary of the semicon recovery.”

For UOBKH’s John Cheong, Frencken’s 1QFY2024 results aligned with his expectations, with its $193.6 million revenue and $9 million in earnings forming 24% and 21% of his full-year forecasts respectively.

“Tapping on its expanded capacity and strategically positioned manufacturing sites in Europe, Asia and the US, Frencken remains focused on its programmes for existing and new customers,” writes Cheong.

Cheong’s target price for Frencken continues to be pegged to the same 17 times FY2024 price-to-earnings ratio (P/E), which, at two standard deviations (s.d.) above the mean P/E, is to capture the recovery in the semiconductor cycle and an improvement in earnings quality as the automobile segment could see more contributions from new customers in the electric vehicle (EV) space.

Share price catalysts include higher factory utilisation rates, better cost management and improving institutional interest. Conversely, later-than-expected demand recovery and supply chain disruptions are key risks. — Douglas Toh

Netlink NBN Trust

Price targets:

UOB Kay Hian ‘buy’ 98 cents

Maybank Securities ‘buy’ 97 cents

DBS Group Research ‘buy’ 98 cents

Slight FY2024 miss, but it is still a ‘buy’

Analysts at UOB Kay Hian (UOBKH), Maybank Securities and DBS Group Research are keeping “buy” on Netlink NBN Trust despite its lower-than-expected FY2024 ended March results.

UOBKH Chong Lee Len and Llelleythan Tan Yi Rong note that while higher connections drove Netlink’s revenue higher, the soft FY2024 ebitda and net profit were due to an $8.8 million one-off write-off of decommissioned network assets in 4QFY2024 as well as higher finance costs, respectively.

Excluding the one-off expense, Netlink’s FY2024 ebitda and net profit would have formed around 98% of UOBKH’s full-year forecasts, within the analysts’ expectations.

Despite the miss, Netlink’s dividends are in line with Maybank’s expectations, says analyst Hussaini Saifee. He points out that Netlink’s 2HFY2024 dividends of 2.65 cents translate to an annualised dividend yield of 6.1%.

Netlink is recognised as a stable, high-yield stock. Chong and Tan highlight that key factors for potential new investments include country risk premium and a preference for stable cash flow via an asset sale-and-leaseback model.

“Importantly, Netlink has sufficient debt headroom to drive its acquisition ambition without compromising cash flow and dividends. There is, however, no fixed timeline for mergers and acquisition activities, and management may even consider a joint venture or consortium outfit for its acquisition strategy.”

“Netlink sees growth opportunities from the digital economy, 5G rollout, connectivity into data centres and Singapore’s Smart Nation initiatives. The group is also well-positioned to support Infocomm Media Development Authority and its customers in their technology upgrade to deliver a 10Gbps-enabled National Broadband Network,” they add.

Meanwhile, DBS analysts highlight that from April 2024, residential connection pricing was lowered by 2% to $13.50 per connection, while non-residential is unchanged at $55 per connection. In the non-building access points segment, which contributes less than 5% of the total revenue, the connection price has been lowered by 4.5% to $70.50 per connection.

Due to this price revision, analysts forecast that overall revenue will remain flat in FY2025, followed by low single-digit growth in FY2026. Despite this, they do not anticipate any negative impact on Netlink’s distributions.

Maybank and DBS keep their target prices at 97 and 98 cents, respectively, while UOBKH has lowered their target price to 98 cents from $1.01.— Khairani Afifi Noordin

Thai Beverage

Price targets:

UOB Kay Hian ‘buy’ 70 cents

DBS Group Research ‘buy 69 cents

Cheery recovery

Following Thai Beverage Y92 -

’s 2QFY2024 results ended March, analysts from UOB Kay Hian (UOBKH) and DBS Group Research have kept their “buy” calls on the beverage producer. UOBKH has kept its target price unchanged at 70 cents, while DBS figures the stock is worth 69 cents.

UOBKH’s Llelleythan Tan and Heidi Mo say that ThaiBev’s lower 1HFY2024 patmi of THB15.2 billion ($570 million), a 5.6% y-o-y decline, was in line with their expectations. It formed about 50% of the analysts’ full-year forecasts.

Tan and Mo say that the spirits segment benefitted from a better product sales mix and prudent cost control, while the beer segment outperformed. They add that the non-alcoholic beverages and food segments reported strong growth as economic activity recovered.

They note that the group’s 2HFY2024 core ebitda was 4.7% higher y-o-y as the ebitda margin increased by 0.9 percentage points y-o-y, driven by margin expansion from the group’s core business segments.

The softer 2HFY2024 headline patmi was largely due to lower profit contributions from associates and joint ventures. Excluding these contributions, 2HFY2024 core patmi would have grown 2.1% y-o-y, the analysts say.

ThaiBev’s outlook remains positive for Tan and Mo, who note that it has closed the market share gap between its number one competitor, while the new domestic entrant in 1QFY2024 gained an insignificant market share, peaking only at 1%.

Despite stiff competition, the group expects selling, general, and administrative expenses (SG&A) spending to stay at current levels given rational competition, while raw material costs are expected to soften from lower packaging and malt prices, according to the analyst.

“Moving forward, higher tourist arrivals coupled with a warmer climate in Thailand is expected to boost beer volumes,” they say. “We now become more positive on the outlook for the beer segment and reckon that earnings have bottomed out in 2QFY2024.”

As the group declared an interim 1HFY2024 dividend of 0.15 baht/share, the same as the period a year before, the analysts maintain their expectation that the group will declare an FY2024 total dividend of 0.60 baht per share. This implies a 60% dividend payout ratio and a 4.3% yield.

Regarding lower profit contributions from associates and higher contributions from the beer segment, Tan and Mo have made slightly lower adjustments to their FY2024-FY2026 patmi estimates to THB27.3 million and THB34.7 million, respectively.

“In our view, we still reckon that ThaiBev remains attractively priced at near –2 standard deviations (s.d.) to its long-term average mean PE, backed by favourable tailwinds and a decent 4.3% FY2024 dividend yield,” they say.

Likewise, DBS analysts cite strong volume recovery in the beer segment as a positive pricing effect on ThaiBev’s 2QFY2024 results and note that earnings were dragged down by a significant decline in profitability at its associate company, Frasers Property TQ5 -

, which booked fair value losses on its UK assets.

Due to festive effects, they note that 1HFY2024 tends to be seasonally stronger than 2HFY2024. Therefore, ThaiBev’s first-half performance was a slight miss.

Despite this, the analysts “take comfort” that ThaiBev’s 1HFY2024 ebitda margin was ahead of expectation at 18.2% (excluding associated companies), +0.9% percentage points y-o-y, which they believe investors will notice more.

“This highlights management’s strength in cost control, improving margins under challenging macroeconomic headwinds in Thailand and Vietnam,” they note. “We are hopeful that these headwinds would abate in 2H2024 on continued tourism recovery in Thailand and manufacturing recovery in Vietnam.” — Nicole Lim

Singapore Airlines

Price targets:

OCBC Investment Research ‘hold’ $7.53

DBS Group Research ‘hold’ $6.50

UOB Kay Hian ‘hold’ $6.35

Nearing the end of exceptionalism

Analysts have kept their “hold” calls on Singapore Airlines C6L -

(SIA) following the release of its results for FY2024 ended March 31.

OCBC Investment Research analyst Ada Lim has the highest target price among the three local banks’ research houses, at $7.53. In a May 17 note titled “Nearing the end of the runway for exceptionalism”, Lim thinks passenger yields have likely peaked and are moderating as other airlines progressively return capacity to the market, especially in the region.

SIA reported on May 16 that its full-year earnings were $2.68 billion. Net profit for the year improved by 24% y-o-y, while revenue increased by 7% y-o-y to $19 billion. Operating profit, which excluded one-offs and exceptional items, was up 1.3% y-o-y to $2.7 billion.

The group-wide passenger load factor, an industry metric used to determine how much passenger carrying capacity is used, improved by 2.6 percentage points to 88%.

The airline will reward shareholders with a final dividend of 38 cents, totalling 48 cents for the year, up from 38 cents in FY2023.

Overall, FY2024 results were a slight beat, says Lim. She remains “confident” that SIA’s brand proposition, service quality and product innovation will allow it to transition from recovery to growth. “In our view, SIA continues to hold long-term value in investors’ portfolios.”

DBS Group Research, meanwhile, says SIA is “leaving the best days behind for now”. While management shared that forward bookings in 1QFY2025 continue to be healthy, and cargo yields are likely to receive some support from a diversion to air freight from the Red Sea attacks, they highlighted that passenger and cargo yields continue to face stress due to increased competition.

DBS analysts Jason Sum, Tabitha Foo and Paul Yong have maintained “hold” on May 17 with a higher target price of $6.50 from $6.10. They think the current results prove its stellar performance this year is unlikely to be repeated. “Although we anticipate group passenger capacity to grow by 8%-10% y-o-y and ex-fuel unit costs to decline by 2%-3% y-o-y in FY2025, these will likely be insufficient to mitigate sustained pricing pressures and lower fuel hedging gains for the group,” they add.

Additionally, the joint venture Vistara, despite the improvement in its operating performance, continues to be loss-making, says DBS. “We believe that Air India is likely to be in an even worse state, given that it is still in the midst of its transformation journey, suggesting that SIA’s 25.1% stake in the enlarged Air India group will drag on its bottom line.”

DBS believes that SIA’s valuations are fair “considering the group’s core earnings are expected to decline in FY2025–FY2026”. “Compared to regional peers, which have greater room for recovery, exhibit a superior earnings trajectory, and offer more compelling valuations, SIA’s risk-to-reward profile seems fair for now.”

Finally, UOB Kay Hian Research (UOBKH) analyst Roy Chen has the lowest target price, at $6.35. This is up from $6.31 previously.

In a May 17 note, Chen says yields may moderate further. “Cargo demand strengthened towards the end of FY2024, backed by healthy e-commerce demand, resilient and growing segments such as perishables and concerts, as well as a shift to air freight by some shippers due to security concerns in the Red Sea region.”

For FY2025–FY2026, however, Chen expects profits to moderate but remain decent. “We maintain our expectations that SIA’s earnings would moderate in the next two years, as we expect further yield moderations driven by competitors restoring/adding capacities.”

UOBKH’s updated net profit forecasts of $1.91 billion and $1.22 billion for FY2024 and FY2025, respectively are still “meaningfully” above pre-pandemic levels. This is less than $1 billion net profit for most years in FY2010–FY2019.

Gearing is also likely to climb up going forward, says Chen. “Based on our updated financial projection and SIA’s updated capex plan, we forecast SIA’s net gearing to gradually ramp up, reaching 40.7% by end-FY2027. This gearing ramp-up might come in slower than our current projection if there are delays in aircraft delivery due to aircraft original equipment manufacturer (OEM) supply chain issues.”

Meanwhile, the proposed merger of Air India and Vistara is still pending foreign direct investment and other regulatory approvals in India. Management is hopeful that the deal can be completed within 2025.

Once completed, the merger will give SIA a 25.1% stake in the enlarged Air India group. SIA is expected to recognise a non-cash accounting gain of $1.11 billion from the effective disposal of Vistara.

SIA announced its intention to redeem all remaining mandatory convertible bonds (MCB). This is within our expectations. With this last batch of redemption, SIA would have fully redeemed the $9.7 billion MCBs issued during the pandemic.

Chen highlights SIA’s “decent” dividend yield of 7.1% in the next 12 months. “There also remains upside risk if it takes longer than expected for competitors to catch up with SIA in terms of capacity recovery, possibly due to aircraft OEMs’ delays in new aircraft delivery.” — Jovi Ho

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