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Brokers’ Digest: CLINT, Marco Polo Marine, Hong Leong Asia, Dyna-Mac, Prime US REIT, SGX, ISDN, ISEC Healthcare, Hyphens

The Edge Singapore
The Edge Singapore • 24 min read
Brokers’ Digest: CLINT, Marco Polo Marine, Hong Leong Asia, Dyna-Mac, Prime US REIT, SGX, ISDN, ISEC Healthcare, Hyphens
One of CLINT's data centres in Navi, Mumbai. Photo: CLINT
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CapitaLand India Trust
Price target:
OCBC Investment Research ‘buy’ $1.18

Well tapped on India’s growth

Donavan Tan of OCBC Investment Research has initiated coverage of CapitaLand India Trust CY6U -

(CLINT) with a “buy” call and fair value of $1.18 for riding on India’s growth.

In his March 19 note, Tan points out that CLINT operates in the fastest-growing emerging market, India. It has nine clusters of IT parks across major cities like Mumbai, Hyderabad, Bangalore and Chennai.

“CLINT stands out among Singapore listed property trusts due to its progressive portfolio expansion and revenue diversification,” writes Tan.

Over the years, CLINT has successfully ventured into logistics and industrials. It also has a steady pipeline of developmental projects, including data centre developments.

See also: UOB Kay Hian sees Civmec's bid to shift domicile to Australia a positive move

Tan says CLINT is positioned a beneficiary of India’s growing economic sectors of e-commerce, data localisation and digital payments. CLINT’s aggressive acquisition strategy to secure a pipeline of strategic properties through forward purchases can potentially propel its growth in a challenging credit environment, although it will have to bear development risks, the analyst adds.

In its 2HFY2023 ended December 2023, CLINT grew its gross revenue by 15% y-o-y to $123.6 million and net property income by 13% y-o-y to $90.4 million. DPU (distribution per unit) for FY2023 was down 21% to 6.45 cents. CLINT’s margins dipped due to higher operating and upkeep costs while higher financing costs caused distributable income to drop 10%.

Nonetheless, Tan sees CLINT riding on an “uncapped potential” of tailwinds, with a track record since inception of growth. CLINT’s management has plans to increase its gross leasing area by 54% over the next five years. Under revised policies, CLINT can attract a wider variety of tenants.

See also: UOBKH keeps ‘buy’ and TP unchanged on BRC Asia, sees bullish medium-term outlook

In FY2023, CLINT reported strong double-digit rental reversions in all its properties except those in Chennai due to the expiry of short-term leases done at above-market rates.

“We anticipate this momentum to continue amidst a bullish 2024 macro-outlook for India, with its 4Q2023 GDP print surpassing expectations yet again and rising over 8% YoY for the third consecutive quarter.

Tan’s $1.18 fair value of CLINT is based on the dividend discount model (DDM) methodology, with a cost of equity assumption of 9.17%, terminal growth rate of 2.5%, and a slight ESG valuation premium. At this level, the fair value of $1.18 implies a P/B multiple of 0.9 times.

Tan projects a distribution yield of 6.6% for the current FY2024, up 4.9% over FY2023, with growth to be driven by several planned acquisitions that are anticipated to be completed and contribute to rental income in the current year.

At current valuations, CLINT is trading at a consensus forward 12-month P/B of 0.87 times, approximately 1.37 standard deviations (s.d.) below its historical average three-year average forward P/B of 1.09 times. — The Edge Singapore

Marco Polo Marine
Price target:
Maybank Securities ‘buy’ 8.8 cents

Sailing with the wind

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

Maybank Securities analyst Jarick Seet has initiated a “buy” call on Marco Polo Marine 5LY -

with a target price of 8.8 cents. Seet’s target price represents an upside of 54% from the stock’s closing price of 5.9 cents as of March 20 and is based on 11 times Marco Polo Marine’s estimated FY2024 P/E.

“Marco Polo Marine, a long-time operator in the chartering and shipyard business, is benefiting from the surge in demand and charter rates due to competition for vessels from the oil and gas (O&G) and renewable energy sectors,” writes Seet in his March 20 report.

Due to limited investments since the crash in oil prices in 2016 and the lack of bank financing, the number of vessels has been unable to keep up with the demand surge, which has been caused by competition from the renewable energy sector.

Charter rates have been rising by 5% to 15% per annum for the past three to four years, thus benefitting the company. Thanks to the higher charter rates, Marco Polo Marine has seen its gross margins improve to 36% in FY2023, up from 14.3% in FY2020. Its net margins have also improved to 20.3% in FY2023 from –29.9% in FY2020.

There is still more room for growth as Seet expects charter revenue to continue to grow by 25% y-o-y for FY2024 and FY2025.

This coming FY2025, Marco Polo Marine will see new contribution from a commissioning service operation vessels (CSOV), which will be completed by 3QFY2024 and begin operations for its windfarm client Vestas in October 2024 or FY2025. The vessel will be deployed at offshore wind farms in Taiwan, Japan and South Korea over three years with a minimum yearly utilisation commitment, notes Seet.

The analyst expects the CSOV’s utilisation to be around 80% for FY2025 and FY2026, which should contribute about $4 million - $5 million net profit annually or about 20% y-o-y net profit after tax (NPAT) growth.

Seet sees potential new vessels with long-term contracts with Vestas, as well as attracting new clients as new catalysts for the company. Naturally, a strong set of earnings for the 1HFY2024 ending March 31 as well as the building completion of CSOV, are also positive factors.

“We believe Marco Polo Marine has strengthened its strategic relationship with Vestas, especially in Taiwan, and Vestas will continue to be a core charter partner of Marco Polo Marine,” says Seet.

At its current share price levels, Marco Polo Marine, which is trading at just 6.9 times its FY2024 P/E, remains “significantly undervalued” compared to its global and regional peers, which are trading at 15 times and 25 times on average respectively.  — Felicia Tan

Hong Leong Asia
Price target:
CGS International ‘add’ $1

‘Underappreciated’ proxy to construction growth

CGS International’s analysts Ong Khang Chuen and Kenneth Tan have kept their “add” call and $1 target price on Hong Leong Asia H22 -

(HLA), calling the company an “underappreciated building materials proxy” for the construction industry upcycle in Singapore and Malaysia.

In 2HFY2023 ended December 2023, HLA’s building materials unit enjoyed strong growth momentum with earnings up 167% y-o-y to $45 million, lifted by higher selling prices and volumes at this Malaysia cement unit Tasek.

The resumption of construction tempo following the end of an enforced safety break between September 2022 and May 2023 in Singapore also helped lift demand.

The government has projected total construction demand this year to be between $32 billion and $38 million, versus $33.8 billion recorded last year — the highest level since 2014.

There is also clear growth visibility in Singapore, with 2025 and 2028 forecast at between $31 billion and $38 billion per year versus the average of $29.8 billion between 2009 and 2023.

The medium-term outlook in Malaysia is positive, too, with the likely rollout of key mega projects such as MRT 3, Bayan Lepas LRT and potentially the HSR.

In their March 18 note, Ong and Tan projected the building materials unit to enjoy PAT growth of 10% in the current FY2024, with Malaysia’s cement average selling prices on an upswing and Singapore’s higher precast demand on regulatory tailwinds.

In addition, HLA’s separately listed China-based engine-making subsidiary Yuchai is expected to recover from multi-year lows from the impact of the pandemic.

This year, with inventory destocking post new engine standard implementation, Yuchai is seen to enjoy growth in the sale of natural gas engines and export sales.

Ong and Tan believe HLA is poised to enjoy a re-rating thanks to stronger profitability improvement of the building materials unit riding on strong demand growth.

Potential corporate actions, which the analysts did not specify, are seen as helping unlock value for shareholders, too.  

Conversely, downside risks include delays in the award of key infrastructure projects in Malaysia or intensified pricing competition.

Excluding HLA’s stake in listed subsidiaries/associates, HLA’s implied valuation of its building materials unit, which accounted for 80% of its FY2023 patmi before corporate costs, is only at $150 million or 2.5 times the 12-month trailing P/E, based on the latest market value.

They are projecting HLA to grow its patmi by another 15% this year on stronger construction activity levels and volume recovery of Yuchai. — The Edge Singapore

Dyna-Mac Holdings
Price target:
Lim & Tan Securities ‘buy’ 45 cents

‘Irresistible’ proxy to oil & gas upcycle

Nicholas Yon of Lim & Tan Securities has initiated coverage of topside builder Dyna-Mac Holdings NO4 -

with a “buy” and 45 cents target price, given that its valuations are “undemanding” relative to peers. The company is also an “irresistible” proxy for investors to ride the ongoing supercycle of the oil and gas industry.

In his March 18 note, Yon pointed out that Dyna-Mac clinched substantial orders and expanded its capacity to fulfil its record $438 million order book.

“We expect further contract wins, margin expansion and increased revenues and profitability for Dyna-Mac in FY2024 and FY2025 as it continues to ride the oil and gas industry upcycle,” says Yon.

According to Yon, the strong demand for Dyna-Mac’s topside module fabrication should persist given higher capital expenditure is expected in the oil & gas sector.

“Given Dyna-Mac’s recent acquisition of more land space to support its operations and a likely super cycle in the O&G sector, we expect Dyna-Mac to win even more contracts moving forward,” he says.

According to Yon, Dyna-Mac is trading at an “undemanding valuation” of 10.3 times P/E or 4.2 times excluding cash. In contrast, peers trade at an average of 19.5 times. As Dyna-Mac is asset-light, its price to book is high at 5.3 times but the strong ROE of 41% makes up for it.

Yon also notes that following its “remarkable” turnaround in FY2023 ended December 2023, the company has reinstated dividend payments at a “commendable” ratio of 23% to 30%. By extrapolating from this trend, Dyna-Mac is forecast to pay total dividends of 0.94 cents for the current FY2024, translating to a dividend yield of 2.6%.

“Despite the necessity of capital expenditure for its yard expansion endeavours, we remain confident in the sustainability of dividends, underpinned by Dyna-Mac’s resilient balance sheet and the ongoing advancements within the oil and gas sector,” says Yon. — The Edge Singapore

Price targets:
UOB Kay Hian ‘buy’ 45 US cents
DBS Group Research ‘fully valued’ 7 US cents

Differing views on CEO change

On March 15, Prime US REIT OXMU -

’s manager announced that the CEO of the REIT manager, Harmeet Singh Bedi, will resign on March 31 but stay as a senior adviser to the REIT manager. He will be replaced by Rahul Rana as the new CEO.

Prime also says that Rana is a shareholder of the sponsor and owns 40% of the REIT manager. Rana was previously managing director of corporate and investment bank at Deutsche Bank Singapore from 2010 to 2015.

There are differing views on this appointment. In a report on March 18, UOB Kay Hian says that Rana “was intimately involved in the formation of Prime”. “His experience and network would prove invaluable in steering Prime through the current downturn in the US office market.”

In addition, Rana is likely to help Prime execute US$100 million ($147 million) of deleveraging this year and refinance US$478 million due in July this year, UOB Kay Hian says.

On the other hand, DBS Research says the resignation of Harmeet “came as a surprise as this is a crucial period for Prime”. DBS raises the question of “conflicts”. “Although Mr Rahul is from the sponsor, we raised a concern if there could be any conflicts with his appointment,” DBS says.

DBS also says all eyes will be on the refinancing of US$600 million of credit facilities. In Prime US REIT’s FY2023 ended December 2023 results presentation, the manager said the extension of the US$600 million Bank of America facility due in July is a key management focus.

Prime’s aggregate leverage as at end-FY2023 was 48.4%, with an interest coverage ratio of 3.1 times. “Currently, gearing at 48.4%, though within regulatory limits, is a little too high for comfort. As such, we believe leverage risks continue to persist and we remain cautious,” DBS says.

While UOB Kay Hian has a buy recommendation with a price target of 45 US cents, DBS has a fully-valued rating with a target price of 7 US cents. — The Edge Singapore

Singapore Exchange Group
Price target:
RHB Bank Singapore “neutral” $10

Derivatives leading the way

RHB Bank Singapore analyst Shekhar Jaiswal is keeping his “neutral” call on the Singapore Exchange S68 -

(SGX) but with a raised target price of $10 from $9.60 previously. Jaiswal’s report, dated March 18, comes after SGX’s latest operating data update for February.

Based on SGX’s update, Jaiswal notes that while SGX’s securities trading data remained weak, its derivatives volume continued to meet estimates.

In February, Singapore remained the second-most actively traded equities market in Asean as SGX’s securities daily average value (SDAV) came in at $1.25 billion, 13% y-o-y and 34% m-o-m higher. At the same time, total securities turnover value grew by 13% y-o-y and 22% m-o-m to $25 billion, despite fewer trading days compared to the month before.

The exchange also saw a 34% m-o-m increase in retail accounts traded, a 12-month high, and the listing of the Singapore Institute of Advanced Medicine Holdings in February.

Despite this, on a year-to-date (ytd) basis, SGX’s securities turnover value and SDAV were respectively 8% and 10% below the same period last year. “The implied FY2024 SDAV, based on the ytd data, was 14% below our estimate. As such, we lower our FY2024 SDAV estimate by [around] 12%,” says Jaiswal.

Meanwhile, SGX’s derivatives data is tracking the analyst’s estimates on a ytd basis. Derivatives traded volume rose 9% y-o-y but fell by 11% m-o-m in February to 21.9 million contracts. Derivatives daily average volume (DDAV) climbed 9% y-o-y but fell by 2% m-o-m to 1.09 million contracts. At the same time, equities, forex, and commodities all saw a strong increase.

“Ytd derivatives volume and DDAV are 5% and 4% above the same period last year. The implied FY2024 DDAV, based on the ytd data, was a tab above our estimate. We increase our FY2024 DDAV estimate by 0.6%,” writes Jaiswal.

A day after its market update, SGX announced, on March 12, that it plans to introduce short-term interest rate futures linked to the Singapore Overnight Rate Average (Sora) and Tokyo Overnight Average Rate (Tona) in the second half of 2024. The move comes as global investors increasingly seek more transparent and cost-effective tools to hedge and trade fluctuations in interest rates.

Despite the higher y-o-y dividend declared for the 1HFY2024 ended Dec 31, 2023, and its plans to boost dividends by mid-single-digit percentage in the medium term, Jaiswal still sees the group’s valuation and dividends as “still unexciting”.

That said, the analyst now estimates a “gradual increase” in dividend per share (DPS) during the forecast years of FY2024 to FY2026.

Even so, the estimated yield is still below the Straits Times Index’s (STI) forward yield of 5.7%, notes Jaiswal. “We continue to value SGX based on a 21 times forward price-to-earnings ratio (P/E), which is in line with its historical average,” he says.

Although SGX is currently trading slightly below its historical average P/E, Jaiwal sees limited upside.

In addition to his higher target price, the analyst has increased his FY2024 earnings estimates by 2% and his FY2025 to FY2026 earnings by 3% to 5% on the back of optimism over improvements in the FY2025 to FY2026 SDAV.

The analyst has switched to a half-yearly forecast model and has incorporated the likelihood of a lower increase in operating costs for the 2HFY2024 ending June 30 and lower capital expenditure (capex) guidance. — Douglas Toh

ISDN Holdings
Price target:
CGS International ‘hold’ 32 cents

Better prospects FY2024 onwards

ISDN Holding’s FY2023 ended December 2023 numbers came in below his expectations but William Tng of CGS International, citing better demand seen this year and next, has upgraded his call on this counter from “reduce” to “hold”.

In 2HFY2023, ISDN’s revenue dropped 7.8% y-o-y to $341.8 million, bringing full-year revenue to $341.8 million, down 7.8% over FY2022.

Earnings in 2HFY2023 dropped 89.5% y-o-y to $372,000, resulting in a full-year bottom line of $4.95 million, down 66.1% over the preceding year.

According to ISDN, the FY2023 numbers were weighed down by unfavourable forex and also impairment losses on financial assets. The industry-wide slowdown in semiconductors hurt the company as well.

ISDN generates around three-quarters of its FY2023 revenue from its China industrial automation revenue segment, which was up 6.6% yoy when booked in renminbi but down 2.4% y-o-y in Singdollar, the reporting currency.

ISDN’s Southeast Asia industrial automation business, which generated 21% of its FY2023 top line, was significantly impacted by the slowdown suffered by the semiconductor industry in 2HFY2023. For the whole of FY2023, revenue from this segment was down 28.3% y-o-y.

“As ISDN holds the view that demand in both its China market and the semicon industry in Southeast Asia would recover over FY2024 to FY2026, it did not aggressively reduce its cost structure in the face of weaker revenue,” writes Tng in his March 18 note.

Tng observes that ISDN is cautiously optimistic about the current FY2024. China’s Manufacturing Purchasing Managers’ Index (PMI), a key indicator of manufacturing activity, crossed into expansionary territory in December 2023 and January.

In addition, in its Nov 28, 2023, forecast, World Semiconductor Trade Statistics (WSTS) projects global semiconductor sales to grow 13.1% this year.

“Management believes that a slowing cyclical headwind, continued demand for industrial automation in Asia, and the growth of ISDN’s strategic capabilities, positions the group well to capitalise on cyclical recovery and long-term growth in industrial automation,” writes Tng.

While he trimmed his gross profit margin assumptions, Tng is valuing ISDN at its 10-year average P/E of 11.0 times, up from 9.5 times, on better demand conditions that could lead to earnings upside for FY2024 and the coming FY2025.

His new target price is 32 cents target price from 36 cents previously, versus ISDN’s closing price of 30 cents on March 18.

For Tng, upside risks include higher-than-expected earnings contribution from its hydropower business segment and a faster pace of economic growth as China tries to re-stimulate its economy.

Downside risks, on the other hand, include weak customer demand if the global economy continues to slow and the possibility of bad debts as economic conditions worsen. — The Edge Singapore

ISEC Healthcare
Price target:
SAC Capital ‘unrated’

Eyes growth and dividend

ISEC Healthcare, a relatively low-profile SGX-listed healthcare counter, is gearing up for a big expansion with an eye on growing regional demand for its services while paying out a steady dividend income stream, says SAC Capital analysts June Yap and Matthias Chan in a non-rated note on March 18.

Incorporated in 2014, ISEC Healthcare 40T -

provides medical eye care services ranging from cataract and Lasik surgeries to complex corneal transplants.

In FY2023 ended December 2023, the company grew its revenue by 11.2% y-o-y to $70 million and earnings by 3.3% y-o-y to $13.2 million, thanks to stronger demand for speciality eye care services in Singapore, Malaysia and other emerging countries in Southeast Asia.

Over 70% of ISEC Healthcare’s sales come from Malaysia with around 50% of its Malaysia’s sales coming from its flagship centre in Mid-Valley, Kuala Lumpur.

To meet the demand in Mid-Valley, ISEC plans to build a new 15-storey building that will at least triple its clinical space. In addition, there are plans to open at least 4 more centres outside of Klang Valley. “ISEC is well-positioned to capitalise on Malaysia’s population size of 33.5 million,” the analysts write.

They also note that between 2020 and 2023, the company tripled its earnings to $13.2 million, using an asset-light business model which Yap and Chan believe will be sustainable.

The analysts believe there’s strong potential in emerging Indochina. “Using its Singapore and Malaysia franchise as a springboard, its scalable business model and the expertise to operate eye centres in these emerging markets has allowed ISEC to explore rolling out expansion plans to emerging markets in the coming years,” write the analysts.

For FY2023, the company has declared a final dividend of 0.85 cents per share, which compares with 1.08 cents per share for FY2022.

The SAC analysts point out that ISEC has a track record of paying an attractive dividend payout to shareholders while its strong balance sheet, with net cash of $17.2 million as at end-FY2023, gives it the strength to fund its expansion plans and reward shareholders with dividends. — The Edge Singapore

Hyphens Pharma International
Price targets:
CGS International ‘add’ 35 cents
PhillipCapital ‘buy’ 35 cents

New channels to boost sales volumes

Analysts are positive about Hyphens Pharma as the pharmaceutical and consumer healthcare group reported net profits of $8.6 million for FY2023 ended Dec 31, 2023.

CGS International analyst Tay Wee Kuang has kept his “add” call as the group’s earnings stood above his expectations at 107.3% of his full-year estimate. The outperformance comes as Hyphens Pharma’s sales hit a record in 4QFY2023.

“We think Hyphens Pharma also benefitted from revenue contribution from new products added to its portfolio such as infant care products from Laboratoires Gilbert for which [the group] took over distributorship (as of 2H2023) in countries where the brand has an existing sales presence,” says Tay in his March 13 report.

The analyst adds that the group’s establishment of new distribution channels for its portfolio of products may also boost its sales volumes.

“Hyphens Pharma continues to make headway in establishing new distribution channels for its portfolio of products, such as its recent (Feb 24) partnership with 7-Eleven Singapore to sell its Ocean Health supplements in selected 7-Eleven stores in Singapore and the signing of an exclusive distribution agreement with leading Moroccan pharmaceutical company Cooper Pharma to distribute its range of Ceradan skincare products in five Middle East countries (Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Bahrain),” Tay writes.

Despite lower gross profit margin (GPM) in 2HFY2023 due to higher cost pass-through from its brand principals, Hyphens Pharma says it will be looking to optimise its sales mix via efforts. This includes focusing on its medical aesthetics portfolio to drive margin expansion.

Tay has increased his earnings per share (EPS) estimates for FY2024 and FY2025 by 1.2% and 4%, respectively, due to stronger revenue growth that is partly offset by weaker GPMs. As a result, his target price is lifted to 35 cents from 32 cents previously. He also continues to like the group as he believes it will continue to see incremental benefits from its expanded product portfolio.

PhillipCapital analyst Paul Chew has also kept his “buy” call on Hyphens Pharma, as its FY2023 earnings also exceeded his expectations at 106% of his full-year forecast. “Other markets, such as Indonesia and the Philippines, grew faster than expected due to the maiden contribution from Laboratoires Gilbert exports,” Chew writes.

While Chew is positive about the rebound in the group’s revenue for speciality pharma, he is concerned about weaker gross margins and higher operating expenses (opex). “Ebitda margins declined 1.5% points y-o-y to 8.3% in 2HFY2023. We believe a combination of higher export sales, an increase in headcount costs, and additional expenses from DocMed drove down margins,” he notes in his March 14 report.

He still expects Hyphens Pharma’s overall earnings to recover amid the normalising supply chain for speciality products from Europe. “Other growth drivers for Hyphens include aggressively expanding the number of principals for its speciality products, exporting to new markets, and stock-keeping units (SKU) extensions of its proprietary brands. Additional costs by DocMed are also at a more gradual pace,” Chew writes.

Chew has kept his target price unchanged at 35 cents. At Hyphens Pharma’s last-closed price of 28 cents, the group has a dividend yield of 4% and is trading at a P/E multiple of seven times FY2024 estimates.  — Felicia Tan

Food Empire Holdings
Price target:
KGI Securities ‘outperform’ $1.56

Record earnings, better year

KGI Research has kept its “outperform” call on Food Empire Holdings F03 -

after the company reported a record set of earnings for the FY2023 ended Dec 31, 2023. Analyst Tang Kai Jie has also given the company a higher target price of $1.65 from $1.45 due to better profitability.

In his report dated March 7, Tang notes several positives including the resilient consumer demand for the company’s products despite geopolitical tensions and the high interest rate environment.

Other pluses are Food Empire’s initiatives to optimise its product mix and to reduce its costs; its FY2023 dividend of a total of 10 cents, which indicates a forward yield of 7.14%; strong share buybacks, which the company intends to provide shareholders with in FY2024; and the stable foreign exchange (forex) rates.

In addition, the company maintains a strong cash position, showcasing its ability to generate cash flow to fund its future expansions. “Its strong supply chain and market presence across several markets also put it at a competitive advantage against its peers,” says Tang.

“The company consistently seeks opportunities for market expansion, with a primary emphasis on acquisitions. Additionally, there are plans to build more factories within existing markets to enhance its business-to-business (B2B) business. Further updates on expansion into new markets or the construction of additional factories will be communicated to investors by the management once these plans are confirmed,” he adds.

Meanwhile, one downside Tang has identified is the company’s currency risk as it operates its businesses in several key markets including Russia, Ukraine, Kazakhstan, Vietnam and India.

“The escalation of geopolitical tensions, such as the Russia-Ukraine war, would depreciate currencies such as the Russian ruble and Ukrainian hryvnia against the US dollar even further,” Tang writes.

The analyst remains upbeat on Food Empire’s outlook, seeing interest rate cuts likely to happen in the 2H2024. When the rate cuts happen, the company should see a further decline in costs and expenses in FY2024.

Demand is also expected to remain healthy across its key markets; the company would also enjoy continued growth with its expansion plans anticipated to drive more sales.

In the coming year, Food Empire, after finalising its non-dairy creamer expansion in Malaysia, expects to commence commercial production in the next few months pending final approval from the Malaysian government.

“This expansion aims to boost non-dairy creamer sales to external parties in the region. Marketing efforts have already commenced to identify potential customers, and the group foresees the plant reaching 30% to 40% capacity by year-end,” says Tang.

His new discounted cash flow (DCF)-based target price is based on a terminal growth rate of 2% and a weighted average cost of capital (WACC) of 12%, as well as a comparable multiples valuation with an average industry price-to-sales multiple of 0.94 times. — Felicia Tan

Q&M Dental Group (Singapore)
Price target:
PhillipCapital ‘buy’ 36 cents

Earnings recovery

PhillipCapital analyst Paul Chew has upgraded his call on Q&M Dental Group QC7 -

(Singapore) to “buy” from “accumulate” as the company’s adjusted patmi in FY2023 ended Dec 31, 2023, exceeded expectations at 121% of Chew’s forecasts.

In his March 18 report, Chew likes Q&M’s recovery in revenue and margins, noting that its revenue growth for the 2HFY2023 is the fastest over the past two years.

“Despite fewer clinics, revenue expanded from higher revenue per patient. Using data-driven treatment, Q&M can ascertain and provide a more intensive treatment for patients. Margins recovered from operating leverage and a stable number of staff or nurses,” he writes.

However, FY2023, which saw the first decline in Q&M’s clinics in six years, is a concern. “Q&M closed two clinics in Singapore. The restructuring was to close loss-making clinics. Q&M is still looking to expand its clinics but for larger sites,” Chew notes.

In FY2024, the analyst expects the company to see earnings growth. “Using [artificial intelligence or AI tool] EM2Ai tools and data, dentists can raise the treatment levels for the benefit of patients and improve the timelines or regularity of patient check-ups and treatments,” says the analyst.

“Other initiatives include training Malaysia clinics for more advanced treatments. Associate Aoxin Q&M 1D4 -

Dental turnaround is supported by government incentives in the healthcare sector. The 51% sale of EM2AI will also reduce the research and development (R&D) expenses borne by the company,” he adds.

“Apart from improved efficiencies in both revenue and cost, we believe data-based (or evidence-based) treatment plans can differentiate Q&M from the competition and enjoy premium pricing.”

In addition to his upgrade, Chew has raised his target price to 36 cents from 34 cents previously as he values the company at 20 times P/E of its FY2024 earnings, in line with its industry peers.

Its listed associate, Aoxin Q&M Dental, which is unrated by PhillipCapital, is valued at market price with a 20% discount, says Chew. — Felicia Tan

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