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Broker's Digest: FCT, UG Healthcare, Mandarin Oriental International, ThaiBev, Wing Tai Holdings

The Edge Singapore
The Edge Singapore9/2/2022 11:16 AM GMT+08  • 12 min read
Broker's Digest: FCT, UG Healthcare, Mandarin Oriental International, ThaiBev, Wing Tai Holdings
See what the analysts have to say this week.
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Frasers Centrepoint Trust Price target:

One of the most defensive S-REITs

Frasers Centrepoint Trust (FCT) is one of the most defensive S-REITs, thanks to its support from essential services, says UOB Kay Hian Research analyst Jonathan Koh.

Essential services, comprising food and beverage (F&B), supermarket or hypermarket, groceries, beauty and health and other services are patronised by consumers on a regular basis.

“Essential services account for 45% of its total net lettable area (NLA) and contribute 54.4% of gross rental income. Tenant sales have surpassed pre-pandemic levels since October 2021, and were 11% above pre-pandemic levels in June. It can weather uncertainties due to its strong balance sheet with low aggregate leverage of 33.9%,” the analyst notes.

In an Aug 31 note, Koh is maintaining “buy” on FCT with a target price of $2.74, which represents a 21.2% upside.

See also: Broker's Digest: Thai Beverage, China Sunsine, Far East Hospitality Trust

FCT is one of the largest owners of suburban retail malls in Singapore, with assets under management of $6.1 billion. It has nine suburban malls and one office building.

FCT’s suburban malls are resilient and defensive, writes Koh. They have a large population catchment and are well connected to public transport. “All its nine suburban retail malls are located on, or next to, MRT stations. Thus, shopper traffic was high at 146 million in FY2021 ended September 2021. The portfolio serves a combined catchment population of 2.6 million, or 46% of Singapore’s population.

“Suburban malls typically have a higher proportion of retail space allocated to essential services at 40% of NLA, compared to the industry average of 20%–30%.”

See also: Macro headwinds a potential dampener for CDL: OCBC

FCT has turned around to achieve positive rent reversion of 1.7% (first year rent of incoming lease compared to final year rent of outgoing lease) and 4.1% (between averages) in 1HFY2022.

Shopper traffic grew 32% y-o-y in 3QFY2022 with all suburban malls registering double-digit growth. Tenant sales increased 23% y-o-y in 3QFY2022, driven by supermarkets, beauty & healthcare, leisure & entertainment and F&B.

Portfolio occupancy was maintained at a “healthy” 97.1% as at end June, says Koh. “Dominant suburban malls, such as Causeway Point, Northpoint City North Wing and Waterway Point, registered high occupancies of 99.3%, 100% and 100% respectively. Occupancy at Changi City Point improved 3.4 percentage points (ppt) q-o-q to 96.1% as more employees returned to work at Changi Business Park. Occupancy at White Sands improved 1.3 ppt q-o-q to 95.3%.”

FCT has substantially completed the bulk of lease renewal required in FY2022, which was initially 38.7% of total NLA. — Jovi Ho

UG Healthcare

Price target:

PhillipCapital ‘neutral’ 20 cents

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Negative outlook ahead

Analysts are turning negative on UG Healthcare Corporation after its earnings for the FY2022 ended June fell 69% y-o-y to $36.8 million. The dip in earnings was mainly due to the lower average selling price (ASP) of disposable examination gloves as the world adjusts to living with Covid-19 as an endemic.

PhillipCapital analyst Paul Chew has downgraded his recommendation to “neutral”, as glove selling prices remained “sluggish”, inching lower on a q-o-q basis. He has also lowered his target price to 20 cents from 32 cents previously.

“The company is still trading below book value with net cash of $84 million,” he says.

UG Healthcare’s patmi for the 4QFY2022 ended June period stood below his expectations while its FY2022 patmi stood at 93% of his full-year forecasts.

“The largest drag in 4QFY2022 was the higher operating expenses,” Chew writes. “UG is building up a new sales team in Europe to focus on reusable heavy duty gloves. We expect higher costs in the coming quarters as the company builds a new distribution and brand in the region.”

Chew has lowered his patmi estimates for the FY2023 by 39% as he sees stable glove prices as “unlikely”.

He adds: “Competition from China continues to depress nitrile glove prices globally. Demand is also affected by overstocking and slower demand post-pandemic. UG’s strength is the ability to source low-priced gloves from other manufacturers for its trading business.”

CGS-CIMB Research analyst Ong Khang Chuen has also lowered his target price on UG Healthcare to 35 cents from 42 cents, given the current oversupply situation in the global glove industry.

Ong has also lowered his EPS estimates for the FY2023 by 13.8% on lower volume assumptions with the delayed commissioning of UG Healthcare’s new production capacity to October. The analyst is retaining his “add” call on the company as he sees its original brand manufacturer (OBM) business model allows it to fare better compared to other original equipment manufacturers (OEM) glove manufacturers who are facing pricing pressures in the current landscape.

In addition, UG Healthcare’s 76% y-o-y decline in its 2HFY2022 net profit is deemed “relatively resilient” compared to the big four Malaysian glovemakers’ net profit decline of around 90%. “We also think that UG Healthcare’s current valuation is undemanding at 2.5x ex-cash 2023 P/E,” he writes. — Felicia Tan

Mandarin Oriental International

Price target:

Recovery prospects intact

DBS Group Research analysts Tabitha Foo and Derek Tan have initiated coverage on Mandarin Oriental with a “buy” call and a target price of US$2.30 ($3.21) as they are bullish on the counter’s recovery prospects on the back of the heightened travel demand.

“The immense pent-up demand of travellers is evident after more than two years of disrupted travel plans and pandemic fatigue. We believe that the worst is over for Mandarin Oriental and a robust recovery awaits,” they write in their report dated Aug 29.

On this, the analysts have forecasted Mandarin Oriental’s revenue per average room (RevPAR) in the FY2022 ending December and FY2023 to come in at US$251 and US$297, or at 91% and 107% of the group’s pre-Covid-19 levels.

“We also see a turnaround in profitability and the resumption of dividend payouts by FY2023,” the analysts say.

In addition, even if the demand for travel declines subsequently, Mandarin Oriental should be “relatively insulated” from any decline due to the increased travel cost pressures, the analysts note. This is due to its position in the luxury segment, which caters to consumers who are less price sensitive and are willing to pay more for quality service and amenities.

They write: “We believe that revenue growth can outpace cost pressures going forward on the back of pent-up travel demand coupled with the gradual resumption of corporate travel from 2HFY2022 onwards.”

The analysts’ target price is based on a sum-of-the-parts (SOTP) valuation with a 40% discount on owned hotels and The Excelsior, Hong Kong.

The target price also represents a potential upside of 14% from Mandarin Oriental’s current share price of US$2.02.

“The stock currently trades at an attractive P/ NAV of 0.75x, which is [around] 0.5 standard deviation (s.d.) below its five-year historical mean,” Foo and Tan write.

To the analysts, the resumption of travel in Hong Kong, China and Japan will see a “rapid and significant” return of demand, bringing the next leg of growth for the group.

“With Asia’s recovery lagging behind that of other regions, the return to normalcy in Hong Kong, China, and Japan will greatly bolster Asia’s performance,” they write.

In addition, Mandarin Oriental’s strong development pipeline of managed properties will help boost its growth in its bottom line.

“The group is expected to grow by 25 projects, likely to open in the next five years, comprising 11 standalone hotel projects, 11 projects with hotel and residential components, and three standalone residential projects,” the analysts write. “With no equity investment required and higher margins for management contracts, we expect these managed properties to help boost bottom-line growth upon completion.”

Further to their report, the analysts have estimated a revised net asset value (RNAV) of US$3.40, which includes the analysts’ fair value estimates for Mandarin Oriental’s 15 owned hotels and the book value of The Excelsior, Hong Kong.

“After considering the group’s net debt, we estimate a RNAV of US$4.30 billion and an RNAV per share of US$3.40. We apply a discount of 40%, as the stock is more illiquid compared to its global peers, giving a target valuation of US$2.50 billion and target valuation per share of US$2.04,” they write.

Key risks, in the analysts’ view, include the macroeconomic uncertainties, labour shortage and the group’s challenges in finding new opportunities, which will enable it to grow. — Felicia Tan

Thai Beverage

Price target:

UOB Kay Hian ‘buy’ 89 cents

Attractive and undervalued stock

UOB Kay Hian analyst Llelleythan Tan has maintained his “buy” call for Thai Beverage (ThaiBev) with a lower target price of 89 cents from 94 cents previously.

While Tan sees ThaiBev as an “attractive and undervalued” stock with “high potential upside”, the lower target price is due to the lower valuation for the spirits segment as he lowered his spirits ebitda forecasts.

However, he still believes that ThaiBev remains attractively priced at -1 standard deviation (s.d.) of its five-year mean P/E, backed by an expected earnings recovery and underpinned by “favourable tailwinds”.

According to Tan, ThaiBev had a “robust” 3QFY2022 ended June, with revenue and ebitda growing 6.8% y-o-y and 4.8% y-o-y respectively for the quarter, putting the company’s 9MFY2022 revenue in line with expectations and ebitda slightly above expectations.

The robust quarterly performance was thanks to the beer segment’s outperformance and backed by two average selling price (ASP) hikes in 1HFY2022 and the relaxation of Covid-19 measures in Thailand and Vietnam.

The UOB Kay Hian analyst says that based on his estimates, ThaiBev is “on track” to post strong annual y-o-y growth for FY2022 revenue and ebitda of 12.0% and 13.3% respectively.

Meanwhile, OCBC Investment Research analyst Chu Peng has maintained her “buy” rating for ThaiBev with an unchanged target price of 88 cents, citing “undemanding” valuations considering the economic reopening and ThaiBev’s “strong brand name and product portfolio”, its strong market share in Thailand and Vietnam and effective cost control. She notes that ThaiBev is currently trading at a blended forward P/E of 14.2x, which is more than 1 s.d. below its historical average of 16.7x.

OCBC’s Chu adds that the spirits business was impacted by higher packaging costs and currency depreciation of the Myanmar kyat. She notes that despite the fall in revenue and ebitda, ThaiBev’s ebitda margin was only down “marginally” by 0.9 % points y-o-y to 24.6%, underpinned by “prudent cost management”.

According to UOB Kay Hian’s Tan, an additional stock impact has been the postponement of ThaiBev’s spinoff BeerCo listing again. “ThaiBev announced that the group has decided to defer the initial public offering (IPO) of its beer business due to prolonged challenging market conditions, just three months after reviving plans for the listing. It was also noted that the group would continue to monitor market conditions and review the proposed listing again in the future,” he says.

For Chu, potential catalysts for ThaiBev include a rebound in domestic alcohol consumption and growth in associates and joint ventures’ (JV) earnings, while investment risks remain a slowdown in domestic alcohol consumption and weaker economic growth. — Bryan Wu

Wing Tai Holdings

Price target:

FY2022 results a good surprise

DBS Group Research analysts Derek Tan and Rachel Tan have maintained their “buy” recommendation for Wing Tai Holdings with an unchanged target price (TP) of $2.05.

In their report dated Aug 29, the analysts note that Wing Tai’s FY2022 ended June net profit surged by 222%, driven by higher contributions from associated and joint venture (JV) income from Wing Tai Properties Limited and Uniqlo joint ventures, while FY2022 revenue was up 12% y-o-y, broadly in-line with their estimates.

Their target price of $2.05 implies a P/NAV ratio of 0.48x, which is 1 standard deviation (s.d.) above Wing Tai’s four-year historical P/ NAV ratios, while their valuation is based on a sum-of-the-parts revalued net asset value (RNAV) with a 50% holdings discount.

Wing Tai’s NAV per share has risen to $4.32 compared to $4.14 in FY2021, and is currently trading at an “attractive” P/NAV ratio of 0.39x, almost 2 s.d. below its four-year P/NAV ratios.

Wing Tai posted a FY2022 net profit of $140.2 million, up from $36.3 million in FY2021, above DBS’s FY2022 estimates of $45.2 million. The analysts also note that the FY2022 effective tax rate declined to 15%, from 76% and 85% in FY2020 and FY2021 respectively, due to the absence of a one-off tax provision in previous years.

Instead of strong net profit performance, DBS notes the “positive surprise” of a final dividend of 3 cents and a special dividend of 3 cents is proposed for FY2022, translating to a dividend yield of 3.7%, above their initial FY2022 dividends per share (DPS) estimate of 3 cents.

“Going forward, we assume a steady dividend payout of 3 cents, aligned with historical final dividends declared, which translates into a dividend pay-out of 37% and 50% for FY2023 and FY2024,” the analysts add.

The analysts are also assuming an effective tax rate of 15% and expecting associated and JV income to normalise to $41 million and $48 million in FY2023 and FY2024. “In our view, we like Wing Tai’s recurring income which we believe could support the group’s overall earnings as it navigates the property market and builds its development pipeline,” they say.

The DBS analysts point out that Wing Tai has substantially sold off its landbank in Singapore with a 95% sell-through rate, which they believe could shield the group against the moderation of Singapore’s property sales volume in 2022 and 2023 after the implementation of property measures by the government.

“Wing Tai remains on the hunt to replenish its landbank and will be selective in the upcoming government land sales (GLS) and en bloc tenders, following its recent successful tender for the collective sale of Lakeside Apartments. We anticipate Wing Tai to continue to build its development pipeline, catalysing an upside to its RNAV,” they add. — Bryan Wu

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