Price target: CGS-CIMB “add” US$6.30

Hong Kong to benefit from office ‘recentralisation’

CGS-CIMB Research analysts Raymond Cheng, Will Chu and Steven Mak have kept “add” on Hongkong Land Holdings, with a higher target price of US$6.30 ($8.53), from US$5.70 previously.

The higher target price comes as the team lifts its NAV to US$10.50 from US$10.30. It has also narrowed its target discount to NAV to 40%, from 45% before. In addition, the team has lifted its EPS estimates for the FY2021 to FY2023 by 0.2% to 1.4% to factor in the group’s smaller number of shares outstanding after the share buybacks.

Hongkong Land’s share price grew some 30% since Sept 6, when it announced to reduce its share capital through a US$500 million share repurchase programme.

As at Nov 1, the group has repurchased 17.9 million shares for US$90 million, which is 18% of its total budget.

The analysts have estimated that the group may use up its buyback budget by 2QFY2022 or 3QFY2022.

As at its report on Nov 2, Central office rents have returned to pre-financial crisis levels of 2007.

Hence, the team thinks the level is “attractive enough for corporations” that left Hong Kong’s Central district to return, leading to office “recentralisation”.

“This new trend should benefit large office landlords in Central, such as Hongkong Land, in our view,” writes the team.

As at end 1HFY2021, Hongkong Land’s Central office vacancy was 6.4%, below 7.4% for overall Central offices.

Though negative rental reversions may continue in the 2HFY2021, lower rents make its portfolio competitive for retention or acquisition of key tenants.

“We believe its vacancy reached a short-term peak at end-1HFY2021 and will moderate in 4QFY2021 and 1HFY2022, as the Hong Kong special administrative region (SAR) government is planning to reopen borders with mainland China as local Covid-19 cases have subsided,” the team adds.

The analysts have also identified strong rental growth in Hongkong Land’s investment property (IP) portfolio as a potential re-rating catalyst, while prolonged border closures in Hong Kong and Singapore are key downside risks. — Felicia Tan

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Price target: PhillipCapital “accumulate” US$0.94 RHB “buy” US$1.04

‘Best leasing quarter’ despite preterminations Prime US REIT just saw its “best leasing quarter” in 3QFY2021, though portfolio occupancy dipped slightly, notes RHB Group Research analyst Vijay Natarajan.

Leasing activity surged more than three times q-o-q, with leases signed for 4.9% of portfolio net lettable area (NLA). The bulk was from lease renewals with approximately 18% of them being new leases.

Portfolio occupancy slightly dipped to 91.4%, down 0.3 percentage points q-o-q, mainly due to higher vacancies at One Washingtonian Center and Park Tower.

WeWork, which makes up 2.2% of Prime US REIT’s income, is currently in discussions to pre-terminate their lease at Tower 1 at Emeryville in California. Management is currently drawing down the rent from the security package which covers it until November 2022.

In a Nov 8 note, Natarajan maintained his “buy” call on Prime US REIT, with a raised target price of US$1.04 ($1.40) from US$1.03 previously. This represents an 18% upside. 3QFY2021 distributable income increased 11.3% y-o-y, translating to a DPU of 1.73 US cents, based on an enlarged share base. The higher DPU was mainly due to acquisitions while distributable income for existing assets remained steady q-o-q.

In addition, rent reversions are on an uptrend, with a “strong” 19.2% positive reversions for leases signed during the quarter, writes Natarajan. Gearing remains comfortable at 38.4% after the recent acquisitions and fundraising. “There is sufficient debt headroom for accretive acquisition of one or two assets (US$100 to US$200 million), which we believe is likely to happen in the next 12 months,” he writes.

Meanwhile, PhillipCapital Research analyst Natalie Ong thinks a “more significant” return to the office is likely to happen in 1Q2022. Physical occupancy for 3QFY2021 was approximately 30%, an improvement from some 20% in 2QFY2021. While many surveyed corporations expressed interest in returning to the office in 3QFY2021, new waves of the virus delayed return-to-office plans.

“We expect significant return-to-office will likely happen in 1QFY2022, delaying a more meaningful recovery in car park income,” writes Ong.

In a Nov 9 note, she is maintaining “accumulate” on Prime US REIT, with a target price of 94 US cents. — Jovi Ho

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Price target: RHB “buy” $20.90 CGS-CIMB “add” $23.32 DBS Group Research “buy” $22.60 PhillipCapital “neutral” $19.20

3Q2021 missed expectations, but better things lie ahead

Analysts have remained mostly positive on Venture Corp, despite its 3QFY2021 ended September results missing expectations.

“Venture Corporation reported 3QFY2021 revenue and NPAT of $769.9 million and $77 million which were lower than expected, mainly due to component shortage which the global industry has been facing,” Jarick Seet from RHB Group writes in a Nov 8 research note.

He has maintained his “buy” rating for the counter, albeit with a lower target price of $20.90, from $23 previously. His bullishness stems from Venture’s recent leadership reshuffle, including the appointment of COO Lee Ghai Keen as the group’s new CEO, taking over from Wong Ngit Liong, who will retain his position as executive chairman.

CGS-CIMB Research analyst William Tng is similarly positive on the succession plan. In a Nov 5 research note, Tng says that Venture has also established two panels comprising specialists in selected fields to support its strategic directions.

“With two expert panels and a new CEO, the probability of accretive acquisitions occurring may be raised. Venture certainly has the balance sheet strength for acquisitions; the impediment being the high bar it sets,” he adds.

For DBS Group Research analyst Ling Lee Keng, Venture will see a better 4Q along with a strong year ahead as supply chain disruptions ease. “The chip shortage could begin to ease in 2022, with the increase in capacity from chip manufacturers gradually coming online. With the strong pipeline of orders, we expect Venture to be able to fulfil the bulk of its orders,” she says.

Ling also points out that Venture’s production facilities in Malaysia are currently running at almost full capacity, given the high vaccination rate for its workers.

Thus, Ling has kept her “buy” rating for Venture, but with a slightly lower target price of $22.60 compared to $22.70 previously to reflect downward adjustments in earnings for FY2021 and FY2022.

Meanwhile, PhillipCapital’s Paul Chew takes a more cautious stance, noting weak revenue for the 3QFY2021.

“Venture has struggled to keep revenues to pre-pandemic levels these past two years despite the global resurgence in electronics demand. The pivot to life science and consequent long timeline to ramp up is a factor,” he says.

Chew has lowered his forecasts for FY2021, reflecting a stalled recovery in the 3Q due to production disruptions. Nonetheless, his target price of$19.20 remains unchanged as he rolls forwards valuations to FY2022.

He has maintained his “neutral” rating for Venture. — Atiqah Mokhtar

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Price target: RHB “buy” 90 cents Citi “buy” $1.0

International visitors can help recovery

Genting Singapore is anticipating the return of international visitors, as 3QFY2021 results were affected by the rise in Covid-19 cases here.

In a Nov 10 note, RHB Group Research is maintaining “buy” on Genting Singapore, with a lowered target price of 90 cents, from 92 cents previously.

“3QFY2021 results fell below expectations as Genting Singapore’s gaming and non-gaming segments were negatively affected by the rise in Covid-19 cases, which saw stricter capacity measures in place at its premises. Despite the weak results, we remain positive with Singapore’s ongoing relaxation of quarantine-free travel lanes and opening of borders. This will set the stage for a strong FY2022 recovery as foreign visitors return to its premises,” notes RHB.

The 9M2021 core profit of $137.5 million was below RHB and consensus estimates, at 59% and 54% respectively. The negative deviation was due to a weaker-than-expected 3QFY2021 contribution from the gaming and non-gaming segments, as the rising cases during this period led to various capacity restriction measures in place at Resorts World Sentosa (RWS) that saw lower visitor numbers.

3QFY2021 revenue fell 9.2% q-o-q, due to the 13.9% decline in gaming revenue. Only two seated players were allowed per table during the Phase Two (Heightened Alert) period that lasted from mid-July to mid-August. Accordingly, 3QFY2021 Ebitda declined 30.7%.

“The lower Ebitda margin (–12.7 percentage points) was likely due to the reversal of trade receivables impairment recognised in the previous quarter,” says RHB.

“Singapore has been expanding its vaccinated travel lane (VTL) scheme to visitors from designated countries for quarantine-free travelling. While we do not expect a full recovery of foreign visitors in FY2021, the ongoing reopening of borders and extension of quarantine-free travel to more countries bode well for a strong FY2022 recovery for Genting Singapore, especially when foreign visitors account for 80% of its total visitorship historically,” it adds.

Meanwhile, Citi Research analyst George Choi notes that Genting Singapore’s 3QFY2021 results came in line with his expectations. In a Nov 9 note, Choi is recommending “buy” on Genting Singapore with a target price of $1.01.

The republic announced a VTL with Malaysia on Oct 8. Choi however expects the impact on Genting Singapore to be marginal, but “the launch of the VTL is an all-important first step of the gradual resumption of normal travel between the two countries.” — Jovi Ho

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Price target: UOB KayHian “hold” $1.08 PhillipCapital “accumulate” $1.03 CGS-CIMB “add” $1.10

A good dividend yield play

Analysts like NetLink NBN Trust for its strong dividend yield and outlook, especially after the group’s latest announcement of its 1HFY2022 ended September results, which saw DPU increase by 1.2% y-o-y to 2.56 cents, while revenue grew 3.6% y-o-y to $187.9 million.

However, Ebitda and profit after tax were lower by 9.4% and 10.5% y-o-y, respectively, due mainly to a remeasurement loss and lower government grants.

Both PhillipCapital and CGS-CIMB have kept their “buy” recommendations on NetLink with target prices of $1.03 and $1.10 respectively.

Despite 1HFY2022 showing positive results, PhillipCapital analyst Paul Chew says “new residential connections in 1HFY2022 were only 3,946, a steep drop from 9,915 in 1HFY2021. Our forecast for FY2022 is lowered from 25,000 to 10,000 new connections.”

Chew sees FY2022 as NetLink’s recovery year from the “circuit breaker” disruption, adding: “Installation revenue from non-building access points (NBAP) and diversion work rebounded from a low base last year. There is still a lingering impact from the pandemic due to delay in home construction, impacting residential connections.”

The increase in capital expenditure will depress dividends in the near term but will build up the regulated asset base and yield returns in the next regulatory review, he adds.

However, CGS-CIMB analyst Ong Khang Chuen likes the stock for its resilient and strong operational metrics with continued fibre connection growth across all three fibre segments. He also notes that NetLink is on the lookout for M&A investments and has an estimated debt headroom of $360 million to fund future investments.

Meanwhile, UOB Kay Hian has downgraded its call on NetLink to “hold” from “buy” with a target price of $1.08, as the stock is trading close to the target price.

Analyst Chong Lee Len believes that NetLink’s FY2022 outlook remains stable. “Key priorities include connecting more residential homes that are not on fibre (especially low-income households) via the Infocomm Media Development Authority’s (IMDA) Home Access programme,” says Chong, noting that IMDA will bear the twoyear subsidised fibre broadband connectivity and Netlink’s pricing would not be affected in this initiative.

For non-residential and NBAP, Netlink will focus on adding more capacity to densify networks and support 5G infrastructure. It also aims to deepen penetration on data centres’ point-to-point connections.

Overall, Chong sees the stock as a “safe haven” with its attractive dividend yield of 5.3%. “We continue to see the stock as a good shelter amid market volatility given its strong earnings visibility, healthy balance sheet and cautious approach in terms of overseas and domestic acquisition approaches.” — Samantha Chiew

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Broker's Digest: Hongkong Land, Prime US REIT, Venture Corp, Genting SG, NetLink NBN Trust

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