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Broker's Digest: IHH Healthcare, Sunpower, Genting Singapore, Boustead Singapore, Sea, Raffles Medical, Japan Food

The Edge Singapore
The Edge Singapore6/4/2021 06:30 AM GMT+08  • 14 min read
Broker's Digest: IHH Healthcare, Sunpower, Genting Singapore, Boustead Singapore, Sea, Raffles Medical, Japan Food
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IHH Healthcare
Price target:
UOB Kay Hian “buy” RM5.70

Strong start to FY21 but tightened measures pose headwinds

IHH Healthcare’s 1QFY2021 ended March results were in line with UOB Kay Hian’s estimates, with analyst Philip Wong viewing it as a “strong start to the year”.

Nonetheless, he believes the recent resurgence in pandemic cases will pose headwinds for IHH in the near term. “[With] the tightened Covid-19 measures in both its key markets, Singapore and Malaysia, we expect a soft 2Q2021,” he writes in a June 1 report.

Wong notes that IHH’s 1QFY2021 core profit grew 77.3% y-o-y but contracted 9.6% q-o-q. The better y-o-y profit was driven by top-line growth for both its Singapore and Malaysia markets due to a low base the previous year, a recovery in domestic volume and contribution from Covid-19-related services.

Going forward, Wong anticipates the tightening of Covid-19 movement measures to curtail patient volumes in both markets.

For IHH’s other markets, Wong highlights that the earnings drag from North Asia is diminishing, with management expecting Gleneagles Hong Kong to break even this year, provided that Hong Kong does not stay in protracted lockdown.

For Acibadem, Wong notes that the Turkish healthcare group saw revenue grow 11% y-o-y in ringgit terms on the back of better case mix and price adjustments to counter inflation, while its non-lira debt exposure has also reduced. “The unhedged euro exposure will be further de-risked as IHH continues to expand its euro contribution,” he adds.

For its India operations, Wong sees a sustained recovery, with revenue growing 11% y-o-y and 4.5% q-o-q driven by Covid-19-related services and a recovery in non-Covid inpatient admissions. “Going forward, we expect occupancy rates to improve further with India’s Covid-19 cases skyrocketing. However, this would be slightly diminished by lower elective cases,” he says.

Notwithstanding the positive indicators from its other markets, Wong has kept his earnings estimates and target price of RM5.70 ($1.82) for IHH unchanged.

However, he keeps his ‘buy’ rating for the counter, noting that valuations “appear attractive” given IHH’s defensive three-year earnings CAGR between FY2020 to FY2023 of 20.1%, the group’s sound track record, and the better trajectories anticipated from its secondary markets.

“The diminished risks and attractive valuations far exceed the uncertainty revolving around Fortis and IHH’s initial 31% stake that has been brought into question,” he says. —Atiqah Mokhtar

Sunpower Group
Price target:
KGI “outperform” $1.53

Transformation to pursue sustainability

KGI Research analyst Chen Guangzhi has kept “outperform” on Sunpower Group with a higher target price of $1.53 from $1.45 previously. The new target price is based on the discounted cash flows from Sunpower’s individual projects, as well as the special dividend of RMB1.1627 (23.59 cents) per share declared in the 1QFY2021.

Sans dividend, Chen’s target price estimate for Sunpower would have been $1.29, higher than the previous estimate of $1.22.

Sunpower Group began the year on a strong note with 31.2% y-o-y higher revenue and 17% y-o-y earnings of RMB882.8 million ($183.2 million) and RMB59.7 million respectively in the 1QFY2021 ended March.

The results stood in line with Chen’s expectations, mainly due to the contribution of the group’s Shantou Phase 1 project which commenced in the 4QFY2020.

“The overall performance met our expectation as China’s economic recovery continues,” writes Chen in a May 31 report.

“During the period, developing countries in South and Southeast Asia still suffered from rising Covid-19 infections. China’s export of goods and services surged as it was one of the few countries which maintained normalised production activities. We believe tailwinds will continue at least until 3QFY2021,” he adds.

On his “outperform” recommendation, Chen is positive on Sunpower Group’s restructuring with the divestment of its manufacturing and services (M&S) segment to focus on its green investments (GI) business segment.

In his previous report dated Jan 13, Chen noted that the disposal of Sunpower’s M&S segment was valued at RMB2.29 billion, equivalent to 40 cents per share or 12.2 times M&S’s FY2019 net profit, compared to KGI’s previous valuation of RMB1.12 billion on the business, or 17 cents per share based on an estimated net profit of RMB161 million. — Felicia Tan

Genting Singapore
Price target:
Maybank Kim Eng “buy” $1.16

One step close to Yokohama IR bid

aybank Kim Eng analyst Yin Shao Yang has upgraded Genting Singapore to “buy” from “hold” as the group has qualified for its request-for-proposal (RFP) process with regard to Yokohama’s search for a partner for its integrated resort (IR).

Yokohama, on May 31, announced that two groups qualified, one of them being the joint venture (JV) by Genting Singapore and Sega Sammy. The other group is headed by Melco Resorts and Entertainment.

Genting Singapore and Sega Sammy have since named Kajima Corporation as their contractor of choice for the Yokohama IR, which is the main contractor that oversaw construction of Genting Singapore’s Resorts World Sentosa (RWS).

In his report dated June 2, Yin is confident that the joint venture led by Genting Singapore will win the RFP process as the group comes up better in terms of promoting tourism, management and financial abilities, as well as responsible gaming initiatives.

Yokohama is expected to announce the winner of its IR RFP process this summer (from June to August).

Should the win come through, Yin estimates that the Yokohama IR will add $1.8 billion to the group’s earnings as the IR is expected to generate US$2.7 billion ($3.57 billion) in its first full year of operations and “is worth US$7.2 billion or 60 Singapore cents per share”.

The $1.8 billion addition to Genting Singapore’s earnings is based on the assumption that Genting Singapore owns a 50% stake in the JV following confirmation from Sega Sammy that it intends to take up a minority stake in the JV.

The win will also raise Yin’s target price estimate by 30 cents per share to $1.16 from 86 cents previously.

On the other hand, Yin notes that there may a risk that a mayor who’s against the Yokohama IR project may be elected during the city’s mayoral elections on Aug 29, although he still views Genting Singapore as a “tactical buy” as no value from the Yokohama IR has been included into its share price yet.

Upside factors for the counter include a VIP win rate that is above theoretical levels as this can positively influence Genting Singapore’s earnings. Other upside factors include a mass market mix among its VIPs that will “expand margins due to less commissions and rebates”, as well as a $4.5 billion RWS expansion that will expand Genting Singapore’s gaming and non-gaming capacity.

On the other hand, downside factors include lower-than-expected VIP win rates, bad debts from its VIP customers as well as the exploration of an expansion in the region. — Felicia Tan

Boustead Singapore
Price target:
CGS-CIMB “add” $1.40

Positive on its geospatial business and attractive valuation

CGS-CIMB Research analyst Ong Khang Chuen has kept “add” on Boustead Singapore with an unchanged target price of $1.40 following the group’s record performance for the FY2021 ended March.

The target price, says Ong in a May 28 report, is still based on a 20% discount to its SOTPbased valuation.

That said, the group’s net profit of $113.1 million stood slightly below Ong’s expectations at 96% of his full-year earnings estimates.

The lower-than-expected figure was due to the underperformance of Boustead Singapore’s subsidiary, Boustead Projects, while the group’s other business segments were in line with expectations.

Without the one-off disposal gain, Boustead’s core net profit for FY2021 stood at $44.6 million.

Profit before tax for Boustead’s geospatial segment grew 37% y-o-y to $40.7 million in the FY2021, “much stronger” than its typical high-single-digit annual growth rate.

To Ong, he expects the group’s geospatial division to continue performing well due to government agencies’ increasing use of smart mapping technologies to combat the Covid-19 pandemic.

The group’s outlook on its energy segment is, however, dependent on its order replenishment in the FY2022.

The energy segment currently has an order backlog of $96 million which is moderately healthy, but “significantly lower” than that of FY2020’s $279 million.

“Hence the outlook beyond 2HFY2022 is largely dependent on order replenishment in FY2022,” writes Ong.

While Ong deems Boustead Singapore’s valuation as “attractive”, he has reduced his EPS estimates for FY2022–FY2023 by 0.4%–1.4% to account for lower earnings assumption for Boustead Projects due to the Covid-19 disruptions on Boustead Projects’ engineering and construction (E&C) segment formerly known as the designand-build segment.

“Stripping out its stake in Boustead Projects ($182 million based on market value) and net cash of $177 million, investors are essentially paying six times P/E for the geospatial segment, which is a high-margin, cash generating business that offers structural growth riding on the smart-city trend,” he writes.

“Potential re-rating catalysts include successful M&A execution by Boustead Projects to accelerate international expansion and order wins in its energy segment; downside risks include weaker property segment margins.” — Felicia Tan

Price target:
UOB Kay Hian “buy” US$314.48

High growth momentum catalyst for further upside

UOB Kay Hian analyst Clement Ho has started Sea at “buy” with a target price of US$314.48 ($415.81) as he sees the group’s “high growth momentum” as a catalyst for its share price.

The target price estimate implies 93 times FY2021 adjusted operating earnings, says Ho.

“The high multiple is in line with P/E growth multiples of comparable industry peers, supported by our forecast for Sea to generate a five-year adjusted operating profit CAGR of 50.9% over FY2020–FY2025,” he writes in a May 31 report.

Ho’s report comes after Sea reported a 144% y-o-y surge in adjusted revenue of US$2.1 billion and an 81% increase q-o-q in ebitda of US$88 million for the 1QFY2021 ended March.

Incidentally, Sea was included in the MSCI Singapore on May 27, replacing Suntec REIT. Sea’s inclusion follows MSCI’s announcement in November 2020 that foreign listings will be eligible to be included in its Singapore indices from its semi-annual index review in May.

Sea, which operates digital entertainment and e-commerce platforms, Garena and Shopee, is one of the largest internet companies in Southeast Asia.

Shopee is the largest e-commerce platform in its key markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines, Vietnam and Taiwan in terms of gross merchandise value (GMV) and total orders from 2017 to 2020, according to consulting group Frost and Sullivan.

The group’s digital financial services business, SeaMoney, looks set to be the “next engine of growth”. It is licensed to offer electronic money services in Vietnam, Thailand, Indonesia, the Philippines and Malaysia.

In addition, the group looks set to expand and enhance its self-developed gaming hit, Free Fire. In 2020, Sea has expanded its game development team to over 750 in 2020 from 400 previously. It has also acquired an independent games studio in Canada, all of which will help the group save on licensing fees, says Ho.

Shopee’s expansion into Latin America since late-2019 has been gaining momentum, notes Ho. In 2020, Shopee was the ninth most downloaded application in Brazil.

“Compared with local competitor Mercado Libre, Sea has superior financials, having accumulated net cash of over US$5 billion from various fund raisings in the last three years,” he writes.

For FY2021, Sea has guided that growth will likely remain high. On this, Ho expects digital entertainment bookings to grow by 25.5% y-o-y to US$4.0 billion in 2021. Of the sum, US$2.91 billion will be recognised as revenue, with the remaining US$1.08 billion recorded as deferred revenue.

E-commerce revenue in FY2021 is also estimated to see revenue grow 133.7% y-o-y to US$4.63 billion, in line with Sea’s guidance.

This, says Ho, is due to the “strong momentum” in Indonesia, the expansion of product categories, as well as its expansion to Latin America.

“While we note that GMV per order saw a steady decline from US$14.43 in 1QFY2020 to US$11.90 in 4QFY2020, we expect this trend to reverse as the company rolls out financing programmes that support the sale of larger ticket items,” notes Ho.

Going forward, Ho expects Sea to record higher group sales and marketing expenses by 78% y-o-y to US$3.26 billion due to the group’s expansion in Latin America and forays into banking and consumer loans.

To this end, Ho views an earlier-than-expected reduction in cash burn and market share gains in its e-commerce segment as share price catalysts for Sea. — Felicia Tan

Raffles Medical Group
Price target:
CGS CIMB “add” $1.22

Key Covid-19 test provider in Changi Airport

CGS-CIMB Research analyst Cezzane See is upgrading her recommendation of Raffles Medical in her May 28 report to “add” from “hold” previously with a higher target price of $1.22, representing an upside of 12.9%.

Raffles Medical is one of the key private players in supporting nationwide Covid-19 testing in Singapore, especially as Changi Airport’s dominant tester.

As Singapore ramps up PCR (polymerase chain reaction) testing to 89,000 tests daily, See forecasts Raffles Medical’s daily testing to reach around 6,000 per day in FY2021–2023F and to lift FY2021–2023F EPS by 12.1%–15.9%.

See predicts that this lifts FY2021 to FY2023F revenues by 8%–10% and net profit by 10.2%–12.7%.

Thus, See has increased Raffles Medical’s SOTPbased target price from $1.10 previously to $1.22.

Raffles Medical’s revenues for 1HFY2020 ended June fell 7% y-o-y as local patients deferred elective surgeries and medical tourism fell.

However, the trend reversed in 2HFY2020 with revenue growing 23% y-o-y, mainly due to the provision of Covid-19-related services. This contributed to overall revenue growth of 9%, a reversal from the 5% decline in revenue for 1HFY2020.

In FY2020, See estimates that Raffles Medical’s Covid-19-related services amounted to $83 million, with $60 million likely attributable to Covid-19 testing and the remainder from facilities management revenues for community care facilities, air border temperature screening and workers’ dormitories.

The accelerated vaccination programme in Singapore, which is planned to reach 4.7 million people by August, could see slight incremental revenue for Raffles Medical Group as it operates 12 of 36 vaccination centres.

On top of that, two of its clinics have been designated as vaccination locations as well which will see marginal increments to revenues for FY2021.

Potential catalysts on the counter include an additional testing lab in Changi. “Raffles Medical began operating a new testing laboratory in Changi Airport starting January, which could support higher Covid-19 testing capacity. Visitor arrivals were at 24,000 in April or 800 tests per day”, which has not been factored into See’s EPS. — Vivian Yee

Japan Foods
Price target:
RHB “neutral” 37 cents

Moving past a ‘weak’ FY2021

HB Group Research analyst Shekhar Jaiswal has kept his “neutral” rating for Japan Foods Holdings with an unchanged target price of 37 cents after it posted its FY2021 ended March results.

While Japan Foods reported a stronger 2HFY2021 following the end of the “circuit breaker” period, Jaiswal highlights that its full-year profits of $3.6 million were largely supported by government grants and rent reliefs amounting to $10.3 million.

However, he notes that Japan Foods reported a “healthy” gross margin of around 85% for the year before accounting for any cost support, indicating a strong operating performance.

He also highlighted that Japan Foods declared a total dividend of 2.5 cents per share — comprising an interim dividend of 0.75 cent per share and final dividend of 1.75 cents — representing 120% of FY2021 net profit.

The group is also revising its dividend policy from FY2022 onwards to distribute at least 100% of net profit annually, up from 50% previously. “Amid expected earnings recovery, we believe dividend yield should remain above 4.5% for forecast years,” says Jaiswal.

Looking ahead, Jaiswal expects Japan Foods’ revenue to rebound once current restrictive measures are eased and remains positive on the long-term recovery trend.

In addition, he views Japan Foods’ strong balance sheet (with net cash excluding lease liabilities making up 33% of its market cap) will help it sustain higher dividend payouts while providing headroom for growth.

“Amid impact from the Covid-19 pandemic, we expect a good number of F&B players to exit operations in Singapore in the next 1–2 years, therefore reducing competition for Japan Foods,” he explains. — Atiqah Mokhtar

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