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Brokers' Digest: KREIT, Seatrium, SIAEC, Sats, Riverstone, CEREIT, Food Empire, FLCT, CDG, MUST, Sheng Siong, Uni-Asia

The Edge Singapore
The Edge Singapore • 27 min read
Brokers' Digest: KREIT, Seatrium, SIAEC, Sats, Riverstone, CEREIT, Food Empire, FLCT, CDG, MUST, Sheng Siong, Uni-Asia
2 Blue Street, formerly Blue & William. Photo: KREIT
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Keppel REIT
Price targets:
Maybank Securities ‘buy’ $1
UOB Kay Hian ‘buy’ $1.26
Citi Research ‘neutral’ 90 cents

Relatively decent’ acquisition

Maybank Securities’ Krishna Guha and UOB Kay Hian’s Jonathan Koh have maintained their “buy” calls on Keppel REIT following the acquisition of a 50% stake in Sydney’s 255 George Street for A$363.8 million ($321 million). Guha has kept his target price of $1.00 while Koh has increased his target price by 2 cents to $1.26.

The REIT’s proposed acquisition of the stake in this Grade-A Sydney central business district office, which is described as an “iconic prime building”, is seen as a positive development.

Guha believes that 255 George Street, located in the highly sought-after Core Precinct, will benefit from the flight-to-quality trend while the building’s committed occupancy of 93% and an average weighted average lease to expiry of 6.8 years will result in a promising initial net profit interest (NPI) yield that exceeds 6%.

Koh has raised his distribution per unit (DPU) estimates for FY2025 by 1.5% to 6.2 cents after taking into account contributions from 255 George Street.

See also: Analysts continue to like Yangzijiang Shipbuilding following positive order book momentum

At Keppel REIT’s unit price of 87 cents as at Koh’s April 2 report, the REIT is trading at a P/NAV of 0.67 times, near the low of 0.61 times on March 2020, the pandemic lows. The current P/NAV represents a 33% discount to its NAV per unit of $1.29.

To Maybank’s Guha, the REIT’s latest move shows that it is taking a “long view” on its portfolio notwithstanding the challenging macro and emerging trend of hybrid working.

Meanwhile, Brandon Lee from Citi Research increased his target price for the REIT by 1 cent to 90 cents. That said, he is still keeping his “neutral” call due to the REIT’s total return of 9% based on its current share price.

See also: RHB sees minimal impact from Cromwell European REIT’s change of sponsor

Calling the latest deal “relatively decent”, Lee estimates that the acquisition is positive for the REIT’s portfolio NPI yield and cap rate of 3.6% and 3.5% respectively.

The current flight-to-quality momentum in the office market within Sydney CBD proves advantageous to the office building, accounting for the REIT’s conviction towards a low vacancy rate.

Nonetheless, Lee notes some negatives to the deal, which includes the vendor providing up to A$46.8 million for rent guarantees. Excluding the rent guarantee, the analyst has forecasted a lower NPI yield of 6.1%.

Like his peers, Lee also notes that the post-acquisition gearing of 41% also seems beyond investors’ comfort level of 40% and below.

“We think Keppel REIT’s FY2024 Australia portfolio valuation could be negatively impacted given 255 George Street’s cap rate of 6.5% being higher than its portfolio cap rate of 5.2%,” Lee elaborates.

He has raised his DPU estimates for FY2024, FY2025 and FY2026 by 0.7%, 1.1% and 1.4% to 5.65 cents, 5.81 cents and 6.09 cents respectively to reflect the news of the acquisition. — Ashley Lo

Price target:
OCBC Investment Research ‘buy’ 15.5 cents

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

Overhang removed

OCBC Investment Research’s Ada Lim has kept her “buy” call on Seatrium after the company said it is finalising a deferred prosecution agreement (DPA) with Singapore authorities by paying $76.5 million.

The money is to settle a long-running bribery case in Brazil, better known as “Operation Car Wash”, involving Sembcorp Marine before it merged with Keppel’s offshore and marine unit.

By doing so, Seatrium is seen to have finally put to rest a multi-year overhang on its share price, even as it grapples with the industry cycles.

In its revised FY2023 ended Dec 31, 2023, income statement following the DPA, Seatrium has reported a loss of $2.03 billion instead of $1.95 billion in FY2022, a large chunk of which can be attributed to impairment and provisions. After factoring in the DPA, Seatrium’s NAV will be slightly trimmed by 1.2%.

In her April 1 note, Lim says that Seatrium’s share price has underperformed year-to-date, following an order cancellation and substantial provisioning for the financial penalty in its FY2023 numbers.

“We see the announcement as a positive development that lifts the overhang on the stock, though share price may continue to trade sideways in the near term,” says Lim.

At the coming AGM, Seatrium shareholders will be asked to approve a 20-to-1 share consolidation, which Lim believes can help reduce some share price volatility.

In her view, the company’s coming 1HFY2024 results may be an “important signpost” for investors to gauge the management’s ability to execute and secure new orders at reasonable gross margins.

Lim’s new fair value estimate is now 15.5 cents, down from 16 cents, to factor in the adjustment to NAV following the DPA. — The Edge Singapore

SIA Engineering
Price target:
DBS Group Research ‘buy’ $2.80

Multiple tailwinds

DBS Group Research analyst Jason Sum is keeping his “buy” call on SIA Engineering (SIAEC) at an unchanged target price of $2.80 as he sees multiple tailwinds for the company.

In his April 1 report, Sum notes that 60% of SIAEC’s top line is driven by its parent company, Singapore Airlines C6L -

(SIA), which has a strategy of refreshing aircraft through maintenance to maintain a capable fleet of aeroplanes.

Benefitting from this, SIAEC is usually the first in the region to benefit from the strategy, maintaining new aircraft types and winning third-party businesses for its skills.

Sum expands: “Moreover, the group’s strategic partnerships with leading original equipment manufacturers such as General Electric, Safran, Rolls-Royce, and Pratt and Whitney, positions it favourably for long-term growth in maintenance, repair, and overhaul (MRO) services.”

Meanwhile, the analyst also points to the strength of SIAEC’s “broader network” of associates and joint ventures (JVs) in Asia, which positions the company for earnings growth in line with the normalisation of traffic in the Asia-Pacific region.

Sum also likes SIAEC’s acquisition of a 75% stake in SR Technics Malaysia, a leading Asia Pacific MRO provider.

“Further, the potential lease of two hangars in Subang, Malaysia, will lead to the expansion of its regional base maintenance network,” adds the analyst.

Following this, Sum has kept his call at an undemanding valuation and a 32% earnings CAGR between FY2024 ended March and FY2026.

He concludes: “We believe SIAEC’s promising growth prospects are not baked into its share price and see the current share price levels as an attractive entry point to ride on its earnings recovery story.”

Key risks include a slower-than-expected resumption of international flights in Asia and supply chain bottlenecks which could impede earnings growth. — Douglas Toh

Price target:
DBS Group Research ‘buy’ $3.40

Earnings recovery

Jason Sum of DBS Group Research has maintained his “buy” call and $3.40 target price for Sats, on expectations that the sustained recovery in global aviation — both passenger and cargo — can help drive the company’s earnings momentum.

According to Sum in his April 1 note, the global air cargo market appears to be stabilising and he sees Sats’ ground handling and in-flight catering businesses to benefit from the global recovery in air travel.

“Moreover, Sats’ non-travel-related food business should also register healthy growth, underpinned by the group’s expanding product portfolio and customer base, and increased production capacity and footprint,” the analyst adds.

Also, Sum expects the recent acquisition of Worldwide Flight Services (WFS) to start yielding operational and financial synergies over the next few years.

In addition, Sats has completed the refinancing of WFS’s costly debt, with meaningful interest savings to materialise from the current FY2025 ending March 2025.

“More importantly, the market will be paying attention to the assimilation of WFS, and whether the group can achieve its intended operating synergies within its projected timeline, to justify the hefty price tag on WFS,” says Sum.

He estimates that Sats’ core earnings per share would reach 18.7 cents in FY2026, representing 84% of the pre-pandemic FY2019 level.

Sum’s target price of $3.40 is based on a blended forward EV/Ebitda multiple of 8.5x for FY2024 and FY2025.

For Sum, key risks include global macroeconomic instability that could delay the normalisation of air passenger traffic or negatively impact air cargo volumes.

Additionally, there are potential execution risks associated with integrating WFS and achieving the anticipated synergies, he adds. — The Edge Singapore

Riverstone Holdings
Price target:
RHB Bank Singapore ‘buy’ 93 cents

At the tail end of price war

RHB Bank Singapore analyst Oong Chun Sung has maintained “overweight” on the rubber products sector with Riverstone Holdings AP4 -

as one of its regional top picks.

In his April 2 report, Oong notes that the industry demand and supply dynamics are showing recovery signs as April–May order volumes seem to have sturdily picked up. The industry-blended average selling prices (ASPs) have also held up at US$20 ($27) per 1,000 pieces, he further points out.

“According to our channel checks, Chinese glove makers’ ASPs are expected to increase to US$16–US$17 from US$15–US$16. The continued narrowing of the ASP gap means the prolonged price war is approaching its tail-end, in our view, which ultimately allows Malaysian manufacturers to compete via product quality rather than price,” adds Oong.

For February, Malaysia’s glove export volumes spiked 6% m-o-m, continuing its positive growth for two consecutive months. Exports value also grew by 7% m-o-m, surpassing export volume growth — this indicates that cost pass-throughs are gradually picking up, Oong says. China glove exports, on the other hand, contracted by 15% m-o-m in February, following a 4% m-o-m growth in the preceding month.

To this end, RHB maintains its 2024 glove demand growth estimate of 7%, which is premised on the recovery of glove restocking activities in 2H2024.

On the supply side, Oong is estimating global glove effective capacity to have reduced by 53.4 billion in 2023. RHB sees marginal changes in global industry supply to 2 billion planned capacity replenishment by Bursa Malaysia-listed Hartalega and 1.1 billion planned capacity by Sri Trang Gloves STG -


Moving forward, Oong expects sales volumes to pick up sequentially because of a more balanced demand-supply dynamic by the second half of the year. This, in turn, should lead to an improvement in glove makers’ profitability.

“With the industry’s excess capacity gradually phasing out, we should see the sector achieving demand-supply equilibrium by end-2024. We also expect the risk of price competition from Chinese peers to gradually subside, premised on rising quality concerns resulting in higher rejection rates from the US Food & Drug Administration and Chinese players’ pivoting stance towards sustainability,” he adds.

RHB likes Riverstone for its margin performance and exposure to cleanroom gloves that are above that of peers. This should benefit from the recovery in semiconductor sales and its consistent dividend payout. Oong has a “buy” call on Riverstone with a target price of 93 cents. — Khairani Afifi Noordin

Cromwell European REIT
Price target:
PhillipCapital ‘buy’ EUR1.91

Asset rejuvenation

PhillipCapital initiates coverage on Cromwell European REIT (CEREIT) with a “buy” call and target price of EUR1.91 ($2.77), citing its asset rejuvenation strategy as a key driver of organic growth.

As it stands, CEREIT has a EUR2.3 billion portfolio comprising 110 predominantly freehold properties in or close to major gateway cities in the Netherlands, Italy, France, Poland, Germany, Finland, Denmark, Slovakia, the Czech Republic and the UK.

It has an aggregate lettable area of about 1.8 million sq m and over 800 tenant-customers. CEREIT’s portfolio consists predominantly of light industrial/logistics (53%) and office (45%) assets.

PhillipCapital analyst Darren Chan raises three key investment merits of CEREIT. First, the REIT has a resilient portfolio with high occupancy and rent reversions.

As at December 2023, CEREIT’s portfolio occupancy remained high at 94.3% despite the challenging economic environment, says Chan, while portfolio occupancy is expected to remain stable in 2024, with only 13.5% of leases due for renewal.

CEREIT observed its sixth consecutive half of positive rent reversions, with FY2023 ended December 2023 reversions coming in at 5.7% due to positive reversions from both the light industrial/logistics and office segments.

Next, CEREIT has made divestments to keep its capital management in check. Since FY2022, the REIT has made eight divestments for EUR237 million at a blended 14.6% premium to the most recent valuation, of which three were divested in FY23 for EUR196.5 million at a blended 13.6% premium.

The REIT has EUR170 million of assets remaining earmarked for sale from its Polish and Finnish office assets. These proceeds could either be used to pay off debt to lower interest costs and keep gearing within the management target range of 35%–40% or to recycle capital into accretive redevelopments of some of CEREIT’s trophy projects, the analyst notes.

He adds that a successful divestment in the weaker Polish and Finnish office assets would also bring CEREIT closer to its long-term 60% light industrial/logistics target weightage to capitalise on the growth of e-commerce and nearshoring.

Finally, Chan notes that most of CEREIT’s leases contain annual rental escalation clauses that are based on 100% of the y-o-y increase in consumer price index (CPI) except for leases in Italy, which will help CEREIT tide through difficult periods of high inflation.

Chan’s dividend discount model-derived target price is based on a cost of equity of 10.2% and a terminal growth rate of 2%.

“We forecast a distribution per unit of 13.76 EUR cents for FY2024, translating into a forward yield of 10%,” he says. — Nicole Lim

Food Empire Holdings
Price target:
CGS International ‘add’ $1.84

Multiple valuation uptick pathways

CGS International analyst William Tng has kept his “add” call on Food Empire Holdings F03 -

and $1.84 target price, which is valued at 11.2 times FY2025 earnings. The target price is one standard deviation (s.d.) above its five-year mean from FY2019 to FY2023.

In his March 27 report, Tng sees that there is potential for Food Empire to improve its valuation to 14.4 times P/E and 2.0 s.d. above its five-year mean in two ways.

One is through the building of a new three-in-one coffee mix plant in Kazakhstan, where the company can grow its brand and products in the Commonwealth of Independent States (CIS) and Kazakhstan.

Next, Tng recommends that Food Empire grow its food ingredients business. The group has already completed the expansion of its non-dairy creamer product in Malaysia. The analyst expects volume production to start by 2QFY2024 ending June.

In India, Food Empire’s spray-dry and freeze-dry coffee plants are at full capacity and it expects demand to remain strong.

“We think Food Empire can grow its food ingredients business into a bigger net profit contributor over the next five years via expansion with new plants for non-dairy creamer, coffee powder and potato snacks,” says Tng.

“[It can also] explore a valuation uplift via a dual listing in other exchanges where there is a stronger interest in branded F&B companies,” he adds. In October 2023, Food Empire, listed on the Singapore Exchange S68 -

since April 2000, announced it is looking at a Hong Kong dual primary listing.

Over the past 10 years or so, Hong Kong’s non-alcoholic beverage sector has fetched a premium of 105% to the Hang Seng Index (HSI) versus the 72% premium as at November 2023 when The Edge Singapore last spoke to Food Empire’s executive chairman Tan Wang Cheow.

At that time, the sector was trading at a 12-month forward P/E of 13.8 times versus the 10-year average of 22 times. In contrast, Food Empire trades at a forward P/E of just over eight times and is at a discount to its global peers. The international beverage sector trades at a P/E range of 17.3 times to 30 times with a 10-year average of 23.7 times, while the international coffee segment trades at a P/E range of 18.1 times to 25.9 times with a 10-year average of 22 times.

While Tng has kept his earnings estimates unchanged, he has raised his dividend per share (DPS) estimates for FY2024 to FY2026 by 53.2% to 74.8% after assuming a payout ratio of 45%. The new estimates assume more “attractive” dividend yields of 5.05% to 5.75% over the FY2024 to FY2026. Tng’s new assumptions are higher than his previous base case of 5 cents a year.

In FY2023, Food Empire declared a total dividend of 10 cents per share comprising a final and special dividend of 5 cents each. Tng figures it can pay interim dividends instead of being limited to a full-year payout. “Food Empire can continue to remain attractive as a dividend-yield stock,” he adds.

Other factors behind Tng’s call include the Food Empire’s potential to grow its Vietnam operations into a new major revenue contributor, its potential to grow its food ingredients business and the end of its major capital expenditure (capex) cycle in FY2023, allowing the group to improve its dividend payout.  — Felicia Tan

Frasers Logistics and Commercial Trust
Price target:
UOB Kay Hian ‘buy’ $1.52

Positive trends in Australia and Germany

UOB Kay Hian’s Jonathan Koh has maintained his “buy” call on Frasers Logistic & Commercial Trust (FLCT) with a lowered target price of $1.52 from $1.65. While the REIT enjoys positive exposure for its assets in Australia and Germany, losing a key tenant in Singapore is a negative.

Citing CBRE, growth in net rents for prime logistics space in Australia has slightly moderated but remains significant at 22%, 25% and 11% y-o-y for Sydney, Melbourne and Brisbane respectively in 4QFY2023 ended December 2023. Although the vacancy rate has risen marginally, it remains tight at 1.1% in 2HFY2023, which is the “lowest globally”, notes Koh.

Notably, Koh adds that FLCT’s supply pipeline in Australia, which will grow 28% year over year to reach a new record-high of 3.7 million sqm, is already 40% pre-committed.

Meanwhile, the REIT’s German assets continue to operate in a market that is suffering from a structural shortage of logistics space, which Koh says has been “further aggravated” by developers reducing construction due to the high prices of land and construction costs.

With impending rate cuts, FLCT might enjoy a lower cost of debt with refinancing of some $529 million required in June and August. Overall, it has a “sizeable” debt headroom of $1.1 billion to support acquisitions, with aggregate leverage remaining low at 30.7% as of December 2023.

On March 15, FLCT announced an accretive acquisition of an 89.9% stake in four logistics properties in Germany for EUR129.5 million ($188.9 million) from sponsor Frasers Property TQ5 -

(FPL), with a robust pipeline of potential further acquisitions down the road, notes Koh.

For example, in Australia, FPL has 37 properties with an NLA of 11.2 million sq ft valued at $2.03 billion as of September 2023. In Germany and the Netherlands, FPL has 22 properties with an NLA of 6.6 million sq ft valued at $771 million.

However, FLCT’s Singapore portfolio is facing some stress. Google, FLCT’s second-largest tenant generating 4.1% of its gross income, is further reducing the space it now takes at Alexandra Technopark (ATP). Besides the 152,000 sq ft vacated in February, Google will give up another 218,000 sq ft by December, leaving 35% of ATP’s net lettable area empty.

“Downtime could be significant due to competition from a huge impending supply of 1.95 million sq ft from Punggol Digital District, which is due for completion end-2024, and 1.13 million sq ft from Geneo at Science Park, which is due for completion in 2QFY2025,” warns Koh, adding that FLCT intends to reconfigure the available space at ATP into smaller spec suites.

In sum, Koh has trimmed his FY2024 DPU forecast by 9% due to a lower net property income margin and higher cost of debt. The new target price of $1.55 is based on a dividend discount model with the cost of equity at 7% and a terminal growth rate of 2.8%. — Douglas Toh

Price targets:
DBS Group Research ‘buy’ $1.80
Maybank Securities ‘buy’ $1.60
OCBC Investment Research ‘hold’ $1.49

Growth momentum

DBS Group Research and Maybank Securities have maintained their “buy” calls on ComfortDelGro C52 -

(CDG) with unchanged target prices of $1.80 and $1.60 respectively. The positive outlooks follow recent developments in CDG’s overseas expansion.

CDG, on March 28, announced it had won contracts worth GBP422 million ($720 million) to operate bus services in Manchester under its UK unit Metroline for five years. Based on the annual contract value of $144 million and taking the 25% UK corporate tax rate and an estimated

5%–10% operating margin into consideration, DBS estimates a rise in earnings contribution to between $5.4 million and $10.8 million from FY2025. This translates to an upside of 2.2%–4.3% to DBS’s current FY2025 earnings estimate.

For Maybank’s Eric Ong, the slew of recent overseas wins and expansion moves will help lift earnings for FY2024 to FY2026 by 2ppt to 4% and he expects CDG to keep up the momentum and look for more of such opportunities.

Ada Lim of OCBC Investment Research, on the other hand, has upgraded her target price from $1.40 to $1.49 even as she keeps her “hold” call. The revision of target prices can be attributed to the presence of near-term earnings growth drivers such as rising taxi fares and greater commission fees from 5%–7% within the Singapore private hire vehicle (PHV) business.

“We expect CDG to continue to bid for new rail contracts (such as the Cross-Island Line in Singapore) and to actively seek out accretive acquisition targets to make inroads overseas,” adds Lim. As of now, the analyst recognises that CDG’s consensus forward 12-month dividend yield of 5.5% is promising in the Singapore market.

Despite these ongoing positive developments of acquisitions and contract wins, Lim notes that a more “meaningful” catalyst for the stock is needed before a re-rating occurs. The analyst remains patient, waiting for more calculated initiatives and targets related to CDG’s long-term growth before re-rating. — Ashley Lo

Manulife US REIT
Price target:
RHB Bank Singapore ‘trading buy’ 12 US cents

Signs of US office market bottoming

RHB Bank Singapore analyst Vijay Natarajan is keeping a “trading buy” on Manulife US REIT (MUST) with an unchanged target price of 12 US cents (16.17 cents) after its entire management team is to be replaced.

CEO William Gantt, deputy CEO Caroline Fong and CFO Robert Wong will step down on June 30. John Casasante, who was from DWS, will take over as the new CEO and double hat as the CIO. Mushtaque Ali, who was from Manulife Investment Management, will be the new CFO.

Natarajan notes that Casasante has over 25 years of commercial real estate experience with DWS, Cushman & Wakefield, and Lincoln Property and while at DWS, he managed properties in the western US with a net asset value (NAV) of US$15 billion. Ali, he adds, was also involved during the initial setting up of MUST and is familiar with its structure.

On March 21, MUST chairman Marc Feliciano bought his first stake into the REIT, snapping up 3.6 million units at 6.45 US cents each. Five days later, Feliciano, who is also the global head of real estate and private markets at the REIT’s sponsor, bought another 0.8 million units at 7.8 US cents.

In his view, the execution of its disposition plans with target asset sales of US$100 million by 2QFY2024 ending June or 3QFY2024 to reduce its gearing to below 45%, is a key next step for the REIT.

“MUST has segregated its portfolio into three tranches, with Tranche 1 assets, which are in weaker submarkets and have contributed to the bulk of the valuation declines, as a key focus for disposal.

“Meanwhile, MUST will look at maximising returns for Tranche 2 and 3 assets via leasing and portfolio optimisation initiatives. It also recently paid down US$50 million of loans from its cash reserves, which will reduce pro-forma gearing to 57%,” adds Natarajan, whose target price remains pegged at 0.35 times FY2024 book value.

“While the US office market remains challenging, there are signs of bottoming, with [a] continuing flight to quality trends based on JLL’s US office outlook report,” says the analyst. — Felicia Tan

Sheng Siong Group
Price targets:
UOB Kay Hian ‘buy’ $1.88
RHB Bank Singapore ‘buy’ $1.96
Citi Research ‘sell’ $1.43
DBS Group Research ‘hold’ $1.62

Seeking continuous expansion

UOB Kay Hian (UOBKH) is keeping its “buy” recommendation on supermarket operator Sheng Siong Group OV8 -

but with a lower target price of $1.88 from $1.97. “We continue to like Sheng Siong for its sustainable growth from the successful execution of steady store expansion, and for it being a beneficiary in the persistent inflationary environment,” say analysts John Cheong and Heidi Mo.

Compared to the consensus, UOBKH is on the positive side, along with peer RHB Bank Singapore, which has a “buy” call and a $1.96 target price. Citi Research has a “sell” call and a $1.43 target price while DBS Group Research has a “hold” call and a $1.62 target price.

The group’s earnings for the full-year period came in at $133.7 million, a slight 0.3% higher y-o-y, while revenue was up 2.1% y-o-y to $1.37 billion, driven by six new stores but offset by a store that closed.

In 2HFY2023 ended December 2023, revenue was up 2.2% y-o-y at $677.2 million, while earnings gained 3.6% y-o-y to $68.3 million, in line with the expectations of Cheong and Mo, as it formed about 98% of their full-year estimates.

During the period, gross profit margin saw an uptick of 0.6 percentage points (ppt) y-o-y to 30.0%, attributable to a more favourable sales mix of higher-margin products such as non-fresh items. However, operating expenses rose a substantial 10.0% y-o-y due to higher utility and labour costs.

While this was partially offset by a better gross profit recorded and higher interest income, net margin marginally contracted by 0.2ppt y-o-y as a result.

“Moving forward, rising operating expenses may narrow slightly from Sheng Siong’s renewal of its electricity contract at a lower market rate in 3QFY2023, offset by the group’s store expansion,” say the analysts.

In 2023, the group opened two new stores, bringing the total number of stores to 69 as at end-2023, totalling a retail area of 618,349 sq ft.

Sheng Siong is actively tendering for new outlets, with bids submitted for all five stores put up for grabs by HDB in 2023 and all four stores subsequently released in January. For the 2023 bids, the group secured three while the 2024 bids are still pending. There will be five more supermarket locations expected to be up for tender over the next six months, the analysts note.

Sheng Siong continues to eye new growth in China outside home market Singapore, with a target of at least three store openings annually. Operations in China remain profitable overall, making up 2.4% of 2023 revenue. Sheng Siong expects its sixth store in Kunming to be operational in 2QFY2024.

On the outlook, the sustained inflationary pressures will continue to push consumers toward more value-for-money purchases. As consumers cut back on dining out, the analysts believe that Sheng Siong will stand to benefit from boosted sales. As for the additional $600 of Community Development Council (CDC) vouchers announced in the Singapore Budget 2024, management expects a limited impact on sales and is rather a different mode of payment.

Meanwhile, the group is expected to face potentially higher procurement costs that may erode margins, as the return of El Nino has greatly impacted supply harvests, leading to food operators looking to alternative sources of supply. This, together with the elevated inflationary environment, will lead to higher procurement costs. The analysts believe that the impact on margin from El Nino will be limited due to the group’s proven capability in maintaining margins. — Samantha Chiew

Uni-Asia Group
Price target:
SAC Capital ‘buy’ $1.02

More than an alternative asset manager

SAC Capital analyst Matthias Chan is maintaining his “buy” call on Uni-Asia Group CHJ -

with an unchanged target price of $1.02 as the group’s weaker FY2023 ended Dec 31, 2023, points towards a “normalising” of the shipping industry following its “unprecedented boom” from chronic port congestion globally in FY2022.

In FY2023, Uni-Asia’s net profit came in 82% lower y-o-y at $5.1 million while revenue dropped 33% y-o-y to $58 million.

The Baltic Handysize Index (BHSI), a leading indicator of economic activity of spot freight earnings for smaller dry bulk vessels, is currently trading close to US$800 ($1,078.16), close to the US$831 high in December 2023 and more than double the trough recorded in August last year.

Chan notes that macroeconomic conditions suggest that rates “will hover” at current levels, with a probable upside.

“Chinese seaborne dry bulk imports, especially coal remain robust. Rerouting of trade flows on longer voyages via the Cape of Good Hope has increased travel by more than a week. The long-standing slow steaming regulations to reduce harmful gas emissions also support rates,” writes the analyst.

Chan also understands Uni-Asia is active in managing its fleet to optimise returns, which he remarks as being similar to an investment manager.

For example, it has sold off two old ships to “meaningfully reduce” the blended age of its portfolio of ships to fetch optimal charter rates.

Similarly, it is actively managing its properties in Hong Kong and Japan to optimise returns. For example, several of its Hong Kong property assets are being put on the market for strata-titled sales currently.

Beyond this, Uni-Asia is “not just” an alternative investment manager, writes Chan, noting that the group’s asset management arm, Uni-Asia Capital Japan (UNCJ), has increased its assets under management by nearly seven times to JPY38.7 billion ($343.8 million).

Besides holding hospitality, residential and healthcare assets, he adds UNCJ is also invested in sustainability assets, pointing to its managing of JPY1.3 billion in solar power assets since 3QFY2023 and its plans to build a public use facility comprising of a fitness centre, park, pool and bathhouse utilising residual heat from an existing waste treatment plant in Saitama Prefecture. The private finance initiative (PFI) will be UNCJ’s second.

“This is in line with the company’s commitment to good corporate citizenship and sustainable business practices while contributing back to society,” adds Chan.

Moving forward, the analyst expects Uni-Asia’s profitability to improve from FY2023, anticipating a 60% y-o-y net profit increase in FY2024 and a further 35% y-o-y improvement in FY2025.

His revised target price implies a “fair” price-to-book value ratio (P/BV) of 0.4 times and reflects a 60% discount to the P/BV of listed global asset managers. — Douglas Toh

Starhill Global REIT
Price target:
RHB Bank Singapore ‘buy’ 58 cent

Sustained growth in assets and occupancy

RHB Bank Singapore’s Vijay Natarajan has maintained his “buy” call on Starhill Global REIT P40U -

with an unchanged target price of 58 cents following a sustained increase in assets and occupancy for both the REIT’s Singaporean and overseas portfolios.

“With [a] high occupancy [rate], we expect rental reversions to remain positive in mid to high single-digits,” he says in his report dated March 22.

Since June 2023, both retail and office portfolios have reached full committed occupancies amid current renovations. With these asset enhancements underway at Wisma Atria, Natarajan expects the mall’s improved appeal to attract an influx of tenants. This bodes well for rent and retail reversions.

In addition, the analyst likes that there is room for higher rents in the newly-renewed master lease with Toshin Development Singapore. The lease was renewed in November 2023 for an initial term of 12 years beginning from June 8, 2025. It will expire on June 7, 2037.

“[The] annual base rent for the first three years will be higher at 1% above [its] existing base rents and [the] prevailing annual rental value at the start of [the] lease as agreed by both parties,” he says. Should these conditions not be met, the annual base rent will be based on average market rental values determined by three valuers but not exceeding 125% of option A, he adds.

Toshin, which is the master tenant for Ngee Ann City, occupying all of the property’s retail floors save for the fifth level, is the REIT’s largest tenant, accounting for 23% of its income in the 1HFY2024 ended Dec 31, 2023.

In Australia, occupancy rose to 96.9%, 2.4 percentage points higher h-o-h with its Perth and Myer Centre Adelaide properties registering improvements. On Myer Centre Adelaide, the REIT has not issued further updates since its initial announcement in March 2023, but the analyst sees “minimal downside risks” so far.

Another plus, in the analyst’s view, is the REIT’s gearing which remains “modest” at 36.8%. This gearing allocates a debt headroom of $100 million for further acquisitions. The REIT’s management previously voiced its plans to “selectively look at good quality office assets and is also open to divesting some of its overseas assets at the right opportunity”. With an estimate of 78% of the REIT’s debts being hedged, the analyst forecasts financing costs to peak at around 4%.

Despite these positive driving factors, the analyst has lowered his distribution per unit (DPU) estimates by 2% as he factors in the potential persistent rise of interests which will affect the REIT’s finance costs. — Ashley Lo

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