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Broker's Digest: Lendlease Global Commercial REIT, Q&M Dental, Singapore Post

The Edge Singapore
The Edge Singapore3/3/2022 11:34 PM GMT+08  • 6 min read
Broker's Digest: Lendlease Global Commercial REIT, Q&M Dental, Singapore Post
Here are some analyst picks for this week.
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Lendlease Global Commercial REIT

Price target:
PhillipCapital “accumulate” 94 cents

Acquisition of rest of Jem underway

PhillipCapital analyst Natalie Ong has kept her “accumulate” call on Lendlease Global Commercial REIT (LREIT) after the REIT proposed to acquire the remaining interest it does not own in Jem on Feb 15. She has also kept her target price unchanged at 94 cents.

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In her report on Feb 23, Ong notes that the proposed acquisition will double LREIT’s assets under management (AUM) and market capitalisation, making it one of the top 20 Singapore REITs (S-REITs).

However “the large quantum of the acquisition necessitates equity fundraising, which carries a higher cost of capital, making this leg of the Jem acquisition less accretive compared to previous rounds,” she says.

“Based on our forecast, the acquisition of the remaining 86.15% stake in Jem is marginally accretive at 0.1%, in line with the pro forma distribution per unit (DPU) accretion of 0.1%–3.0%,” she adds.

To this end, Ong has increased her DPU estimate for the FY2022 and FY2023 by 1.7% and 0.3% respectively, while her DPU estimates for FY2024–FY2026 were lowered by 0.4%– 1.1% due to the REIT’s enlarged share base. The REIT has a June year end.

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“The current share price implies FY2022 DPU yields of 6.0%. Pipeline assets for LREIT include Paya Lebar Quarters and Parkway Parade,” she says.

Jem is one of the bigger malls in Jurong East, pulling from a catchment of some 1.1 million residents as at 2020. The mall’s retail occupancy was 100% as at Dec 31, 2021, and remained above 98% throughout the Covid-19 pandemic, says Ong. “Despite the 100% occupancy, the manager managed to increase revenue for the property by creating 1,500 sq ft in additional net lettable assets (NLA) at level 1 and basement 1,” she adds.

The office component is fully leased to the Ministry of National Development (MND) on a 30-year lease ending in 2045. The lease is subject to a rent review every five years and contributes 20% and 35% of JEM’s gross rental income (GRI) and NLA for the year ended Dec 31. — Felicia Tan

Q&M Dental Group

Price target:
CGS-CIMB “add” 79 cents
DBS Group Research “buy” 72 cents

Valuations still attractive despite earnings miss

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While Q&M Dental Group reported record earnings of $30.5 million for FY2021, its earnings of $3.2 million for 4QFY2021 ended December 2021 was below expectations of some analysts.

CGS-CIMB Research analysts Tay Wee Kuang and Kenneth Tan, who expected the dental group to log earnings of $7.4 million for the quarter alone, attributed the lower-than-expected earnings to higher staff and tax expenses.

As indicated in their Feb 24 report, Q&M’s revenue for the 4QFY2021 was in line with their expectations at 99% of their forecasts as they had “expected a seasonally stronger dental core revenue to partially offset lower Covid-19 testing during the quarter as Singapore shifted towards self-testing”.

During the year, Q&M opened 14 new dental clinics in Singapore, in line with their estimates, but below management’s target of 20 new clinics in Singapore.

With the company “steadfast” to hit its goal of opening 20 new clinics in Singapore and 10 in Malaysia per year for the next 10 years, the analysts expect this aggressive expansion to underpin revenue growth in the future that will offset weaker testing revenues, note the analysts in their Feb 24 report, where they’ve kept their “add” call target price of 79 cents.

As the daily polymerase chain reaction (PCR) tests continue to decline in February, CGS-CIMB’s Tay and Tan believe the supervised antigen rapid test (ART) services offered at Q&M’s clinics should help to partly offset the drop in PCR volumes.

“Acumen is also exploring the rollout of new PCR use cases (e.g. sepsis, dengue), which we believe could be a new earnings driver should commercialisation be successful,” write the analysts.

DBS Group Research analyst Paul Yong has similarly deemed Q&M’s 4QFY2021 earnings a miss, as he keeps “buy” on the counter with a lower target price of 72 cents from 80 cents before.

Yong sees pressure on revenue and margins for Q&M’s Acumen business going forward on the back of lowered demand for polymerase chain test (PCR) tests.

“Hence, we cut our estimates as we moderate our expectations and await more concrete plans regarding the testing business,” writes Yong in his Feb 25 report, where he lowered his earnings estimates for the Acumen Diagnostics business due to the fall in demand for PCR tests in Singapore.

However, like the analysts at CGS-CIMB, Yong is positive on Q&M’s primary healthcare segment given its “clear expansion strategy” for the next 10 years. “We expect to see the fruits of organic growth in FY2022, with more to come in the next nine years,” says Yong.

He has also deemed Q&M’s valuations as “undemanding”, which makes its current share price a good time to buy.

Yong notes that Q & M is currently trading at 15.5x FY2022 P/E, which is around 1 standard deviation below its five-year average, with an EPS CAGR of 12.8% over FY2021–FY2023. It is also an attractive yield play with FY2022 yield of 7.5%, writes Yong. — Felicia Tan

Singapore Post

Price target:
CGS-CIMB “add” 90 cents

Enroute to steady recovery

CGS-CIMB Research is keeping its “add” call on Singapore Post (SingPost) with an unchanged target price of 90 cents, following its latest 3QFY2021 ended December 2021 business update.

In its business update, SingPost recorded revenue of $437 million, up 24% y-o-y, driven mainly by Famous Holdings (FMH), growth in e-commerce logistics and the consolidation of FMH. The higher revenue was partly offset by lower international post and parcel (IPP) revenue.

During the quarter, operating expenses increased 23% y-o-y to $400 million from volume-related expenses on the back of higher volume in freight forwarding and e-commerce logistics. Operating profit surged 46% y-o-y to $38 million mainly due to higher profit from FMH, domestic post and parcel (DPP) and from the consolidation of FMH.

“We believe that SingPost’s post and parcel segment can see further recovery in FY2023,” states Ong Khang Chuen in his Feb 25 report.

Domestically, e-commerce volumes grew to 15.5 million in 3QFY2022, representing a 23% q-o-q increase and a 50% y-o-y growth. This is helped by year-end peak shopping season and one-off nationwide distribution projects such as for ART kits and mouth gargles, of which Ong expects continued growth riding on structural increase of e-commerce penetration.

On the international front, IPP business has already seen some profit recovery in 3QFY2022, and Ong expects further recovery as flight capacity out of Changi Airport recovers more significantly. That, according to the analyst, will help alleviate conveyance costs, and aid margin recovery for the IPP business.

Meanwhile, further investments in the group’s logistics are expected to grow.

SingPost’s freight forwarding business continued its strong performance in 3QFY2022, benefitting from higher volume and sea freight rates.

At the same time SingPost is stepping up its investments in Australia with the intention of building it into its second home market. Aside from the stake increase in FMH, SingPost will also continue to build scale and capabilities.

Looking forward, Ong expects earnings recovery as more flight through Changi gradually resumes. At this point of time, Ong believes that the stock’s valuation is attractive, as it is trading at 1.3x standard deviation below mean. — Samantha Chiew

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