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Brokers’ Digest: Mermaid Maritime, YZJ, MLT, Seatrium, Valuetronics, Singtel, Yoma Strategic, Raffles Medical, MPACT

The Edge Singapore
The Edge Singapore • 20 min read
Brokers’ Digest: Mermaid Maritime, YZJ, MLT, Seatrium, Valuetronics, Singtel, Yoma Strategic, Raffles Medical, MPACT
See what the analysts have to say this week. Photo: Mermaid Maritime
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Mermaid Maritime
Price target:
Lim & Tan Securities ‘buy’ 30 cents

Robust momentum of orders promises higher revenue and profit visibility

Analyst Nicholas Yon of Lim & Tan Securities has initiated a “buy” call on integrated marine subsea operations company, Mermaid Maritime DU4 -

(MMT) at a target price of 30 cents.

He writes in his July 3 report: “MMT boasts one of the world’s largest dive support vessels (DSV) fleets and is a turnaround company strategically positioned to capitalise on the rising demand for decommissioning and inspection, repair, and maintenance (IRM) projects amidst higher oil prices and global sustainability initiatives.”

He adds: “With high operating leverage due to their big fleet size amidst an industry upcycle, MMT has hit critical mass, and we expect further increases in revenue to significantly contribute to their bottom line.”

For FY2024 and FY2025, Yon writes that the market has not “fully acknowledged” MMT’s robust momentum in securing orders, which promises significantly increased revenue and profit visibility.

See also: UOB Kay Hian raises CICT’s TP to $2.29 following continued enhancement of retail malls

Furthermore, the analyst notes that the downturn in the oil and gas industry for the past seven years has eliminated several of MMT’s competitors. This, coupled with MMT having “one of the largest and skilled dive teams”, enables the company to secure delayed projects that are only resurfacing now.

“Due to the scarcity of DSV vessels and elevated charter prices, MMT can now have pricing power,” writes Yon.

The cessation of production of numerous oil wells in the next decade across the Asia Pacific and Thailand also allows MMT to be a prime beneficiary of the expected increase in decommissioning orders.

See also: Stay invested in ST Engineering, UOBKH recommends

As projects in the industry tend to have a short life span, excluding further contract wins, MMT will have a 60% to 65% current order book recognised in FY2024.

“Despite more than doubling its order book in six months from US$337 million ($457 million) in 1HFY2023 to US$734 million, MMT has continued to secure multiple contracts across Southeast Asia, the Middle East and Africa to replenish its order book. We expect MMT’s win momentum to continue and the order book to cross $1 billion, giving further visibility beyond FY2024,” writes Yon.

Meanwhile, the company also stands to benefit from its extensive fleet as charter rates continue to soar.

Yon notes: “Charter rates are now near 2008’s high, and any rate increase above MMT’s cost structure directly feeds into MMT’s bottom line. Older contracts entered before FY2023 should also expire soon, and any new agreements made should reflect the higher charter rates seen in today’s market.”

Despite the spike in share price, MMT’s valuations continue to be “undemanding”, trading at eight times forward P/E.

“Given our expected net profit of US$25 million [$33.8 million] for FY2024, we value MMT at 12.5 times P/E by applying a 15% discount to peer estimates P/E of 14.7 times due to its small-cap nature,” says the analyst.

Yon is also hopeful of a “possible dividend surprise”, which can be well supported by MMT’s current operating cash flow. — Douglas Toh

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

Yangzijiang Shipbuilding
Price target:
JP Morgan ‘overweight’ $2.80

Group to enter ‘sweet spot’ for earnings

JP Morgan analysts Shawn Ng, Karen Li, SM Kim, Jenny Qiu and Sunny Su have kept their “overweight” call on Yangzijiang Shipbuilding.

In their June 26 report, the analysts foresee the group entering a “sweet spot” for its earnings, thanks to margin expansion. This expansion is expected to become more visible in Yangzijiang’s results for the 1HFY2024 ended June 31; the forecast for the group’s half-year earnings is also supposed to be the strongest on record.

“Yangzijiang Shipbuilding’s proven execution track record and robust order book (US$16.08 billion or $21.85 billion) are expected to turbocharge earnings growth till at least FY2026,” the analysts write. “Benefiting from a favourable delivery mix, stable steel costs and foreign exchange (US dollar versus the Chinese renminbi) effects, we forecast Yangzijiang Shipbuilding’s NPAT to reach a historical high in 1HFY2024 led by shipbuilding margin expansion,” they add.

The analysts, who estimate the group’s NPAT to grow by 34% y-o-y to RMB2.3 billion ($429.8 million), say it is “worth noting” that Yangzijiang Shipbuilding has “consistently outperformed” its regional peers led by better operational execution, order picking strategy and cost discipline.

Furthermore, they note that the group’s orderbook has not peaked, with room for additional growth.

“Yangzijiang Shipbuilding has [the] capacity to take on additional orders, and we expect it to close out the remaining [estimated] 50% of 2027 delivery slots and some 2028 slots in 2H2024,” the analysts write.

They add that shipowners are unfazed by the ongoing US investigations into the Chinese shipbuilding sector and have continued to enquire to place orders for dual-fuel (DF) containerships (mid-sized, charter owners), product tankers and gas carriers.

As such, the analysts see that Yangzijiang Shipbuilding is “well-positioned” to exceed its order guidance of US$4.5 billion for FY2024 with ship owners likely to continue locking in delivery despite a long delivery lead-time. During its business update for 1QFY2024 ended March 31, the group revealed that it has already reached 74% of its full-year guidance with US$3.32 billion in order wins.

“With a broadening shipping fleet renewal unfolding (including dry bulk), we expect Yangzijiang Shipbuilding’s better operating leverage and prospective shipyard expansion (medium-term) to extend its strong order spree,” the analysts write.

“Our channel checks and Alphaliner suggest that more new orders could materialize from major liners in 2H2024 with keen interest on 8,000 [to] 17,000 TEUs (or twenty-foot equivalent units) vessel size,” they add.

Finally, shipbuilding prices are poised to remain higher for longer, which will also benefit the group. — Felicia Tan

Mapletree Logistics Trust
Price target:
Citi Research ‘buy’ $1.58

More divestments on the cards

More divestments are planned for Mapletree Logistics Trust M44U -

(MLT), with the REIT’s management signalling a potential sale of assets back to its sponsor via a development fund.

Speaking at Citi’s 2024 Asia Pacific Property Conference on June 24, the manager of MLT says it wants to sell more property in China and be more aggressive in selling. However, the market is slow and will take some time, the manager adds.

For example, the recently announced sale of Mapletree Xi’an Logistics Park took nine months due to tax-related issues. “While MLT knows there are people selling China properties at 30%–40% discount, it will not sell below book value; at worst at book value,” says Brandon Lee, an analyst at Citi Research.

Interestingly, MLT mentioned it could sell some assets back to its sponsor, says Lee. “Mapletree Investments (MIPL) via a development fund, helped by interest from insurance funds, and preliminary talks have started, though it could likely be in two years.”

In a June 27 note, Lee maintains his “buy” call with a target price of $1.58. With an expected dividend yield of 6.2%, the total expected return is 26.8%.

Lee notes that MIPL successfully closed its first open-ended fund — Mapletree China Logistics Investment Private Fund (MCLIP), focusing on logistics development assets in China — in December 2022. The fund has a build-to-core strategy and an initial portfolio of US$1.8 billion of 43 Grade A logistics properties.

However, MLT does not want to share a particular target for its China exposure, as it is part of emerging markets, which it still wants to grow in geographies like India, Malaysia and Vietnam.

China would automatically come down if these three geographies expand, notes Lee. In Hong Kong, there are currently two other new interested parties looking at the asset in New Territories, he adds, though the price will be slightly lower than the $100.3 million offered by the initial buyer.

Selective acquisitions

Developed markets will remain dominant at 65%–68% exposure, says Lee, with MLT wanting to grow more in Singapore in absolute value terms.

Meanwhile, Hong Kong acquisitions are more opportunistic and hard to buy, so MLT will have to depend on its sponsor, which is still looking to grow the pipeline.

Lee points to a “mixed operational outlook” for MLT. “For China, if things don’t change from here, hopefully, it can start to bottom in six months, or 2HFY2025.”

MLT’s China tenants are more domestic-driven, so they are less likely to be impacted by tariffs than weak domestic consumption, says Lee.

For South Korea, there are some headwinds due to oversupply, with 5.8 million sq m completed by 1Q2024 in the Seoul Metropolitan Area, with 50% pre-committed. This is on top of the 15.4% vacancy in 1Q2024, compared to 13.1% in 4Q2023.

According to Lee, tenants are starting to prefer short-term leases as more vacant space is coming up for rent, though supply will slow down in 2024 due to high land costs and development costs.

For Hong Kong, MLT expects 2%–2.5% positive rent reversion, compared to double digits in the past.

MLT does not see the sizeable Cainiao Smart Gateway, which was completed in 3Q2023 with 40% of its 0.4 million sq ft in gross floor area already pre-committed, as having an impact on its Hong Kong business given that it caters to products that need to be near the airport, says Lee.

Finally, for Australia, MLT expects high-single-digit positive reversion for upcoming expiries.

Key risks

Key downside risks that could result in MLT’s shares not reaching Citi’s target price include a “sharp decline” in trade and economic activity in Asia Pacific, which could reduce overall demand for logistics space, hence affecting MLT’s occupancy, rents, distribution per unit (DPU) and valuations.

Lee also warns about a sharp rise in interest rates, which could increase MLT’s cost of debt and lower DPU, as well as increased cost of capital.

On the flip side, key upside risks that could push MLT’s shares above Lee’s target price include a sharp recovery in trade and economic activity in Asia Pacific, which results in increased demand for overall logistics space and a boost to MLT’s portfolio occupancy.

MLT could also benefit from a lower-than-expected financing cost, which could lower its cost of capital. Finally, MLT could surprise with earnings accretion from potential acquisitions, which Lee has not factored into its model. — Jovi Ho

Seatrium
Price target:
UOB Kay Hian ‘buy’ $2.35

New probe overshadowing Seatrium’s good news

UOB Kay Hian (UOBKH) analyst Adrian Loh has kept “buy” on Seatrium with a lower target price of $2.35 from $3.23, expecting the share price to remain volatile in the near term.

Since Seatrium’s 1QFY2024 ended March business update on May 28, the company has announced positive news. This includes the award of a letter of intent (LOI) by BP Exploration & Production (BP) for a deepwater production unit; the confirmation of a third EUR2 billion ($2.9 billion) offshore renewables contract with TenneT; settlement of arbitration proceeding proceedings with Awilco and RogCo; as well as the start of its share buyback programme.

Unfortunately, the negative news regarding Seatrium’s deletion from the MSCI Singapore Index and an Operation Car Wash investigation by the Monetary Authority of Singapore and the Commercial Affairs Department of Singapore have overshadowed the good news, Loh points out.

“We were surprised by the revelation of yet another investigation by the Singapore authorities and believe that the market and the company itself were blindsided by this announcement, believing that the prior settlement agreement with the Brazilian authorities and completion of investigations by Singapore’s Attorney-General’s Chambers and Corrupt Practices Investigation Bureau had drawn a line in the sand,” says Loh.

In UOBKH’s view, Seatrium’s LOI for Kaskida’s engineering, procurement, construction and commissioning (EPCC) contract puts it in a very strong position to clinch the BP’s Tiber and Gila production units — the two other BP large deepwater discoveries in the Gulf of Mexico.

A single yard winning all the production assets is not unprecedented, says Loh. “Note that Seatrium won Shell’s trio of deepwater production assets in the Gulf of Mexico, namely Whale, Vito and Sparta. At present, we estimate the Kaskida EPCC to be worth $500 million to $600 million.”

UOBKH continues to like Seatrium, expecting the company to benefit from stronger offshore marine dynamics as well as demand for offshore vessels and structures related to the renewables industry.

Additionally, the normalisation of economic activity should result in a greater volume of shipping activities, thus positively impacting its repairs and upgrades segment, says Loh.

“While 40% of Seatrium’s current orderbook is in the renewable energy space, its addressable market is arguably much larger when taking into account carbon capture usage and storage; floating liquefied natural gas; and ammonia storage and transport, which feeds into the hydrogen energy chain,” he notes. — Khairani Afifi Noordin

Valuetronics
Price target:
UOB Kay Hian ‘buy’ 78 cents

More opportunities to enter AI industry

UOB Kay Hian (UOBKH) analysts have kept their “buy” call with a target price of 78 cents for Valuetronic. This comes on the back of the group’s foray into the artificial intelligence (AI) industry with goals to further expansion in the near term.

On June 24, the original equipment manufacturing company announced a partnership with SinnetCloud Group, an experienced graphics processing unit (GPU) and AI solutions provider affiliated with Shenzhen-listed Beijing Sinnet Technology Co.

According to analysts John Cheong and Heidi Mo, Valuetronics BN2 -

will invest HK$7.7 million ($1.34 million) in cash for a 55% interest in the joint venture Trio AI to provide GPU and AI-related value-added cloud services.

The company will then acquire the GPU-enabled servers and ancillary hardware required for the JV and lease them back to Trio AI for 60 months at a rent calculated to cover the equipment acquisition cost not exceeding HK$60 million.

Valuetronics expects to execute its planned investments over the next few months and will invest more money if there is good demand, say the analysts. “We understand that SinnetCloud Group has already started pre-selling the GPU and AI-related value-added cloud services even before the formation of this joint venture. It is targeting Hong Kong-based start-up customers, including fintech, health tech and media tech,” they add.

Cheong and Mo note there is limited competition in the GPU and AI-related value-added cloud services business in Hong Kong due to Western sanctions on the GPU being sold to the Hong Kong China market.

Demand for these services is also good due to the limited ability of smaller start-ups to access costly GPU infrastructure, data rationalisation and development of large language models, they add.

The analysts expect share buyback and attractive dividend payout to continue, which is an indicator of positive future performance. Valuetronics bought back 593,100 shares on June 25 after the announcement of the joint venture, which the analysts say is a positive signal on its prospects.

“Also, to recap, for FY2024, Valuetronics proposed a final dividend of 9 Hong Kong cents/share and a special dividend of 8 Hong Kong cents/share. This brings the total dividend to 25 Hong Kong cents/share, translating to an attractive 64.6% payout ratio and 6.7% yield,” they note.

The company also has a positive outlook from its first full-year contributions from new customers. The group has successfully diversified its customer base, with new customers like a Canada-based ICE (industrial and commercial electronics) customer providing network access solutions and a CE (consumer electronics) customer supplying electronic products to a leading global entertainment conglomerate.

These new customers have contributed in 2HFY2024 and will make their first full-year contributions in FY2025, they say. With their high growth potential and more favourable margins, the analysts expect Valuetronics to reap earnings growth in FY2025.

Valuetronics has a strong cash balance of HK$1.1 billion, equivalent to 80% of its market cap, and is reading at only two times FY2024 ex-cash P/E, which offers an attractive FY2025 dividend yield of around 7%, say the analysts.

The analysts keep their “buy” call with a P/E-based target price of 78 cents, pegged to 10.8 times P/E for FY2025. — Nicole Lim

Singapore Telecommunications
Price targets:
Maybank Securities ‘buy’ $3.40
DBS Group Research ‘buy’ $3.50

Analysts positive after India subsidiary raises tariffs

Analysts from Maybank Securities and DBS Group Research have kept their “buy” calls on Singapore Telecommunications Z74 -

(Singtel), after its subsidiary Bharti Airtel announced that it is raising tariffs by 10% - 21% for all its prepaid and postpaid users on July 3.

Maybank’s analyst Hussaini Saifee raised his target price for Singtel to $3.40 from $3.24, on the back of higher Bharti Airtel valuation, and the DBS team has left its target price unchanged at $3.50.

Bharti Airtel, in which Singtel owns a 29% stake, is one of the two largest telecom operators in India. Alongside its peer Jio, both companies raised their tariffs for the first time in three years, aiming to begin recouping the billions poured into 5G technology over the last two years.

Saifee from Maybank in his July 1 note says that Bharti’s FY2025–FY2027 India mobile revenues are expected to rise by 7%–9%, factoring in a price elasticity of 60%.

Further assuming a pass-through impact of higher revenues on ebitda at 60%, he sees India mobile ebitda rising 7%–10% in FY2025–FY2027, which translates to an ebitda lift of INR37 billion–INR55 billion ($602 million–$903 million) for the period.

He adds that the 25% corporate tax rate will translate to Bharti Airtel earnings rising INR28 billion–INR 42 billion ($452 million–$677 million) in FY2025–FY2027.

As such, the analyst raises his Singtel earnings estimates by 4%–8% in FY2025–FY2027. “We lift our Singtel sum of the parts (SOTP)-based target price to $3.40,” says Saifee.

Likewise, DBS analysts note that Bharti Airtel’s share price has risen by 9% since their last report on May 24 in anticipation of tariff hikes.

“We estimate each 10% rise in Bharti’s share price to benefit Singtel’s SOTP valuation by 4.8%. So the benefit to Singtel’s share price should be 4.5% based on the rise in Bharti’s share price so far,” they say. — Nicole Lim

Yoma Strategic
Price target:
PhillipCapital ‘unrated’

Wave Money an area for collaboration

PhillipCapital analyst Paul Chew believes Yoma Strategic would have a new substantial shareholder available for deeper collaboration and access to funding, following the company’s recently announced share exchange agreement.

In a June 28 announcement, Yoma said that it signed an agreement with Tokyo Century Asia (TCA) to acquire the remaining 20% stake in Yoma Fleet for $18.5 million from TCA.

In exchange, Yoma will issue 137 million new shares or a 5.74% stake to TCA at an issue price of 13.5 cents. TCA cannot dispose of the shares without consent within 60 days after the transaction.

Post-transaction, Yoma Fleet will become the company’s wholly-owned subsidiary.

In his unrated July 1 report, Chew notes that the share exchange will cause Yoma’s March 2024 net tangible asset (NTA) per share to decline 7.4% to 13.11 US cents. The implied valuation of Yoma Fleet is US$68.37 million. Yoma views the valuation as attractive, and the 100% interest will align the company with its future corporate plans.

Chew expects Wave Money — which is creating a lending platform for unsecured lending and buy now, pay later financing — to be an area of collaboration.

“Wave Money can create a credit score on its users’ payroll, spending and location patterns. Lenders, such as Yoma Fleet, that join the platform can provide loans to users with the appropriate credit scores,” says Chew.

He highlights that Yoma Fleet’s growth plans include expanding the operating fleet, especially that of heavy machines; increasing lease rates; and introducing new synergy with Wave Money. — Khairani Afifi Noordin

Raffles Medical Group
Price target:
RHB Bank Singapore ‘neutral’ $1.06

Little near-term drivers

RHB Bank Singapore analyst Shekhar Jaiswal is keeping his “neutral” call on Raffles Medical Group BSL -

with an unchanged target price of $1.06.

He writes in his July 1 report: “While Raffles Medical’s valuation looks compelling relative to regional healthcare stocks, we do not see any near-term re-rating catalysts.”

Jaiswal continues: “We met with investors in Kuala Lumpur to discuss the Asean healthcare outlook. Investors were more keen on Thailand and Indonesia healthcare stocks, and still had concerns about Singapore’s private healthcare sector and Raffles Medical.”

Although Raffles Medical looks to see earnings improvement on the back of the group’s improving China business, higher operating costs in Singapore, below pre-pandemic levels of foreign patients, and losses from higher claims in its insurance business continue to provide “near-term earnings headwinds”.

Jaiswal also anticipates wage pressure as the group intends to expand its operations by hiring more doctors, specialists and nurses. He adds: “The international patient load may not recover to pre-pandemic levels and could remain weak in the foreseeable future, amidst a relatively strong Singapore dollar and competition from regional healthcare businesses.”

The analyst estimates a 13% profit growth in FY2024, a reverse from the decline in profit in FY2023, which he attributes to the addition of 176 beds dedicated to Raffles Medical’s transitional care facilities (TCF) programme.

In the longer term, the group plans to grow revenue by expanding the activities at Raffles Medical’s Chinese hospitals.

The group has also announced plans to acquire a majority interest in the American International Hospital (AIH) in Ho Chi Minh City, Vietnam, and it will also enter into a management service agreement to manage the hospital.

Jaiswal writes: “We believe that the revenue contribution will only happen in late FY2024 as the contract is contingent upon the fulfilment of specific condition precedents and necessary regulatory clearances.” — Douglas Toh

Mapletree Pan Asia Commercial Trust
Price target:
DBS Group Research ‘buy’ $1.75

DPU accretion from Mapletree Anson a ‘positive surprise’

DBS Group Research analysts Rachel Tan and Derek Tan have maintained their “buy” call on Mapletree Pan Asia Commercial Trust N2IU -

(MPACT) with an unchanged target price of $1.75 following the REIT’s divestment of Mapletree Anson.

On May 30, MPACT announced plans to divest Mapletree Anson for $775 million, which is 1.3% above the property’s latest book value.

In their June 28 report, the analysts note that MPACT’s gearing will be reduced to 37.6% from 40.5% as at March 31. The expected accretion to the REIT’s DPU is around 1.5%, which is a “positive surprise” to the analysts.

“However, the question remains on how MPACT would find its next leg of growth.”

Due to the current cost of capital levels, the analysts view MPACT’s pursuit of accretive acquisitions to be “sub-optimal”.

Despite this, MPACT’s prized jewel asset Vivocity continues to surprise the analysts with its high growth, contributing around 23% of the REIT’s net property income (NPI). Meanwhile, Festival Walk in Hong Kong, is experiencing a slower-than-expected recovery despite having stabilised.

Following the suboptimal pricing of the sale of China-focused properties due to a weak demand environment, Pinnacle Gangnam is a potential divestment opportunity, in the analysts’ view.

They note that overseas assets have been pared down following valuation adjustments and the depreciation of foreign currency exchange. Aside from Festival Walk, Pinnacle Gangnam has the lowest negative carry, at around 10% below its acquisition price.

The analysts note that this swap could potentially benefit MPACT, which includes securing long-term growth in partnership with its sponsor in an attractive development asset that anchors its dominant position within the Southern Waterfront of Singapore.  

While the analysts estimate a 2% loss in rental income during the redevelopment period, they also see a potential yield on cost of the Harbourfront Centre redevelopment of around 6.4% and net asset value (NAV) uplift of 1.7% for the REIT post-completion of the redevelopment.

MPACT is currently trading at close to 7% of its FY2025 yield and 0.7 times P/NAV. — Ashley Lo

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