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Brokers’ Digest: Oiltek, ST Engineering, 17LIVE, ComfortDelGro, Marco Polo Marine, Winking Studios, HRnetGroup, Sheng Si

The Edge Singapore
The Edge Singapore • 18 min read
Brokers’ Digest: Oiltek, ST Engineering, 17LIVE, ComfortDelGro, Marco Polo Marine, Winking Studios, HRnetGroup, Sheng Si
One of Oiltek's 100 MTD physical refining plants. Photo: Oiltek International
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Oiltek International
Price target:
PhillipCapital ‘unrated’

Benefitting from push for wider use of sustainable fuel

Oiltek International, a design and engineering firm for vegetable oil refineries, is seen as a beneficiary of the ongoing push for more sustainable fuel, says Peggy Mak of PhillipCapital in an unrated report on April 8.

The company, 68.1% held by Koh Brothers Eco Engineering 5HV -

, has the know-how to process waste fats and oil into intermediate feedstock for the production of sustainable aviation fuel.

In Indonesia, where Oiltek generates more than three-quarters of its business, the government has ordered the use of more biodiesel.

From last August onwards, the industry was required to blend 35% palm-based biodiesel with fossil diesel to reduce fuel imports, lift domestic demand for palm oil and cut emissions. A 40% blend will be imposed down the road.

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

Similarly, Malaysia has proposed a 20% blend for the transport sector, although this has not been made a requirement nationwide due to limited blending facilities.

“We expect more investments into biodiesel plants as each state seeks to be self-reliant in supply,” says Mak.

In addition, there is a growing demand for sustainable aviation fuel (SAF), with many countries mandating 3% to 10% use by 2030.

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

Mak believes that Oiltek will ride on this demand as the international aviation industry targets reaching net-zero carbon emissions by 2050.

According to Mak, Oiltek can help treat palm oil mill effluent and used cooking oil as feedstock for the production of hydrogenated vegetable oil, in compliance with the International Sustainability and Carbon Certification.

Key factors driving Oiltek’s business include higher consumption demand for vegetable oil used in food and downstream applications, the use of palm oil products as a substitute for some food ingredients such as cocoa butter, and the push for the use of biodiesel as a greener fuel. Biodiesel can be produced from vegetable oil or waste oil.

Mak thinks Oiltek’s key assets are the proprietary process technology and know-how. Plant fabrication and installation work are outsourced to third-party fabrication plants, thus minimising capex needs.

As a result of this asset-light model, the company generated an attractive FY2023 ROE of 28% despite having net cash of RM132 million ($37.5 million) on its balance sheet and strong free cash flow.

Mak points out that Oiltek’s FY2023 free cash flow (FCF) was 13.7 cents per share. Its share price now trades at 1.86 times P/FCF and below net cash of 26.5 cents per share, and it has declared a dividend of 1.6 cents or a yield of 6.4% in FY2023. — The Edge Singapore

Singapore Technologies Engineering
Price target:
RHB Bank Singapore ‘buy’ $4.50

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Both earnings growth and defensive yield

Shekhar Jaiswal of RHB Bank Singapore has reiterated his “buy” call and $4.50 target price for ST Engineering, citing its all-round positive earnings outlook plus a relatively defensive quarterly dividend payout.

In his April 8 note, Jaiswal notes that the company is keeping its quarterly payout of 4 cents a quarter, which translates into a yield of 4%.

In addition, it is enjoying strong earnings growth and overall visibility with an order book of $27.4 billion as its various key operating segments pull their weight.

The commercial aerospace segment is seen to benefit from higher maintenance, repair, and overall earnings due to better aviation traffic, higher nacelle sales and improved profits for its passenger-to-freighter (PTF) conversion business amid economies of scale and improvements in the learning curve.

The urban solutions and satellite communications segment should see improvements following a right-sizing exercise and earnings contribution from its TransCore traffic management unit.

Its defence and public security business profitability should also be supported by the gradual delivery of its order book.

“A potential decline in interest rates would be positive as 38% of ST Engineering’s debt is still exposed to a floating interest rate,” says Jaiswal, who is projecting a 15% profit CAGR from FY2023 to FY2026.  — The Edge Singapore

17LIVE
Price target:
PhillipCapital ‘buy’ $2.30

Resumption of revenue growth

PhillipCapital analysts Liu Miaomiao and Paul Chew have initiated a “buy” on live-streaming company 17LIVE with a target price of $2.30.

In a paid April 8 report, the analysts expect 17LIVE’s revenue growth to resume its upward trajectory in FY2024. “After declining for three years, we expect revenue to stabilise this year, and return to full-year growth in FY2025,” they add.

The analysts point out that 17LIVE’s monthly active users (MAU) will begin its recovery with a growth rate of around 10% in FY2024 from new content offerings in Southeast Asia, product enhancements and reinvestment into marketing.

Leveraging its IPO as a launchpad, 17LIVE is eager to expand into the Southeast Asia market, where there is currently no dominant player in the industry. The analysts foresee revenue contribution from other regions to increase by about 15% in FY2024 as 17LIVE intends to bring its existing content overseas, noting that the company also aims to expand its Japan V-Liver content to other countries as it matures.

With a net cash balance of US$102.7 million ($137.5 million) as at December 2023, inorganic growth via acquisitions can add more streamers and their users onto the platform, Liu and Chew add. This network effect will further elevate the platform’s appeal to other streamers and users.

At present, 17LIVE is directing its efforts towards profitability, resulting in an uptick in quality MAU, spend rate, and average rate per paying user (ARPPU). Quality MAU comprises 14.4% of its total MAU in Japan and 12.9% in Taiwan. In FY2024, Liu and Chew anticipate an organic MAU growth of about 10% while maintaining a constant paying ratio and ARPPU.

“We are assuming a stable paying ratio and ARPPU from 17LIVE for FY2024–FY2028. We expect the paying ratio to remain at the FY2023 level of 16%,” Liu and Chew note.

For FY2024, V-Liver and e-commerce are expected to be the main growth drivers. The analysts expect stronger performance in the V-Liver segment as 17LIVE is the market leader in Japan, which could boost income by around 25%. Meanwhile, e-commerce and in-app gaming as the cash cow business will also be emphasised in FY2024, with a projected growth rate of about 30%.

The analysts highlight that cost-efficiency and streamlining cross-border virtual coin purchasing are expected to boost 17LIVE’s margins further. They note that the company is seeking to halve R&D costs without compromising user experiences to offset higher marketing in FY2024.

That said, Liu and Chew expect marketing expenses to slightly creep up in 2HFY2024, depending on the success of the company’s cost-restructuring.

“We believe the group can further optimise its revenue and operating model, thereby improving profitability from FY2024 onwards,” they conclude. — Khairani Afifi Noordin

ComfortDelGro Corp
Price target:
RHB Bank Singapore ‘buy’ $1.65

Multiple earnings drivers ahead

Shekhar Jaiswal of RHB Bank Singapore has reiterated his “buy” call and $1.65 target price for ComfortDelGro C52 -

(CDG). Recently, the company’s UK unit won GBP422 million ($720 million) in contracts to run buses in Manchester for five years, with an option to extend for up to another two years.

According to Jaiswal’s estimates, assuming the contract value is evenly spread across the five years, the annual contract value would be $144 million.

CDG’s public transport business now generates a 4% ebit margin. Assuming a 4%–8% ebit margin and a 25% tax rate, he estimates the incremental earnings in FY2025 from these contracts to range between $4.3 million and $8.6 million, which translates into a 1.8% to 3.6% upside to his existing earnings projection for FY2025.

Even without this impending uplift from the UK bus contract, Jaiswal says CDG is poised to enjoy some near-term earnings growth drivers.

These include higher Singapore rail revenue, continued improvement in its UK public transport revenue, strong Singapore taxi earnings amidst the increase in fares and commission rates as well as the introduction of a new fee for bookings on the Zig platform.

Improvement in its China taxi business and contributions from recent acquisitions should help too, he adds.

In another positive development, Singapore is now reviewing the so-called point-to-point (p2p) transport industry structure. “We believe that the results of the final review of the p2p transport industry will continue to be positive for CDG,” he says.

“In addition, we expect the potential integration of Gojek’s booking with the Zig platform to further drive taxi demand and CDG’s winning of the Seletar bus package in Singapore as additional re-rating catalysts,” adds Jaiswal.

In its April 8 note, KGI Research Singapore says among the regulatory changes, taxi operators will see lower operating costs through changes like the lifespan extension of non-electric cabs and the reduction in inspection frequency for newer taxis.

“Regulatory tweaks aim to balance the regulatory burden between taxis and private-hire cars,” says KGI, which has a target price of $1.57 for the stock.

“While concerns over driver earnings persist, the proposed changes aim to stabilise the transport sector and maintain a balance between taxis and private-hire cars. These new standards will bolster CDG’s efforts to enhance its taxi and private hire segment in Singapore, aligning with the increasing demand for personal transportation services,” adds KGI. — The Edge Singapore

Marco Polo Marine
Price targets:
Lim & Tan Securities ‘buy’ 8.3 cents
RHB Bank Singapore ‘buy’ 8.1 cents

Firing on both engines

Lim & Tan Securities analyst Nicholas Yon has initiated coverage on Marco Polo Marine 5LY -

with a “buy” call as the company is “firing on both engines”. Its ship chartering segment is seeing high rates while its shipbuilding segment is backed by a substantial pipeline of orders that ensures visibility in revenue for the coming years, Yon writes.

“There continues to be a mismatch of demand and supply in anchor handling tug supply (AHTS) vessels, even in 2024, despite the influx of new builds entering the market, leading to a continued surge in offshore support vessel (OSV) charter rates,” the analyst points out.

With this, Marco Polo Marine’s strategy of opting for relatively shorter renewal rates gives the company an advantage to recalibrate its pricing more frequently, he notes. Furthermore, the move will enable the company to capitalise on the ongoing upswing. This “strategic manoeuvre” is boosted by Taiwan’s commitment to the windfarm market, which further sustains the company’s position in the market as well as its profitability.

On the shipbuilding segment, Yon sees greater stability with the recent chartering contracts with Vestas and Siemens. Marco Polo Marine signed a three-year framework agreement with Vestas for the deployment of its new commissioning service operations vessel (CSOV) in November 2023 while it secured the Asia Pacific crew transfer vessel (CTV) framework agreement with Siemens Gamesa for projects spanning Taiwan and Korea in March.

In addition, the notable uptick in ship repair utilisation with rising rates is bound to help its shipbuilding segment. Yon says: “To address the growing and sustained demand, Marco Polo Marine is proactively expanding its infrastructure by constructing a fourth dock, slated to become operational by 1H2025. This will augment Marco Polo Marine’s repair capacities by another impressive 25%.” Another upside for the company is its healthy net cash position of $60.8 million, which lets it capitalise on the ongoing upcycle in the oil and gas (O&G) industry.

Yon has also given Marco Polo Marine a target price of 8.3 cents, representing an upside of 25.8% to the company’s actual share price of 6.6 cents as at his report dated April 5.

“Marco Polo Marine today trades at 8.7 times FY2024 P/E (ex-cash FY2024 P/E: 6.5 times) and 1.3 times P/B, which is undemanding compared to [its] peers’ valuations of 13.9 times FY2024 P/E,” says the analyst.

“Given the higher potential of the current upcycle, we think that Marco Polo Marine can trade up to at least 11 times P/E, representing a 20% discount to the previous peak and current peers”, he adds.

In his April 8 note, RHB Bank Singapore’s Alfie Yeo estimates that this agreement can help lift Marco Polo Marine’s earnings for FY2025 and FY2026 by between 8% and 10%, prompting him to give a new target price of 8.1 cents from 7.3 cents previously.

Meanwhile, the recent earthquake in Taiwan should not affect Marco Polo Marine much, given how its assets and people are on the west coast of the island whereas the epicentre, the city of Hualien, is on the east coast, says Yeo. — Felicia Tan

Winking Studios
Price target:
UOB Kay Hian ‘buy’ 35 cents

Game on

UOB Kay Hian (UOBKH) has initiated coverage on newly-listed Winking Studios in anticipation of a surge in game popularity in the coming years and the group’s healthy operating cash flow. Analyst Heidi Mo has a “buy” call with a target price of 35 cents, representing a 32.1% upside.

Winking Studios, which was launched on the Catalist board of the Singapore Exchange S68 -

(SGX) last November, operates as a game art outsourcing and game development studio in Asia. It provides character and environment concept designs, illustrations and posters; 3D modelling; in-game animation; and game development services.

Mo highlights three strengths of the stock. First, she notes that Winking Studios has a strong 25-year track record of delivering end-to-end art outsourcing and game development services for the gaming sector.

As the third-largest game art outsourcing studio in Asia and fourth-largest globally, Winking Studios derives 82% of its revenue from art outsourcing, where environment and characters are designed for games.

It has long-term working relationships with 19 of the top 25 game companies worldwide and has been involved in award-winning projects like Assassin’s Creed and Genshin Impact.

As of March 31, Winking Studios operates seven studios in Nanjing, Shanghai and Taipei with over 700 employees, including 600 designers and artists.

Mo believes that Winking Studios is in a “strong position” to capitalise on the booming game art outsourcing industry. The company’s portfolio has over 1,400 and 25 completed art outsourcing and game development projects respectively.

The analyst expects this to grow exponentially on the back of higher demand for game art outsourcing services, driven by a staggering surge in the popularity of games.

According to China Insights Industry Consultancy, the market size of the global game art outsourcing market by revenue in 2022 was US$3.4 billion ($4.58 billion) and is expected to grow at a five-year CAGR of 13.4% to US$6.3 billion in 2027.

“Given Winking Studios’ strong international brand recognition for quality work and services, we expect the group to experience healthy growth in revenue to US$32.4 million to US$37.7 million (three-year CAGR of 8.8%) and core earnings to US$4.3 million to US$5 million (three-year CAGR of 9.4%) respectively for 2024–2026,” says Mo.

Finally, she cites Winking Studios’ strong backing by Acer Gaming and robust cash flow as factors that will make for ample headroom for the company to grow via acquisitions.

The company’s growth strategy is to pursue synergistic acquisitions and broaden its customer base, aiming to strengthen its global market presence. Its most recent acquisition of On Point Creative Co, a Taiwan-based art outsourcing studio, is a testament to its growth strategy.

“We think Winking Studios’ strong operating cash flow, which tripled to US$5.4 million in 2023, will help support future acquisition opportunities,” says Mo. “Moreover, the group has strong backing from its major shareholder, Acer Gaming, which recently increased its deemed interest to 59.59% in March.”

Mo expects the group to continue achieving inorganic growth through strategic acquisitions.

With that, Mo initiates coverage on Winking Studios with a target price of 35 cents, pegged to a 17 times FY2024 P/E.

“We think Winking Studios deserves a rerating, given the group’s strong performance to date and growing talent and customer base. The stock is trading at 13 times FY2024 P/E, at around 50% discount to its peers’ average of 27 times FY2024 P/E,” she adds. — Nicole Lim

HRnetGroup
Price target:
RHB Bank Singapore ‘buy’ 84 cents

Anticipated economic recovery

RHB Bank Singapore’s Alfie Yeo has kept his “buy” call and 84 cents target price on regional recruitment firm HRnetGroup (HRnet) following “stable” low unemployment rates in Singapore in 4Q2023.

Yeo continues to view HRnet favourably in anticipation of economic recovery within Singapore and China. “Our economist forecasts Singapore’s 2024 GDP growth to accelerate while maintaining strong GDP growth of 5% for China,” says Yeo.

The analyst notes that the gradual improvement of unemployment rates in Singapore from 3Q2023 to 4Q2023 supports the case for recovery.

The Ministry of Manpower (MOM) reported overall unemployment rates in December 2023 at a low 2% with the citizen unemployment rate declining from 3% to 2.9% from 3Q2023 to 4Q2023.

Additionally, retrenchments in 3Q2023 to 4Q2023 also dropped, falling from 4,110 to 3,460. With job vacancies for unemployed individuals growing from 1.64 to 1.74 in 4Q2023 despite previous consecutive quarters of decline, the recruitment rate similarly “inched up” from 2.2 to 2.3.

Besides reported low unemployment rates, the analyst anticipates growing job demand in Singapore and China.

With Singapore’s 2024 GDP growth forecast to accelerate from 2023, it stands at an estimated 2.5% growth rate amid better external environments. With more “robust” global demand supporting the recovery of domestic industries, the demand for labour will subsequently increase.

“MOM, in its report, also indicated that labour demand is expected to strengthen on the back of improving GDP growth,” notes Yeo.

Research findings report that 48% of surveyed firms in December 2023 intend to hire over the next quarter, an improvement from 42.8% recorded in September. A positive outlook of 32.6% of firms planning to raise wages in the next three months also signals a step up from the low of 18% in September 2023.

In the context of China, Yeo forecasts sustained economic recovery and anticipates a 5% GDP growth for this year which could translate to greater job demand.

With these factors considered, Yeo’s target price at 84 cents is pegged at 0.5 standard deviations (s.d.) above the historical mean of the forward P/E, which the analyst deems as “compelling”.

Yeo favours HRnet for its cash-generative ability, strong net cash balance sheet and attractive dividend yield of 5%. With HRnet’s maintained share buyback programme, this will continue to uplift its earnings per share growth.

In addition, HRnet is attractive to the analyst due to its position as a beneficiary of the economic recovery forecasted for FY2024. — Ashley Lo

Sheng Siong Group
Price target:
OCBC Investment Research ‘buy’ $1.88

Defensive play

The research team at OCBC Investment Research is keeping its “buy” recommendation for supermarket operator Sheng Siong Group OV8 -

with a lower target price of $1.88 from $1.92.

“We view Sheng Siong as a defensive play amid rising inflation and slower economic growth. We believe demand for groceries will continue to normalise in 2024 but could be potentially supported by a shift in consumption patterns towards a focus on ‘value for money’ due to inflationary pressures and a higher cost of living,” says the research team.

Moreover, grocery sales could be supported by Budget 2024’s announcement on inflation offset measures such as CDC vouchers.

However, January 2024 saw supermarket and hypermarket sales decline by 6.5% y-o-y, according to the Singapore Department of Statistics. Overall, sales at supermarkets & hypermarkets have seen a declining y-o-y trend since May 2022, normalising from elevated sales during the Covid-19 period.

Meanwhile, shares in Sheng Siong have declined by about 4% ytd, likely due to concerns over its slower revenue growth and margin expansion in 4QFY2023 ended December 2023. The group has also renewed the electricity contract for FY2024 at lower tariffs and continues to roll out more self-checkout machines at its stores to improve labour productivity.

Last year saw the opening of two new stores due to the slower pace of tendering exercise for commercial units by HDB. In early 2024, the group had already won two tenders. Coupled with a robust pipeline of 10 units up for tendering, the research team believes that Sheng Siong’s store opening will reaccelerate this year, reaching its target of opening at least three new stores. — Samantha Chiew

Bumitama Agri
Price target:
OCBC Investment Research ‘buy’ 78.5 cents

Well-supported prices

Ada Lim of OCBC Investment Research has kept her “buy” call on Bumitama Agri P8Z -

, along with a higher fair value of 78.5 cents, up from 74 cents, to reflect a smaller drop in palm oil prices than earlier estimated.

In her April 3 note, Lim observes that crude palm oil (CPO) prices had enjoyed a strong start to the year, with March prices hitting the highest since last April’s RM4,216 ($1,199) per tonne.

“Seasonally tight supply coincided with demand that was amplified by start-of-year festivities such as the Lunar New Year, Ramadan, and Eid,” says Lim.

The strong price support was caused by lower output. Citing the Malaysian Palm Oil Board (MPOB), Lim says Malaysia’s CPO production fell by 10.2% m-o-m to 1.3 million tonnes in February 2024.

Similarly, palm oil inventory levels continued to trend downwards in Indonesia, the other major producing country, with the Indonesian Palm Oil Association reporting a slide of 14.8% y-o-y to 3.1 million tonnes as at December 2023.

“CPO prices may continue to trade at elevated levels in the near term, with improving output levels for 2Q onwards posing downside price risk for the rest of the year,” she reasons.

For Lim, Bumitama is set to benefit from such trends given its position as a pure upstream player, coupled with its track record of leading the industry in its productivity.

Citing industry estimates for production and prices, Lim has derived a higher fair value of 78.5 cents for Bumitama, up from 74 cents, based on 6.3 times forward FY2025 earnings.

Bumitama on April 4 announced a final dividend of 3.63 cents for FY2023, which is a yield of more than 5%. According to Lim, the company is increasingly seen by investors as a yield play. “This is relatively attractive in the Singapore market,” she adds. — The Edge Singapore

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