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Brokers’ Digest: Sats, OUE REIT, Sembcorp, Valuetronics, Singtel, MPACT, Q&M, KDC REIT, Japan Foods, Boustead, Delfi

The Edge Singapore
The Edge Singapore • 27 min read
Brokers’ Digest: Sats, OUE REIT, Sembcorp, Valuetronics, Singtel, MPACT, Q&M, KDC REIT, Japan Foods, Boustead, Delfi
See what the analysts have to say this week. Photo: Sats
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Price targets:
Citi Research ‘buy’ $3.01
OCBC Investment Research ‘buy’ $3.31
UOB Kay Hian ‘buy’ $3.22
DBS Group Research ‘buy’ $3.60

Higher target prices after better FY2024

Analysts at Citi Research, OCBC Investment Research, UOB Kay Hian and DBS Group Research are maintaining their “buy” calls on Sats following the release of the ground handler’s 4QFY2024 results ended March 31.

While Citi and UOB have maintained their target prices of $3.01 and $3.22 respectively, OCBC’s Ada Lim has upped her target price by 22 cents from $3.09 to $3.31 after revising her estimates. DBS’s Jason Sum has also increased his target price by 20 cents to $3.60 from $3.40, making him the most bullish among his peers.

Based on Sum’s estimates, 4QFY2024 results posted by Sats were a “solid beat” while its FY2024 net profit surpassed market expectations by 14%, the analyst writes in his June 4 report.

The group’s FY2024 revenue nearly tripled to $5.1 billion, beating Sum’s forecast by 1.7%.

See also: CGS International maintains ‘add’ call on Grab amidst slower ebitda growth in 2QFY2024

Its full-year patmi stood at $56.4 million while core patmi, excluding one-offs, stood at $78.5 million.

He notes that the company’s business momentum continues to be “robust” amidst travel recovery and a rebound in global cargo volumes.

“Encouragingly, the group’s heritage (its standalone ground handling + cargo) revenue rose by 4.2% q-o-q as the segment handled higher cargo and flight volumes sequentially. On a y-o-y basis, flights and cargo handled by the heritage business of Sats and Worldwide Flight Services (WFS) rose by 14.2% and 6.4% and 28.8% and 16.3% respectively in 4QFY2024,” he says.

See also: No major negative surprises expected in 2QFY2024, RHB lifts DBS’s TP to $41.20

Sum adds that management highlighted that the company’s yield management efforts are starting to pay off, gaining significant traction in the e-commerce segment with sea-to-air freight diversions becoming more “pronounced” due to the prolonged Red Sea situation.

Despite the earnings beat in the 4QFY2024, Sum has kept his earnings estimates for FY2025/FY2026 unchanged as he was already anticipating considerable growth in earnings for the next two years.  

However, Sum has raised his FY2025/FY2026 revenue estimates by 3.1% and 5.8% respectively to factor in pricing improvement and stronger volume growth across both segments. That said, this is offset by higher finance costs after imputing a higher cost of debt.

Meanwhile, Sum has slashed his dividend per share estimates to 3 cents in FY2025 and 5 cents in FY2026, down from 6 cents and 9 cents respectively. The lower estimate is due to an assumed dividend payout ratio, he adds.

Sum’s higher target price comes as he rolls over his valuation peg to FY2025.

In her May 31 report, OCBC’s Lim notes that revenue for FY2024 met her expectations while the company’s bottom line was a “strong beat” due to a “small base”, better-than-expected operating cost control and better operating leverage which led to ebit margin expansion. FY2024 patmi was nearly double Lim’s expectations.

During its results briefing, management also shared that the integration of WFS has resulted in a recurring ebitda uplift of around $40 million. Sats announced the acquisition of the global cargo handling firm for EUR1.19 billion on Sept 28, 2022. The acquisition was completed on April 3, 2023.

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

In 4QFY2024, Sats declared a final dividend of 1.5 cents per share, making up 30% of its core earnings. The final dividend is subject to approval by shareholders on July 19 and is expected to be paid out on Aug 8.

“In FY2025, Sats looks to repay $200 million worth of borrowings, which could improve profitability through finance cost savings, and to reinvest $300 million worth of capital expenditures (capex),” Lim writes.

“In the longer run, it is targeting for group revenue to exceed $8 billion and return on equity (ROE) to reach 15% by FY2028. Top-line growth will likely be driven by more commercial wins for gateway services (with more than $180 million worth of annualised revenue achieved through new contracts secured in FY2024), and further market penetration for food solutions (particularly in the ready-to-eat meals segment), supported by increased production capacity,” she adds.

The 4QFY2024 results posted by Sats also beat UOBKH analyst Roy Chen’s expectations. This was due to slightly better-than-expected margins and higher-than-expected contributions from the company’s joint ventures and associates, he notes.

“Despite overall weaker seasonality, Sats managed to achieve q-o-q higher net profit in 4QFY2024 at $32.7 million (3QFY2024: $31.5 million). The q-o-q increase was driven by better performance in Asia Pacific under its original businesses which benefitted from better operating leverage,” Chen writes in his May 31 report. “On the other hand, WFS posted q-o-q lower operating profit of $38.7 million in 4QFY2024 (3QFY2024: $67.5 million), in line with the weaker seasonality.”

Chen notes that several one-off items including integration expenses and impairments from some legacy investments have adversely impacted the company’s headline net profit. Despite this, Sats reported 4QFY2024 and FY2024 core earnings of $47.3 million and $78.5 million, respectively.

Due to the higher-than-expected results, Chen has raised his earnings forecast for FY2025 to $215 million, 36% higher than his previous estimate. He is also expecting Sats to see a stronger momentum in earnings recovery. His FY2026 earnings estimate remains unchanged at $285 million.

In their flash note dated June 3, Citi analysts Kaseedit Choonnawat, Amy Han and Eric Lau note several key points highlighted in the group’s post-results strategy update briefing. The company announced its plans to increase overall revenue to exceed $8 billion by 2028 or an estimated 9.2% CAGR with a target ROE of 15%, which is in line with their pre-Covid figures.

“[The] key five drivers are scaling up revenue, drive for operating leverage via costs efficiencies and productivity, rationalise portfolio, i.e., sell non-lower performing assets to redeploy at higher returns, right-sizing leverage / optimise cash flows and pay dividends,” write the analysts.

Furthermore, the analysts note that the company expects to drive up cargo-handling yield by increasing its focus on specialised cargo and growing volume shares through global footprint offerings with multi-modal partners.

Citi analysts also add that Sats has announced its aim for the company’s dividend to achieve sustainability and growth with earnings. However, they note that the company’s payout will not match pre-Covid-19 levels of 70% to 80% as Sats continues to prioritise debt repayment and growth.

Choonnawat, Han and Lau also note the company’s confidence in exceeding their $100 million synergy target following its achievement of $40 million in FY2024 which derived half from commercial initiatives and around a third from costs.

“Sequential traffic recovery at Changi and global air freight improvements along with Sats/WFS transformation should continue to drive earnings and share price higher,” they write. — Ashley Lo

Price target:
KGI Securities ‘outperform’ 30.9 cents

Resilient amid challenges

KGI Group Research has initiated coverage with an “outperform” call on OUE LJ3 -

REIT, citing “resilience amid challenging market conditions” as its reason, with a target price of 30.9 cents.

Analyst Alyssa Tee notes that OUE REIT in 1QFY2024 ended March 31 reported a revenue of $74.9 million, 9.5% y-o-y growth and a net property income of $60.5 million, up 6.9% y-o-y.

OUE REIT also secured a positive rental reversion of 12.6% for its Singapore offices and achieved a committed occupancy of 97.6% in Mandarin Gallery, which Tee describes as showcasing stability and competitiveness in the market.

With Singapore’s tourism industry expected to see a surge in tourist arrivals driven by concerts and meetings, incentives, conferences and exhibitions (Mice) events, Tee says that the REIT has strategically completed asset enhancement initiatives (AEIs) for its hotels.

She says the approach has already yielded promising results, with a remarkable 22.7% y-o-y revenue growth to $26.9 million in the hospitality segment. Notably, the surge in revenue per available room (RevPAR) by 23.3% y-o-y to $280 reflects the REIT’s ability to capitalise on higher room rates amid strong demand from event attendees and tourists.

In anticipation of an interest rate reduction of 25 basis points in 2024 and ensuing rate cuts, Tee says that the REIT stands to benefit from lower borrowing costs, which will enhance its financial flexibility and potentially drive higher investor interest.

The analyst says this will position OUE REIT for enhanced profitability and value creation in the coming quarters.

OUE REIT’s favourable credit rating from S&P positions it well for refinancing endeavours, evidenced by the successful increase of its initial loan amount from $540 million to $600 million, Tee says.

The additional funds will be used for the early refinancing of existing borrowings due in 2025 and general corporate purposes, she adds.

The analyst therefore initiates coverage with an “optimistic” recommendation and target price of 30.9 cents, based on their comprehensive valuation model incorporating a terminal growth rate of 2% and a cost of equity of 9.7%. — Nicole Lim

Sembcorp Industries
Price target:
OCBC Investment Research ‘buy’ $6.73

Positive structural demand drivers

The research team at OCBC Investment Research has kept “buy” on Sembcorp Industries U96 -

as it sees positive structural demand drivers for the group.

In its report dated June 3, the research team sees Sembcorp benefitting from tight power markets and growth opportunities stemming from the demand for artificial intelligence (AI) and computing.

The team points out more new data centres have been announced in Asean with higher potential power demand being underwritten as they ramp up their operations. For instance, Google have announced it will invest US$2 billion ($2.7 billion) to develop a data centre and cloud hub in Selangor, Malaysia. Singapore has also announced a Green Data Centre Roadmap to provide at least 300MW of potential capacity soon, notes the OCBC team.

In the team’s view, Sembcorp’s growing Vietnam Singapore Industrial Parks portfolio is also a plus. The group’s presence in Vietnam’s northern, central and southern regions has seen increasing government spending on infrastructure such as highways, ports and airports to improve accessibility. The accessibility has, in turn, led to investments and trade from foreign-invested enterprises, the team adds.

“Including the new projects, Sembcorp has participated in the development of 18 VSIPs [or Vietnam Singapore Industrial Parks] with a total licensed land area of 11,588ha,” the team writes.

In addition, the team is looking closer at the group’s capital recycling efforts such as partial stake sales and the listing of assets in yield vehicles.

“As mentioned in our earlier report, the group plans to invest $14 billion over 2023–2028 and fund half of this growth via operating cash flow, a fifth by capital recycling and partnerships, and a third by balance sheet leverage,” says the OCBC team.

“The success of this strategy has implications on whether the company may need to turn to capital raising to fund its continued transformation and next stage of growth,” it adds.

Despite the positives, the team has lowered its fair value estimate to $6.73 from $6.83 as it updates its estimates. — Felicia Tan

Price target:
PhillipCapital ‘buy’ 76 cents

FY2024 better than expected

PhillipCapital analyst Paul Chew is keeping his “buy” call on Valuetronics BN2 -

with a raised target price of 76 cents from 70 cents following the company’s FY2024 ended March 31 results.

In his June 3 report, Chew writes that although Valuetronics’ FY2024 revenue was only 89% of his estimates, its patmi was “better than expected” at 105% of his forecast.

“Lower depreciation, effective tax, and higher interest income were the reasons for the outperformance,” adds Chew.

On the company’s lower revenue, Chew writes: “Revenue was weaker than expected due to drag in legacy products such as consumer product printed circuit board assembly (PCBA) and auto entertainment modules. Customers have permanently switched their supply chains out of China.”

Despite this, the analyst notes Valuetronics will soon see “contributions from new customers”, in networking products and theme park entertainment devices. Meanwhile, gross margins for the period expanded by  3% points y-o-y to 15.6%, the “highest in three years”.

“New products, a weak renminbi, falling depreciation and less (spot) pricey electronic components are driving up margins. Net margin was also boosted by the overprovision of taxes in 1HFY2024, lower depreciation and interest income is not taxable,” writes Chew.

Notably, Valuetronics’ free cash in FY2024 was HK$212 million ($36 million), an improvement over the previous year’s HK$163 million.

Including special dividends, the company is paying shareholders 25 HK cents in FY2024, which is 25% higher than in FY2023.

Chew adds: “Capital expenditure will remain low at HK$20 million. This is after the massive capex spend of HK$90 million yearly from FY2020 to FY2022 on a new Vietnam factory.”

On 2HFY2024, while Valuetronics’ earnings grew 19% y-o-y to HK$77 million “due to higher gross margins and a doubling of interest income”, revenue declined 19% y-o-y to HK$778 million.

Chew explains that the “biggest drag” on revenue was the 23% y-o-y fall in the company’s industrial and commercial electronics (ICE) segment, which suffered from a combination of its household consumer and auto products “fading out” due to a supply chain exit while its “weak” printers category has been hurt by excess inventory post-pandemic.

“Our target price is based on industry valuations of 11 times P/E one-year forward earnings,” writes the analyst as he keeps his FY2025 patmi estimates unchanged.

With a cash pile of HK$1.16 billion, Chew says Valuetronics’ valuations “remain attractive” with 80% of its market capitalisation in net cash while the company is also “aggressively” returning capital with higher dividends and its “outstanding” share buyback plan of HK171 million.

Although Chew expects revenue and margins to improve as new customer contributions increase, the turnaround pace will still be constrained by some remaining legacy products. He adds: “For new customer ramps to be meaningful, they require at least two years.”

“Weak macro may delay the launch of some products and cause customers to keep leaner inventory levels. However, we also expect Valuetronics to add more new customers with their excess capacity in Vietnam,” concludes the analyst. — Douglas Toh

Singapore Telecommunications
Price target:
CGS International ‘add’ $2.90

Attractive yield and growth

Kenneth Tan and Lim Siew Khee of CGS International have raised their target price for Singapore Telecommunications Z74 -

(Singtel) to $2.90 from $2.84, on expectations the telco will see better earnings on lower capex needs from FY2026 and beyond.

For now, the analysts have kept their “add” call on the stock due to the telco’s active asset recycling efforts and committed dividend payout.

They like Singtel as an “attractive yield and growth play”, as they point out that Singtel now offers a yield of more than 6% and earnings CAGR of 9% between FY2024 and FY2027, and trades at just 8.5 times ebitda, which is one standard deviation below its 10-year mean. Singtel has a March year-end.

In their May 31, note, the analysts estimate that Singtel’s capex will taper off in the current FY2025 due to the completion of spectrum payments in Singapore and Australia and the decommissioning of legacy equipment.

First, of the $200 million Singtel is targeting in group-wide opex reduction, 70% is estimated to come from Optus, Singtel’s Australia subsidiary, via streamlining of businesses and headcount.

On the other hand, Singtel’s domestic Singapore mobile business continues to face “intense competition” and would likely “hinder” recovery in average revenue per user.

NCS, the enterprise services unit, reported “soft” 4QFY2024 revenue but is seen to generate 8% CAGR in revenue between FY2024 and FY2027.

Singtel’s data centre business, organised under its digital infrastructure unit, is a sector to watch. The analysts project revenue from this business to more than double from FY2024 to FY2027, led by new capacity from its Tuas data centre coming online. Singtel has earlier indicated plans to grow its regional data centre capacity to 200MW from 62MW now.

Separately, Singtel has maintained it does not have a definitive deal to take a minority stake of 20% worth US$1 billion ($1.35 billion) in ST Telemedia Global Data Centres, which has an existing capacity of 1.6GW as at the end of May. According to a Reuters report on May 28, Singtel is one of the two front runners.

“An acquisition of a minority stake in STT GDC would allow Singtel to significantly exceed its longer-term 200MW target, given that STT GDC’s Asean data centres alone contribute around 600MW of capacity,” the CGS analysts say. — The Edge Singapore

Mapletree Pan Asia Commercial Trust
Price targets:
DBS Group Research ‘buy’ $1.75
Citi Research ‘buy’ $1.72
CGS International ‘add’ $1.59

Still a ‘buy’ after Mapletree Anson sale

Analysts from DBS Group Research, Citi Research and CGS International are keeping their “buy” and “add” calls on Mapletree Pan Asia Commercial Trust N2IU -

(MPACT) after the REIT announced that it plans to divest Mapletree Anson for $775 million.

The divestment price, which is 1.3% above its latest book value and 14% above its original purchase price, is higher than the market expected, although Citi’s Brandon Lee notes that the premium is a “benign” one.

That said, the analysts from all three brokerages view the latest update positively as the divestment is expected to lower MPACT’s leverage from 40.5% as at March 31 to 37.6% on a pro forma basis.

“As promised, MPACT has not only successfully executed the divestment to further strengthen its capital structure, it has delivered better than market expectations by divesting above its book value and resulting in a distribution per unit (DPU) accretion of 1.5%,” says the DBS team.

Citi’s Lee also likes the “long-awaited” maiden divestment as MPACT’s relatively higher gearing of 40.5% was one of the top few concerns that investors had. While the divestment will lower MPACT’s exposure to the Singapore property market, it will not change the REIT’s asset composition which remains anchored in Singapore, notes the DBS team.

Both DBS and Citi have kept their target prices unchanged at $1.75 and $1.72 respectively.

CGS analysts Natalie Ong and Lock Mun Yee have raised their target price to $1.59 from $1.57 as they see the divestment lifting the REIT’s gearing overhang.

They have also raised their DPU estimates for FY2025 to FY2027 by 1.0% to 1.4% as they expect accretion from the repayment of MPACT’s Singapore dollar-denominated debt with a cost of debt of about 4%.

The REIT manager has indicated that it intends to wait for three to six months before resuming its hunt for acquisitions in a “higher for longer” interest rate environment.

At present, while its post-divestment gearing is at a “more comfortable” level of 30%, the REIT manager also remains open to other divestments — excluding its core assets, Vivo­City and Mapletree Business City — if the offer price provides DPU accretion or improves its balance sheet. — Felicia Tan

Q&M Dental Group
Price target:
KGI Securities ‘outperform’ 35 cents

Promising growth

KGI Securities is initiating an “outperform” recommendation and a 35 cents target price on Q&M Dental Group QC7 -

, as analyst Tang Kai Jie sees promising organic growth from the group.

In Singapore’s saturated dental market, the group is focusing on organic growth to enhance each clinic’s efficiency and effectiveness. They have introduced new technological initiatives, including a dental mobile app and the integration of advanced dental technologies.

The group has also recently announced the integration of Align Technology’s latest iTero Lumina Intraoral Scanner across its dental clinics in Singapore. The iTero Lumina intraoral scanner will be deployed over the next 12 months in phases across their clinics in Singapore.

In January, Q&M entered into a joint venture (JV) agreement with EM2AI Professional HoldCo and its 49%-owned subsidiary, EM2AI. EM2AI Professional has also agreed to provide an interest-free loan of about $3.7 million to EM2AI. “This JV agreement brings about more capital to be invested into more AI capabilities to drive growth for the company,” says Tang.

To recap, the group had recorded a 2% y-o-y increase in its FY2023 ended December 2023 earnings to $11.5 million. Revenue saw a marginal 1% increase to $182.7 million.

With 106 dental clinics across Singapore, the group boasts the most extensive network of dental clinics in Singapore, holding around 11.2% of the market share. The company positions itself as an affordable and convenient dental service provider, and this puts the company in a prime position to capture the majority of the demand for dental services in the Singapore market.

The way Tang sees it, dental services are usually stickier and recurring in nature as consumers are likely to return to the clinic for additional consultations or check-ups. Technological improvements to the company’s business processes also support customer loyalty, as customers who can access their information easily are likely to return to the same clinic for subsequent check-ups.

“Q&M’s resilient business, as well as its investment into dental AI and technology, positions the company well for future growth and capture the majority of dental services demand in the local market,” says Tang. — Samantha Chiew

Keppel DC REIT
Price target:
DBS Group Research ‘buy’ $2.20

Swapping Guangdong for Genting Lane?

DBS Group Research analysts Dale Lai, Derek Tan and Ho Peihua suggest that an asset swap between Keppel DC REIT’s (KDC REIT) Guangdong data centre properties worth $275 million and a 23% stake in Keppel Limited’s Genting Lane data centre will be a “win-win”.

“[The move] could effectively demonstrate to investors the strength of Keppel’s fund management and operational capability ecosystem,” the analysts write in their report dated May 31. They note that because the issues in the Guangdong data centre properties are tenant-related and not asset-related, “time for reworking and reletting is necessary” to optimise returns.

In this regard, Keppel, which is the sponsor of the REIT, has this luxury while KDC REIT, due to expectations of consistent returns, has less flexibility.

The concerns surrounding the Guangdong data centre were first spotlighted in mid-2023 when the financial health of Hong Kong-listed Neo Telemedia was highlighted after consecutive quarters of losses. The losses were partly due to rising interest rates and a decline in utilisation rates at the data centres they were managing.

Neo Telemedia’s subsidiary, Bluesea, is the master tenant of the Guangdong data centres, which KDC REIT acquired in phases in July 2021. There is a 15-year master lease for each of the three data centres.

A swap in assets will be accretive to Keppel’s value in both the immediate and long term while enabling KDC REIT to repair its cost of capital, say the analysts.

Should a successful asset swap happen, Keppel will see “immediate financial benefits” from a 20% stake in KDC REIT through higher dividends and share prices. It will also enable the conglomerate to monetise the value of the recently completed Genting Lane data centre.

“At the same time, it enables investment in Guangdong data centre, which would serve as a pipeline for KDC REIT once it has stabilised,” the analysts note.

Other additional benefits include Keppel enjoying the profile of being a “committed and supportive sponsor” to its REITs. The group can also cement its foothold in Guangdong, which is the gateway to South China, the analysts add.

Finally, the swap may help Keppel’s desire to expand its presence in the fast-growing China data centre market. At the same time, the group may simultaneously generate attractive returns with an estimated internal rate of return (IRR) of 8% to 11% over a “relatively short” gestation period, the analysts point out.

For KDC REIT, the benefit comes in the form of a lifted overhang in its unit price. Unitholders’ confidence may also be boosted on the back of stronger earnings and a quality portfolio, say the analysts.

Since October 2023 when concerns surrounding Bluesea’s master lease at the Guangdong data centres surfaced, KDC REIT’s unit price has corrected by more than 20%.

The REIT’s unit price of $1.79 in the analyst report represents 1.3 times its P/B, which is a “substantial drop” from its average of 1.6 times and a steeper discount compared to its five-year historical average of 1.8 times.

“We see a potential upside of around 30% to KDCREIT’s share price (to mean valuation) if a transaction materialises, returning the REIT to a path of sustained growth,” the analysts write. “With a 23% stake in Genting Lane data centre at [around an] 6.5% yield, we see a 4%–5% uplift to distributions per unit (DPUs) in FY2024–FY2025, bringing the REIT closer to its historical DPU highs.”

The analysts have kept their “buy” calls on both Keppel and KDC REIT with target prices of $9 and $2.20 respectively. — Felicia Tan

Japan Foods
Price target:
RHB Bank Singapore ‘neutral’ 26 cents

Higher operating costs

RHB Bank Singapore analyst Shekhar Jaiswal has kept his “neutral” call on Japan Foods Holdings with a lower target price of 26 cents from 29 cents after the company reported a loss of $300,000 in FY2024 ended March due to higher operating costs, reversing from earnings of $4 million recorded the year earlier.

“Based on our estimate, Japan Foods reported a recurring loss of $1.2 million in 2HFY2024,” writes Jaiswal in his May 29 note.

While its gross profit margin “remained healthy” at 84.7%, higher labour, utilities and depreciation costs led to a material rise in operating costs, resulting in an operating loss.

Having added 14 outlets in FY2024, Jaiswal believes that the operator of a chain of F&B outlets will now “take a breather” on its continued outlet expansion.

“We estimate a net addition of just one outlet in the halal segment for FY2025. This should lead to lower capital expenditure (capex) requirements compared to the last two years when the capex was around $8 million to $9 million,” writes Jaiswal.

Besides a slower expansion pace, Japan Foods is seen to continue to replace its “ailing” brands and concepts with new ones, for both its halal and non-halal segments.

In FY2024, management indicated that same-store sales growth (SSSG) turned negative, as its non-halal segment’s total revenue and revenue per outlet declined by 13% y-o-y and 15% y-o-y respectively, despite a higher outlet count.

In contrast, the “saving grace” was the halal segment, where total revenue and revenue per outlet grew by 55% y-oy and 3.4% y-o-y, says Jaiswal.

To offset some labour cost pressure, Japan Foods plans to introduce a pay-at-the-table option for its customers soon, he adds.

Given uncertain market conditions, the company has adjusted its dividend payout ratio from 100% of earnings to just “at least half”.

“During 2HFY2024, Japan Foods also sold its club membership for a cash gain of $500,000. This revised dividend policy, lower near-term capex, and strong operating cash flow generation ability should lead to a gradual rise in its cash balance,” writes Jaiswal.

Nonetheless, he has cut his FY2025 to FY2026 earnings estimates by 9% to 11%, as he expects cost pressures to be sustained.

Key upside risks noted by Jaiswal include lower-than-estimated operating costs, strong performance of its halal concept restaurants and reduced F&B competition in Singapore.

Conversely, downside risks include weak economic growth leading to a sharp slowdown in consumer discretionary spending. — Douglas Toh

Boustead Singapore
Price target:
OCBC Investment Research ‘buy’ $1.47

Stellar FY2024

OCBC Investment Research analyst Ada Lim has kept her “buy” call on Boustead Singapore F9D -

after its results for FY2024 ended March surpassed her expectations.

Boustead Singapore on May 27 reported a net profit of $64.2 million for FY2024, 42% higher y-o-y. After adjusting for other gains and losses and impairments, net of non-controlling interests, the group’s net profit would have been up by 101% y-o-y instead.

Revenue in FY2024 rose 37% y-o-y to $767.6 million due to better contributions across most of its segments except healthcare.

To Lim, the group’s ability to rebuild its engineering order backlog will be “critical” for FY2025, especially for its real estate solutions division, which remains Boustead’s largest revenue contributor. The segment’s revenue rose 30% y-o-y to $369.5 million as it delivered a sizeable order backlog from FY2023.

“We have turned more conservative on our forecasts for new engineering orders in FY2025, with room for upside risk should there be continued positive contract win momentum in the next few months,” Lim writes in her May 30 report. The analyst has lifted her fair value estimate to $1.47 from $1.20 after a good year for Boustead Singapore.

“The increase is largely driven by our expectations for a larger net cash position as at March 31, 2025, as well as a higher net asset value (NAV) for the real estate solutions division,” she says. — Felicia Tan

Price targets:
DBS Group Research ‘hold’ 96 cents
UOB Kay Hian ‘hold’ $1.07

Some ‘bitterness’ ahead

Analysts at UOB Kay Hian (UOBKH) and DBS Group Research have kept and downgraded Delfi to “hold” after the confectionery manufacturer released its 1QFY2024 ended March results, expecting the company to face challenging near-term headwinds.

These include pressured Indonesian consumers, fierce market competition and high cocoa prices, say DBS’s Chee Zheng Feng and Andy Sim. The analysts expect these headwinds to pressure sales volume and margins — accordingly, DBS has trimmed its FY2024 revenue and earnings estimate by 10.8% and 20.9% respectively.

The analysts have also lowered their target price to 96 cents from $1.63 previously.

UOBKH’s John Cheong and Heidi Mo point out that while cocoa prices have fallen to US$8,942 per tonne from its all-time high of more than US$12,000 per tonne in April, it is still three times higher than a year ago. Delfi expects to mitigate the rising commodity prices via several initiatives, including introducing new product variants with less volatile ingredient costs.

The company also has a robust balance sheet and operating cash flow, with a net cash position of US$48.4 million, Cheong and Mo notes.

“We think Delfi’s healthy balance sheet and positive operating cash flow provide the group with a large enough cash buffer to weather potential tough conditions like rising commodity prices. Additionally, management reported an inventory level of US$97.5 million in 1QFY2024, which implies management’s confidence in business growth moving forward,” they add.

UOBKH is keeping their target price at $1.07.  

DBS expects to continue seeing volume weakness, which may offset the higher price realisation from reduced discounting in the coming quarters.

The analysts believe Indonesian consumers could continue to face pressure given the higher-for-longer interest rates, sticky inflation as well as weak rupiah. As such, they may not be well-positioned to absorb higher prices, and will instead likely downgrade to cheaper cocoa lite products like chocolate waffles.

“While valuation looks attractive at about 10x with a yield of about 6%, we believe a return to earnings growth is needed for the share price to re-rate,” DBS analysts say. — Khairani Afifi Noordin

Price target:
DBS Group Research ‘hold’ GBP0.25

Unique position in UK

DBS Group Research’s Tabitha Foo, Derek Tan and Dale Lai have maintained their “hold” call on Elite UK REIT while decreasing their target price to GBP0.25 (43 cents) from GBP0.28 following a site visit organised by the trust.

In their report dated May 28, the analysts highlight the REIT’s “unique position” as the only UK-focused REIT in Singapore and its counter-cyclical portfolio following the site visit to several of its assets in the UK.

“With the majority of its rental income derived from leases with the AA-rated UK Government, its stable stream of cash flow is a key positive for the REIT,” write Foo, Tan and Lai.

In the REIT’s 1QFY2024 business updates ended March, Elite UK REIT reported revenue growth of 0.8% y-o-y to GBP9.2 million with a distributable income to shareholders of GBP4.4 million.

Foo, Tan and Lai note that gearing has declined from 49.6%, close to the Monetary Authority of Singapore’s (MAS) limit of 50%, to a more comfortable level of 43.% following the REIT’s recent equity placement.

While the analysts view these stronger credit metrics as a “relief” for the REIT’s shareholders, they forecast a modest drop in Elite UK REIT’s distribution per unit (DPU).

The analysts have lowered their FY2024/FY2025 estimates of margins for the REIT to 90%–92% from 95% previously to factor in higher vacancy costs. Consequently, their FY2024/FY2025 DPU projections are trimmed by 9% and 6%, to GBP0.0276 and GBP0.0283 pence respectively.

The analysts view Elite UK REIT’s ongoing asset repositioning as a strategic medium-term plan following the REIT’s plans to repurpose some of its vacant assets for alternative uses. These include social housing and student accommodation which are insufficient in the UK.

While the repurposing of the vacant assets has taken an extended time in this initial stage, the analysts believe the process will be quicker in the future.

DBS sees the current risk-to-reward for Elite UK REIT as fair, noting that it could turn more positive on the stock soon if the trust maximises value on its vacant portfolio. — Ashley Lo

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