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Broker's Digest: SIA Engineering, Don Agro International, SGX

The Edge Singapore
The Edge Singapore7/29/2021 11:44 AM GMT+08  • 5 min read
Broker's Digest: SIA Engineering, Don Agro International, SGX
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SIA Engineering
Price target:
CGS-CIMB “add” $2.85

Strong cash balance to buttress eventual recovery

SIA Engineering’s associates are leading the recovery, says CGS-CIMB Research analyst Lim Siew Khee, reporting a positive surprise in 1QFY2022 ended June with $14.5 million in net profit.

In a July 23 note, Lim is maintaining “add” on the company, with an unchanged target price of $2.85, which represents an upside of 36.9%.

SIA Engineering’s 1QFY2022 revenue of $125.3 million, up 9% q-o-q and up 6% y-o-y, was driven by higher flight activities, with group operating expenses at $128 million, down 7% q-o-q but up 13% y-o-y and an operating loss of $2.9 million, compared to an operating loss of $1.1 million in 4QFY2021.

Meanwhile, the share of profits of associates and JVs was $14.8 million, forming 39% of Lim’s FY2022 forecast. The key contribution was from the engine and component segment ($18.3 million), while the airframe and line maintenance segment turned in a lower loss of $3.5 million.

See also: CGS-CIMB maintains 'add' call on Sembcorp Marine following news of probe in Brazil

Without the Job Support Scheme (JSS), SIA Engineering would have incurred a 1QFY2022 net loss of $24.1 million. “We believe 1QFY2022 net profit of $14.5 million could have also been lifted by a tax credit of an undisclosed amount,” adds Lim.

The company ended 1QFY2022 with a cash balance of $683.5 million, compared to $616 million in the previous quarter. Net cash as at 4QFY2021 was $606 million.

At 1.5 times FY2022 P/BV, SIA Engineering trades close to –1.5 standard deviations below its historical mean. “We believe downside risk is limited on the back of global vaccination rollout. We think that by December 2021 or early-2022, quarantine-free visits/vaccination certificates could be rolled out for selected countries that Singapore has established Air Travel Pass (ATP) arrangements with. While the passenger load could still be low in the initial stages, we think airlines restarting flights are likely to see their flights handled numbers jump,” writes Lim.— Jovi Ho

See also: RHB downgrades Starhill Global REIT to 'neutral' on arbitration overhang

Don Agro International
Price target:
KGI “outperform” 64 cents

‘Bowl full of opportunities’

KGI Securities has initiated coverage on wheat and milk producer Don Agro International with an “outperform” rating and target price of 64 cents.

The brokerage believes the Russia-based company is a “bowl full of opportunities”.

Citing estimates from the US Department of Agriculture’s Foreign Agricultural Service (USDA FAS), KGI notes that wheat demand is forecast to grow almost 18% from 2019 to 2029.

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Moreover, wheat, as a staple food source, provides a resilient revenue stream for Don Agro despite changing economic trends, it says.

In addition, the company’s wheat fields in the Rostov and Volgograd regions are among the most fertile in Russia.

In FY2020 ended Dec 31, Don Agro reported y-o-y earnings grew 66% to $8.7 million from FY2019.

The FY2020 earnings were also more than double the company’s earnings in FY2016 and FY2017, notes KGI.

“Favourably located and well managed, Don Agro is in a sweet spot,” KGI analysts Joel Ng and Chen Guangzhi write in a note dated July 23. — Jeffrey Tan

Singapore Exchange
Price target:
PhillipCapital “neutral” $11.95
CGS-CIMB “add” $11.61

MaxxTrader acquisition draws mixed reactions

Although analysts are positive on Singapore Exchange buying MaxxTrader, their recommendations are mixed for investors.

On one hand, PhillipCapital’s Terence Chua has downgraded the stock to a “neutral” rating from “accumulate” previously, albeit with a higher target price of $11.95 from $11.25.

“Stock positives … have been priced in, in our view,” writes Chua in his July 25 note.

On the other hand, CGS-CIMB Research’s Andrea Choong has maintained her “add” call for the stock with an unchanged target price of $11.61.

“We think that this acquisition is complementary to SGX’s goal of expanding its FICC segment to account for about 25% of revenue in [three-to-four] years,” writes Choong in her July 23 note.

On July 23, SGX announced that it will acquire MaxxTrader for US$125 million in cash ($169.9 million).

MaxxTrader is a provider of foreign exchange (FX) pricing and risk solutions for sell side institutions such as banks and broker-dealers, as well as a multi-dealer platform for hedge funds.

Phillip says the acquisition will further scale up SGX’s FX business as a “core pillar of growth”.

The acquisition will also broaden its client base to more than 200 institutional clients, including dealers, both on the buy and sell sides currently connected to its platform, adds the brokerage. “It will help the bourse achieve scale and size,” says Chua.

CGS-CIMB notes that synergies are likely to be realised between MaxxTrader and SGX’s BidFX, which was fully acquired last year.

In particular, the price discovery and liquidity aggregation process of the over-the-counter (OTC) FX sell-side (BidFX clients) could be extended to the buy-side (MaxxTrader clients), it says.

At the same time, SGX is in the process of setting up a primary OTC FX electronic communication network by end-2021.

The network will connect all institutional firms to trade OTC FX based on best available bid-ask quotes.

“Ultimately, having MaxxTrader on board will serve to accelerate SGX’s vision to build Asia’s largest one-stop venue for international FX participants,” says Choong. — Jeffrey Tan

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