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Brokers' Digest: Singapore Airlines, ISDN Holdings, iFast Corp

The Edge Singapore
The Edge Singapore • 6 min read
Brokers' Digest: Singapore Airlines, ISDN Holdings, iFast Corp
See what the analysts have to say this week.
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Singapore Airlines
Price target:
DBS Group Research ‘buy’ $6.60
CGS-CIMB Research ‘hold’ $5.97

Mixed sentiments from analysts

DBS Group Research’s Paul Yong has kept his “buy” call and $6.60 target price on Singapore Airlines (SIA), following the flag carrier’s update that it achieved record-high passenger load factor of 89.7% last December.

In contrast, the corresponding number for December 2021 was 46.5%.

The higher-than-expected numbers reflect “the sustained momentum in travel demand and the resilience of consumer spending, hence yields could come in stronger than anticipated”, says Yong on Jan 17.

The increase was especially pronounced for routes to East Asia, with the key markets of Hong Kong, Japan and Taiwan dropping most restrictions.

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“China’s reopening should provide the next leg of growth for the region, although we only anticipate a sharp rebound in 2Q2023,” adds Yong.

CGS-CIMB Research’s Raymond Yap is less bullish, as he downgraded SIA from “add” to “hold” following the recent run, on news of China’s re-opening. His target price of $5.97, pegged to a P/B of 0.9x, remains.

Over this coming year, Yap expects SIA to deliver total returns of 6.5%, comprising his target price of $5.97 and estimated dividend payments of 27 cents. “While this return is decent, it is no longer above our 10% threshold for an ‘add’ recommendation. Consequently, we downgrade to ‘hold’ and recommend investors to lighten their positions on SIA,” says Yap.

See also: UOBKH keeps ‘buy’ and TP unchanged on BRC Asia, sees bullish medium-term outlook

While passenger demand is expected to see a boost, in line with the reopening, Yap expects cargo demand weakness to remain a key downside for the group, especially in light of the likely slowdown in global GDP growth this year and the precipitous decline in container shipping freight rates that could also impact cargo yields.

The way Yap sees it, China’s border reopening may be a double-edged sword for SIA; while the passenger flights will reinstate capacity to China and benefit from a recovery in inbound and outbound passenger flows, escalating competition with Chinese and Hong Kong carriers may force SIA to give up its unsustainably fat yield premiums. — The Edge Singapore

ISDN Holdings
Price target:
CGS-CIMB Research ‘add’ 61 cents

Hydropower plant expected to start operation soon

CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call on ISDN Holdings with a higher target price of 61 cents from 55 cents previously, as the company’s mini hydropower plant in Indonesia, Anggoci, may obtain its commercial operation date (COD) by the end of the 1QFY2023 ending March.

ISDN currently has three hydropower plants. Lau Biang 1 (LB1), Anggoci and Sisira. They are all located in North Sumatra in Indonesia. LB1 and Anggoci have capacities of 10MW each while Sisira has a capacity of 4.6MW. LB1 has received its COD as at Dec 31, 2022. The plant would have contributed $2.0 million to the company’s patmi for the 9MFY2022 on a pro forma basis and in line with the analysts’ expectations, according to ISDN at its virtual investor briefing on Jan 13.

At its briefing, ISDN also said that it is hopeful that Anggoci and Sisira will finally achieve their COD soon.

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“As Sisira is a showcase and learning project for ISDN, we think the net profit contribution from this plant is low. However, the Anggoci plant, which has also 10MW capacity, could have a similar net profit potential as LB1,” write the analysts.

“We assume that Anggoci can achieve COD by end-1QFY2023 and contribute to ISDN’s FY2023– FY2024 net profits,” they add. “This leads to 1.2%– 2.3% increases in our FY2023–FY2024 revenue forecasts and 8.2%-11.7% increases in our net profit forecasts.”

Accordingly, the analysts’ earnings per share (EPS) estimates for FY2023 to FY2024 have increased by 8.2%–11.7% as well.

Given the EPS increases, the analysts have increased their target price, based on an unchanged P/E multiple of 8.9x, which is at ISDN’s five-year average.

At the same briefing, ISDN said that it has in total 164MW worth of hydropower concessions (including LB1, Anggoci and Sisira). It added that there are plans to continue building up the mini hydropower business with planned LB2-LB6 plants in the coming years.

“Management also guided that the company would be mindful of improving shareholders’ returns via options such as raising dividend payout as cash flow improves with the COD of the power plants; selling the power plants if it benefits shareholders; and potentially list the mini hydropower plants business,” say Tng and Tan.

A higher-than-expected profit contribution from ISDN’s hydropower business segment is a re-rating catalyst, in the analysts’ view. Downside risks are the emergence of new Covid-19 strains, which could bring back lockdowns, weak customer demand as the global economy slows, the possibility of bad debts as economic conditions worsen, and failure to achieve COD for Anggoci. — Felicia Tan

iFast Corp
Price target:
DBS Group Research ‘fully valued’ $3.98

Downgrade amid hiccup in major ePension project

Ling Lee Keng of DBS Group Research has downgraded iFast Corp to “fully valued” from “hold” following news that its upcoming project in Hong Kong, seen as a key earnings contributor, has been delayed.

“We expect share price weakness in the near term, especially after the almost 70% rebound from end-October 2022 to mid-December 2022,” writes Ling in her Jan 16 note.

On Jan 14, iFast had said it plans to keep its earnings guidance from the project, despite the delay, as it has already provided a buffer for possible delays.

iFast maintains that it can book a profit before tax of more than HK$100 million ($17.7 million) for FY2023 ending December, and that this amount will increase to more than HK$500 million for FY2025.

“We believe this delay could lead to further increases in operating costs and push back in revenue recognition. As of 3QFY2022, operating costs have already increased 19.5% y-o-y,” Ling notes. “With this delay, we can expect further increases in operating costs.”

For the current FY2023 and coming FY2024, Ling has cut her earnings projection by 3% and 26% respectively.

Ling notes that iFast, trading at $5.86 at the time she issued her call, was already 32% higher than her target price of $3.98, which was lowered from $4.00 previously.

iFast shares closed on Jan 16 at $5.36, down 8.53% for the day, and down 31.11% over the past year.

As announced by iFast on Jan 14, the Hong Kong ePension project has fallen behind schedule by eight months because of manpower shortage due to the pandemic.

iFast is a subcontractor for PCCW Solutions, the Hong Kong tech firm leading this project to digitalise the administration of Hong Kong’s public pension fund.

With the delay, the platform would only be up and running in 2025.

According to Ling, with impending higher costs and slower growth in revenue, iFast would not able to enjoy the level of operating leverage as envisaged.

Ling notes that iFast’s financial performance is typically tied to market sentiment. “With the delay in this key project, we could expect some share price weakness in the near term.

“We would prefer to re-visit this stock again when we have more clarity on the development of the ePension project,” she adds. — The Edge Singapore

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