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Broker's Digest: UMS Holdings, Thai Beverage, Wilmar International, ST Engineering, Golden Agri-Resources

The Edge Singapore
The Edge Singapore8/19/2021 05:44 PM GMT+08  • 9 min read
Broker's Digest: UMS Holdings, Thai Beverage, Wilmar International, ST Engineering, Golden Agri-Resources
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UMS Holdings
Price target:
BS Group Research “buy” $2.16
Maybank Kim Eng “buy” $2.10
CGS-CIMB “add” $1.97

Analysts upgrade forecasts of UMS in light of strong semiconductor demand

Following UMS Holdings’ latest earnings, analysts from DBS Group Research and Maybank Kim Eng have become more bullish on the stock, with target price upgrades. DBS’s Ling Lee Keng has raised her target price from $1.83 to $2.16, Maybank’s Lai Gene Lih has upped his target price from $1.80 to $2.10.

Meanwhile, CGS-CIMB’s William Tng has kept his target price unchanged at $1.97 but raised his revenue forecast for FY2021 to FY2023 to 8.2% from 7.6%, to reflect the inclusion of JEP’s financials and to account for JEP as a subsidiary of UMS.

Tng notes that while demand is strong for UMS, challenging operating conditions in its Malaysian factory from the Covid-19 pandemic remain a key risk.

UMS reported a 66% y-o-y growth in its 2QFY2021 ended June 30 revenue to $66.8 million while core net profit rose 46% y-o-y to $16.9 million. The revenue figure, Tng says, stood “above expectations due to the consolidation of JEP’s revenue for May and June.”

UMS increased its stake in JEP to 71.39% on June 2 and consolidated $11.2 million in revenue from JEP.

Besides paying out an interim dividend of one cent per share, UMS also announced a one-for-four bonus issue.

Looking ahead, Lai writes that UMS should see strong order flow as its customer — believed to be US-listed Applied Materials — experiences broad-based strength in its semiconductor business. “From a supply perspective, we believe the easing of worker restrictions to 80% in Penang; and JEP’s available capacity to handle semiconductor equipment components in Singapore are incremental positives that could provide upside,” he says.

DBS’s Ling takes a wider sector view, noting that industry association SEMI expects continued double-digit growth of semiconductor manufacturing equipment sales to carry on till 2022, with growth driven by 5G, artificial intelligence (AI), and other technology-driven developments. — Lim Hui Jie

Thai Beverage
Price target:
CGS-CIMB “buy” 99 cents
UOB Kay Hian “buy” 92 cents
DBS Group Research “buy” 92 cents

Analysts continue to cheer ThaiBev after positive 9M21 results

Thai Beverage (ThaiBev) continues to be a favourite among analysts following the beverage manufacturer’s positive 9MFY2021 results ended June 30.

On Aug 13, ThaiBev reported revenue grew 1.1% y-o-y to THB192.12 billion ($7.8 billion) and while ebitda jumped 11.5% y-o-y to THB36.64 billion.

In her Aug 16 note, Maybank Kim Eng’s Kareen Chan has retained her “buy” rating with an unchanged target price of 99 cents, given how ThaiBev stayed resilient despite the Covid-19 restrictions, thanks to its cost control measures and distribution network.

Chan adds that the company’s portfolio of top mass-market brands is well-positioned to capture post-Covid-19 recovery, driven by easing restrictions of on-premises consumption.

“We continue to like ThaiBev’s portfolio of top, mass-market brands in Thailand with 90%/40% spirits/beer market share and 43% in Vietnam,” says Chan.

UOB Kay Hian, too, has reiterated its “buy” recommendation for the stock with an unchanged target price of 92 cents. Analyst Lucas Teng calls ThaiBev’s earnings “robust”, the valuation “attractively priced” and “largely underappreciated” by the market.

Meanwhile, CGS-CIMB’s Ong Khang Chuen has kept his “add” call, with the same target price of 84 cents. He likes ThaiBev for its strong market share in the spirits business and its continued drive to gain market share over the long term in Vietnam’s beer market.

“Amid tighter Covid-19 restrictions, we like ThaiBev’s defensiveness, given its strength in off-trade channels and strong product portfolio,” writes Ong in his Aug 13 report.

Finally, DBS Group Research has kept its “buy” call for the stock with a lower target price of 92 cents from 93 cents previously. According to analysts Woon Bing Yong and Paul Yongin their Aug 16 note, ThaiBev’s FY2021 ended Dec 31 earnings are still expected to grow y-o-y as it believes the company’s cost-cutting measures would offset the weaker sales volumes. — Jeffrey Tan

Wilmar International
Price target:
CGS-CIMB “buy” $6.15
Maybank Kim Eng “buy” $6.03
RHB Group Research buy” $5.45

On “relentless” pursuit to unlock shareholder

Analysts from CGS-CIMB Research, Maybank Kim Eng and RHB Group Research have kept their “buy” calls on Wilmar International.

CGS-CIMB analysts Ivy Ng and Nagulan Ravi have kept their target price of $6.15 on Wilmar as they see three emerging catalysts. These are the potential listing of its 50%-owned Adani Wilmar (AWL) in India likely by the end of the year, better 2HFY2021 ended December results and the narrowing valuation gap between Wilmar and its 89.99%-owned subsidiary Yihai Kerry Arawana (YKA).

“In the medium term, we see its relentless pursuit to unlock shareholder value as a key catalyst for the stock,” write Ng and Ravi in an Aug 16 report, noting that other plans beyond the listing of AWL could boost Wilmar’s value by 33 cents to 52 cents per share.

Meanwhile, Wilmar is expected to do better for the current 2HFY2021 due to seasonal factors and better margins from its palm, sugar and soybean crush activities. Wilmar’s near-90% stake in YKA is worth US$55 billion ($74.56 billion), a contrast to Wilmar’s own US$21 billion market cap. “This suggests that investors are severely undervaluing the sum of its parts, which will become more glaring when 50%-owned AWL is listed,” write the analysts.

Maybank Kim Eng analyst Thilan Wickramasinghe has lowered his target price on Wilmar to $6.03 from $6.21 previously as Wilmar’s results stood in line with his estimates.

Higher commodity prices, according to him, were a “double-edged sword”. While they supported performance in upstream plantations and downstream refining, Wilmar’s consumer margins saw pressure from higher input costs. That said, “weakness here as well as soybean crushing should ease in 2HFY2021 from better average selling prices (ASPs),” he writes.

“Wilmar is now trading at mean P/E and a 44% discount to its peer group. Value unlocking and improving operating conditions should support better momentum, we believe,” he says.

Upside swing factors include a faster recovery in Covid-19 cases, as well as the monetisation of a new product under R&D.

Meanwhile, the Singapore research team at RHB has kept its target price of $5.45 with prospects of a better second half. “We believe Wilmar remains undervalued, trading at 12.8 times FY2022 P/E vs China peers’ 32–37 times,” it writes. — Felicia Tan

ST Engineering
Price target:
UOB Kay Hian “hold” $4.25
DBS Group Research “buy” $4.36
OCBC “buy” $4.40
RHB “buy” $4.50

Analysts mostly keep ‘buy’ on ST Engineering with TP of over $4.25; UOB KH downgrades to ‘hold’

UOB Kay Hian analyst K Ajith has downgraded his call on ST Engineering to “hold” from “buy” as he expects valuation multiples are unlikely to expand further despite a growing order book.

“We value ST Engineering on an enterprise value (EV)/invested capital basis and have raised our terminal growth rate assumption to 2.7%. At our fair value, ST Engineering will be trading at 25.2 times FY2022’s estimated earnings,” he writes in an Aug 13 report, with a new target price of $4.25, down from $4.26.

For the 1HFY2021 ended June, the group announced earnings of $296.1 million, higher than his expectations for the FY2021. However, it has guided that the reduction in government grants during the period will be back loaded into 2HFY2021. Commercial aviation recovery will be uneven, notes Ajith, but defence and public security earnings will be more resilient.

Meanwhile, analysts from DBS Group Research, OCBC Investment Research and RHB Group Research have kept “buy” on ST Engineering.

DBS analysts Suvro Sarkar and Jason Sum, in their Aug 16 note, have given a higher target price estimate of $4.36 from $4.20 previously, with a raised FY2021 earnings estimate of 3% to factor in higher government grants, offset by lower cost savings. “Our target price is based on a blended valuation framework which factors in both earnings’ growth and the long-term cash-generative nature of ST Engineering’s businesses,” they write. While the commercial aerospace business will take longer to recover, they “expect strong growth momentum in its smart-city, satcom, cybersecurity and defence businesses to drive earnings recovery over the next few years”.

The team at OCBC Investment Research has raised its fair value estimate to $4.40 from $4.30 with “slightly better than expected” earnings. With more contracts won, there is better forward earnings visibility too. RHB analyst Shekhar Jaiswal has kept his target price of $4.50, implying an upside of 10% and a yield of 4%. In his report dated Aug 13, Jaiswal sees continual improvement in the commercial aerospace business, supported by higher MRO work and passenger-to-freighter (P2F) conversions.

“Strong order wins momentum should continue amid improving global macroeconomic environment. Additional support from the government and ongoing cost rationalisation exercise should ensure ST Engineering’s resilient business emerges stronger from the pandemic,” he writes.— Felicia Tan

Golden Agri-Resources
Price target:
CGS-CIMB “hold” 25 cents
RHB “neutral” 24 cents

CGS-CIMB upgrades Golden AgriResources to ‘hold’, RHB maintains ‘neutral’ on the back of higher CPO prices

CGS-CIMB Research analyst Ivy Ng has upgraded Golden-Agri Resources to “hold” from “reduce” on the back of firm crude palm oil (CPO) prices as well as the proposed listing of the plantation player’s subsidiary, Gemini Edibles & Fats India.

In her Aug 16 report, Ng said CGS-CIMB expects the strong CPO prices to support Golden Agri’s 2HFY2021 upstream earnings, amid weaker downstream profit.

Golden Agri reported a 311% y-o-y improvement in ebitda to US$479 million ($652 million) in 1HFY2021 ended June 30, driven mainly by higher net CPO prices and production.

The key surprise, Ng said, was the stronger fresh fruit bunches (FFB) output, partly due to the acquisition of new estates and improved yields from the estates that were hit by drought last year.

Excluding its newly acquired estates of 34,000ha, the group’s FFB output grew 24% yoy in 1HFY2021, resulting in a 29% decline in CPO production costs. In a separate report, RHB analysts pointed out that Golden Agri booked a unit cost of US$291 per tonne in 1HFY2021, a 6% decrease y-o-y. Golden Agri expects costs to remain close to US$300 per tonne in 2021, anticipating increasing output.

RHB analysts maintain “neutral” on Golden Agri, increasing its forecast by 2% to 3% for FY2021 to FY2023. It added that valuations are fair at present as ESG concerns keep industry valuations dampened.

In the medium term, Golden Agri’s close correlation and high sensitivity to CPO prices are likely to hamper its share price performance, RHB adds in its report.

Golden Agri’s 56.27% owned subsidiary Gemini has initiated the process for its proposed listing on the BSE and National Stock Exchange of India. RHB highlights that Gemini’s listing could add 4 cents to 6 cents per share to its share price, assuming no dilution and at a P/E ratio of 20 times.

CGS-CIMB maintains its target price of 25 cents, while RHB maintains its target price of 24 cents.— Khairani Afifi Noordin

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