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Brokers’ Digest: UOL, CAO, Food Empire, CSE Global, Sats, IHH Healthcare, Sheng Siong, First Resources, YZJ, Delfi, DHLT

The Edge Singapore
The Edge Singapore • 24 min read
Brokers’ Digest: UOL, CAO, Food Empire, CSE Global, Sats, IHH Healthcare, Sheng Siong, First Resources, YZJ, Delfi, DHLT
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UOL Group
Price targets:
DBS Group Research ‘buy’ $8.40
Citi Research ‘buy’ $9.08

Dividend surprise, attractive valuation

Analysts from DBS Group Research and Citi Research are remaining positive on UOL Group after the group announced its earnings for the FY2023 ended Dec 31, 2023, on Feb 27.

For the year, the group reported earnings of $707.7 million, 44% higher y-o-y, due partly to the one-off gain from the sale of Parkroyal on Kitchener Road.

DBS Group Research analysts Derek Tan, Tabitha Foo and Rachel Tan have kept their “buy” call as they note UOL’s “blockbuster end” to a rough year. The team also notes the group’s improved operating metrics, adding that the additional $1.1 billion in residential sales provided “earnings visibility”.

Among the positives, including a decline in debt ratio and strong short-term liquidity, the team notes the group’s weaker financial metrics due to its higher debt obligations. However, they see that the ebitda interest coverage ratio (ICR) will see “some improvement” in FY2024 on the back of a peak in interest rates.

See also: Analysts keep ‘buy’ on Singtel as Optus raises prices for Sim only plans

In FY2023, UOL declared a total dividend of 20 cents – comprising a first and final dividend of 15 cents and a special dividend of 5 cents.

“We believe the group’s dividend surprise in FY2023 will be well-liked by investors, as will its stable increase in net asset value to $13.07 per share (+3.8% y-o-y),” says the team.

“We see deep value at close to 0.46 times P/BV (versus the five-year historical average of 0.55 times) as attractive,” they add.

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

Furthermore, the coming year looks to be an exciting one for the group with continued recovery in hotel operations, strong sales for its upcoming launches and improved contributions from its portfolio of investment properties from the completion of its asset enhancement at Odeon 333 and Singapore Land Tower.

The analysts’ target price remains unchanged at $8.40, which is pegged to a 40% discount to a revalued net asset value (RNAV) of $14.

Citi Research analyst Brandon Lee has also kept his “buy” call on UOL on valuations. He also likes that the group looks to be “well-positioned” to acquire and pay dividends.

While the group’s 2HFY2023 earnings missed Lee’s expectations, the surprise dividend payout made up for it.

“We see slight positive share price impact on higher-than-expected dividend per share (DPS), mitigated by earnings miss,” he writes.

The dividend also highlighted the importance of asset monetisation, which the group did with the successful sale of Parkroyal on Kitchener Road at a gain of $442.3 million or a premium of 24%.

“While UOL will continue to look across its office and hospitality portfolio for divestment opportunities (with proceeds for dividends), we think the pace will be gradual given low net gearing of 24%.

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

“However, this allows UOL to replenish its residential landbank across all segments (despite inventory cycle of 3.2 years) and/or acquire overseas assets (likely offices in existing geographies of UK/Australia),” says Lee, who has a target price of $9.08. — Felicia Tan

China Aviation Oil
Price targets:
PhillipCapital ‘buy’ $1.05
OCBC Investment Research ‘buy’ $1.10

Further recovery ahead

Peggy Mak of PhillipCapital has maintained her “buy” call for China Aviation Oil (CAO) and has raised her target price to $1.05 from $1.01 following the jet fuel supplier’s better-than-expected FY2023 ended December 2023 earnings and prospects for further improvements.

Despite lower revenue because of lower oil prices, CAO on Feb 29 reported earnings of US$58.4 million ($78.5 million) for FY2023, up 75.5% over the preceding year.

The better showing can be attributed to stronger demand for jet fuel in tandem with the resumption of air travel, sold at better margins.

However, the bottom line was somewhat weighed down after CAO made an impairment of US$12 million for goodwill and investment in an associate.

In her March 4 note, Mak points out that China’s international air traffic is still at 37% below pre-Covid level, suggesting further room to grow. “Flights are progressively being restored with further normalisation of aviation services.”

Her higher target of $1.10 is derived after raising her current year FY2024 earnings estimates by 17% to factor in better margins.

For FY2023, CAO is paying a full-year dividend of 5.05 cents. Mak is expecting a higher payout for the current FY2024.

Ada Lim of OCBC Investment Research has kept her “buy” rating and $1.10 target price.

In the near term, she sees the potential for CAO, wielding its cash balance of US$373 million, to acquire new businesses or ramp up organic growth.

Besides inorganic growth, another potential near-term catalyst could be improving profit margins, as CAO focuses on executing more end-to-end deals directly to customers.

Lim is “cautiously optimistic” that there remains potential for further upside this year, noting that outbound travel demand from China has been sluggish through 2023 due to visa issues, weak consumer sentiment and sluggish restoration of international flight capacity.

“The increasing affluence of the Asia Pacific region and burgeoning middle class in China will support the long-term growth of the regional aviation fuel market, making CAO an attractive multi-year investment story,” she adds. — The Edge Singapore

Food Empire Holdings
Price targets:
CGS International ‘buy’ $1.84
Maybank Securities ‘buy’ $1.68
UOB Kay Hian ‘buy’ $1.69
RHB Bank Singapore ‘buy’ $1.75

Record core earnings and dividend

Analysts have raised their target prices for Food Empire Holdings F03 -

after the instant coffee maker reported record core record FY2023 ended December 2023 earnings and dividends.

On Feb 27, the company reported that FY2023 revenue increased by 6% y-o-y of US$425.7 million ($572 million), led by stronger demand from its key markets including the former Soviet states, Southeast Asia and South Asia.

Net margins between FY2022 and FY2023 improved from 11.3% to 13.3%, which helped drive core net profit to a record 25.3% y-o-y to US$56.5 million.

The company plans to pay a record dividend of 10 cents per share consisting of a final and special dividend of five cents each, representing a payout ratio of 70%. In contrast, Food Empire paid just four cents for FY2022.

In his Feb 28 note, Maybank Securities analyst Jarick Seet projects further earnings growth, with a key driver from Food Empire’s non-dairy creamer business where new capacity has been added.

He estimates this can potentially add between US$20 million and US$40 million in revenue in the next one to two years, fetching a net margin of between 8% and 10%.

“In addition, demand from core markets remains strong which should drive revenue growth of 5%–10% consistently y-o-y,” says Seet, who is expecting a new earnings record in the current FY2024.

Having raised his FY2024 earnings estimate by 17.3% and FY2025’s by 14.5%, Seet has derived a new target price of $1.68, based on 11 times FY2024 earnings.

Despite raising selling prices during the year, the company managed to move a bigger volume of products. To UOB Kay Hian analysts John Cheong and Heidi Mo, this price inelasticity is a testament to Food Empire’s strong brand equity. The company was also able to overcome the worst effects of the unfavourable currency movements.

“Hence, we forecast higher earnings and margins moving forward,” state Cheong and Mo, with a new target price of $1.69, up from $1.63 previously.

Similarly, Alfie Yeo of RHB Bank Singapore, who has kept his “buy” call, believes that Food Empire can defend its margins by adjusting prices.

Thus, with higher revenue seen, he has raised his earnings projection for the company by between 5% and 7% for the current FY2024 and coming FY2025. Yeo’s new target price is $1.75, up from $1.53 previously.

William Tng of CGS International says his “add” rating is premised on Food Empire’s potential to grow its operations in Vietnam as a new major revenue contributor and also further growth in the food ingredients segment. Tng’s new target price of $1.84, up from $1.69, is based on 11.2 times FY2025F earnings, which is 1 s.d. (standard deviation) above its five-year mean. — The Edge Singapore

CSE Global
Price targets:
CGS International ‘add’ 62 cents
Maybank Securities ‘buy’ 71 cents
UOB Kay Hian ‘buy’ 57 cents

Multi-year growth path ahead

CGS International, Maybank Securities and UOB Kay Hian have kept their “buy” and “add” calls on CSE Global 544 -

after FY2023 ended December 2023 earnings surged 372% y-o-y to $22.5 million. With its hefty new orders of some $300 million, CSE Global can provide clear revenue growth.

For CGS International’s Kenneth Tan and Lim Siew Khee, CSE Global’s 2HFY2023 earnings of $11.5 million were in line with expectations, as were its FY2023 earnings.

For the current FY2024, they expect CSE Global to grow its revenue by 16% y-o-y from quicker order book executions due to shorter lead times and a ramp-up in its US infrastructure business.

As they expect the company to incur higher interest payments in FY2024, they have trimmed their FY2024 and FY2025 earnings estimate by 1% to 3%. Following this, their raised target price of 62 cents is based on a rolled forward valuation to 12 times 2025 P/E ratio, still pegged to the FY2012 to FY2019 average.

Meanwhile, Jarick Seet of Maybank Securities likes the stock for its unique opportunity of riding the upcycle in attractive growth areas, accompanied by a sustainable 6.5% dividend yield.

He points out that CSE Global is also trading at a significantly lower P/E of 15 times FY2024 earnings, versus 20–30 times the forward P/E fetched by its US competitors.

The analyst expects the company to secure more communications and electrification orders worth $1.1 billion in FY2024.

Seet has raised his earnings estimate for FY2024 and FY2025 by 10% and 23.4% respectively, thereby deriving a new target price of 71 cents, which is based on 15 times FY2024 earnings. His previous target price was 65 cents.

On the other hand, although the company’s earnings also beat the expectations of John Cheong and Heidi Mo at UOB Kay Hian by 7%, they have lowered their target price from 61 cents to 57 cents, which is now pegged to 14 times FY2024 P/E, based on 1 standard deviation (s.d.) above mean.

They explain that this is down from 15 times FY2024 P/E as the P/E mean multiple has fallen.

They have kept their FY2024 earnings forecast at $25 million and have raised estimates for FY2025 by 1% to $28 million. — Douglas Toh

Price targets:
OCBC Investment Research ‘buy’ $3.09
CGS International ‘add’ $3.44

Staying on the path to recovery

Analysts have maintained their optimism that Sats continues to be on a recovery path and that dividend payments may be resumed. For its 3QFY204 ended December 2023, the ground handler has reported a revenue of $1.37 billion, up 6.5% y-o-y.

Earnings in the same period were $31.5 million, a surge from $0.5 million reported in the year-earlier quarter, and up 41.9% q-o-q. This brings Sats’ 9MFY2024 patmi to $23.7 million, versus a loss of $32 million recorded for 9MFY2023. The company attributes the positive numbers to better leverage.

“We see sustained profitability growth from its new commercial contracts driving business volumes and earnings from FY2025,” says CGS International’s Tay Wee Kuang, who has kept his “add” call and $3.44 target price.

Ada Lim of OCBC Investment Research, meanwhile, has trimmed her fair value from $3.20 to $3.09, even though she kept her “buy” call. Her revised target price is pegged to 8.8 times FY2024/FY2025 blended ebitda. “Momentum in financial and operating metrics has been positive in the past few quarters, and management will look to resume dividends once the business returns to profitability,” states Lim in her Feb 29 note.

According to Lim, Sats’ management is optimistic that it will continue to benefit from the ongoing recovery in both passenger and cargo this calendar year and that Red Sea tensions may translate to volume growth in Europe and Asia this current quarter to March. — The Edge Singapore

IHH Healthcare
Price target:
DBS Group Research ‘buy’ $2.18

Healthy growth prospects

Rachel Tan of DBS Group Research has kept her “buy” call on IHH Healthcare Q0F -

, citing growth prospects over the medium term following “normalised” FY2023 ended December 2023 core earnings.

Her ringgit-based target price for the counter, listed on both the Singapore and Malaysia exchanges, has been raised to RM7.60 ($2.16) from RM7.30. Her Singdollar target price, on the other hand, has been trimmed to $2.18 from $2.20.

On Feb 29, IHH, under the helm of new CEO Dr Prem Kumar Nair, reported revenue of RM20.9 billion, up 16% y-o-y. However, core earnings of RM1.3 billion for FY2023 were down by 7.3% on the back of higher staff costs and one-off items.

Nonetheless, core earnings for FY2023 surpassed the pre-pandemic years, signalling a normalised recovery. More tellingly, for the most recent 4QFY2023, core earnings improved by 20% y-o-y to RM508 million, but down 11% q-o-q.

Headline earnings for FY2023 were RM3 billion, almost double that of FY2022, led mainly by divestment gains, which had been partly shared out as a special dividend of 9.6 cents, bringing the full-year total for FY2023 to 18.6 cents.

Excluding the special payout, IHH is increasing its ordinary dividend to 9 cents, up from 7 cents paid for FY2022. Going forward, the company has revised its new dividend policy to at least 30% of its core earnings, up from 20% previously.

To drive growth over the longer term, Nair had earlier announced plans to increase capacity by around a third, or 4,000 new hospital beds by 2028, across its various operating geographies.

Other growth plans include adding another two to three ambulatory care centres in Singapore and Hong Kong over the next few years; growing more than 40 Parkway Shenton clinics by 2028, as well as to set up laboratory services to support Gleneagles HK.

Nair is also reversing the company’s earlier plan to exit its China business. He now wants to stay put and invest more instead, citing the market’s longer-term prospects despite near-term challenges. “With the new management in place and embarking on a new growth plan, we are optimistic that IHH will be able to drive its growth trajectory moving forward,” says Tan.

Citing the management, Tan says IHH is committed to maintaining its double-digit ROE, now that it achieved its previous double-digit ROE target in 4Q23. Using a sum-of-the-parts method, Tan has raised her target price to RM7.60. She points out that at current levels, IHH is trading at below 13 times FY2024 EV/Ebitda, below –0.5 s.d. (standard deviations) of its historical mean and close to its pandemic low. “This is a very attractive level to ride on its medium-term growth trajectory,” says Tan. — The Edge Singapore

Sheng Siong Group
Price targets:
RHB Bank Singapore ‘buy’ $1.99
DBS Group Research ‘hold’ $1.62
Citi Research ‘sell’ $1.43

Budget beneficiary and more stores seen

Analysts have mixed sentiments on supermarket operator Sheng Siong Group OV8 -

following its latest FY2023 ended Dec 31, 2023, results. The group’s earnings for the full-year period came in at $133.7 million, 0.3% higher than $133.3 million last year. Revenue also saw a marginal increase of 2.1% y-o-y to $1.37 billion.

The increase was driven by the six new stores, which contributed a 2.5% y-o-y increase to total sales. This was partially offset by a lower revenue contribution from the Yishun store that was closed in FY2022 due to lease expiration.

In 2HFY2023, revenue was 2.2% higher y-o-y at $677.2 million, while earnings gained 3.6% y-o-y to $68.3 million. The results did not meet the expectations of Citi Research analyst Luis Hilado who has reaffirmed his “sell” call on the stock with a target price of $1.43.

Meanwhile, RHB Bank Singapore is much more bullish as it has kept its “buy” recommendation, but with a lower target price of $1.96 from $1.99.

Analyst Alfie Yeo says: “We remain upbeat on Sheng Siong with growth fuelled by new outlet wins and better consumption on higher purchasing power from the Budget 2024 announcement.”

Yeo also expects new store openings to be robust in the HDB healthy pipeline of new outlets.

While risks include slower-than-expected store openings and the inability to maintain gross profit margins at current levels, Yeo expects the group’s performance to remain resilient as it targets the mass-market value segment.

“Valuation at –1 s.d. from its historical mean forward P/E (about 19 times) is attractive. The stock is also supported by approximately 4% FY2024 yield,” says Yeo.

On the other hand, DBS Group Research has reiterated its “hold” call and $1.62 target price on Sheng Siong.

“We have adjusted our earnings forecast on the back of higher store count growth and faster gross margin expansion. While we continue to like the company’s pace of execution, we do not see any material near-term re-rating catalyst,” say analysts Chee Zheng Feng and Andy Sim.

While they continue to like the company’s strong pace of execution, in the short term, they believe the higher-for-longer interest rates will continue to put a cap on the share price.

They also like the stock for its track record of securing products at competitive prices. It has been able to deliver consistent gross margin expansion due to its ability to procure products at competitive prices.

Moving forward, growth in FY2024 and FY2025 is expected to come from new stores and continued margin expansion.

“With one tender secured and 10 upcoming for the year, we believe the company has more than an even chance of securing at least four stores this year (versus three expected),” they say.

Apart from the winning bid, they are also watching the timeline of the tender process.

“We are seeing early signs pointing at the normalisation of the tender approval process, with the October 2022 tender results announced in January 2024, within the typical three-month timeframe,” say Chee and Sim, which bodes well for the likelihood of the tender results to be announced this year. — Samantha Chiew

First Resources
Price targets:
Maybank Securities ‘hold’ $1.45
RHB Bank Singapore ‘neutral’ $1.40

A miss from downstream losses

Analysts from Maybank Securities and RHB Bank Singapore have lowered their target price for First Resources EB5 -

, following the group’s FY2023 results ended December 2023, with Maybank downgrading its call from “buy” to “hold”.

First Resources recorded a net profit of US$145.4 million ($195.69 million), a 55.3% decline against FY2022. As a result, Maybank’s Ong Chee Ting has lowered her target price to $1.45 from $1.82 previously, while RHB has kept its “neutral” call and lowered its price to $1.40 from $1.45 previously.

Ong from Maybank says that First Resource’s full-year core patmi missed theirs and Street estimates.

These lower y-o-y 2HFY2023 profits were due to larger downstream losses, assets write-down, lower crude palm oil (CPO) average selling price (ASP) of 11% decline, and net inventory build-up of 14,000 tonnes  (i.e. lower sales), mitigated by higher fresh fruit bunches (FFB) nucleus output (+5% y-o-y).

The second half of 2023’s plantation ebitda contracted –32% y-o-y to US$172 million, in part due to higher-than-expected unit cost of production as First Resources accelerated its fertiliser application, says Ong.

First Resources completed about 90% of its FY2023 fertiliser plan, a step up from just a third completed in 1HFY2023. As for downstream, FR posted a loss before interest, taxes, depreciation and amortisation of US$17 million in 2HFY2023 (+571% y-o-y) on –4.8% margin (–4.4 percentage points y-o-y) with the challenging market environment, the analyst writes.

With lower fertiliser prices and higher yield, First Resources is guiding for its unit cash to be lower y-o-y for FY2024. It guides for a 5% y-o-y FFB growth for FY2024 and has made little to no forward sales in the new year.

Ong says there are several risk factors to their earnings estimates, price target and rating for the group. These include weather and lower-than-expected CPO price achieved.

“We revised down our FY2024/FY2025 core patmi forecasts by 18%/17% mainly to reflect the challenging downstream outlook and higher-than-expected unit cost of output,” Ong says.

On the other hand, the team of analysts at RHB say that First Resources FY2023 results were in line with its and street expectations.

“Going forward, while productivity should improve and costs reduce, downstream margins could remain under pressure in 2024,” says the RHB team. RHB has raised its FFB growth assumptions to 2%–4% for FY2024–FY2025 from 0%–2% as they note that weather conditions have “somewhat regularised” since February 2024, and the group is expecting weather trends to normalise this year.

RHB has also lowered its downstream margin assumptions as the group has said that refining margins would only turn positive if prices move up and demand improves.

RHB brings its FY2023–FY2025 earnings down slightly by 1%–9%, as the team trims its downstream margin assumptions but notes that its FFB growth assumptions have been raised. As such, the brokerage’s target price is lowered to $1.40. — Nicole Lim

Yangzijiang Shipbuilding
Price targets:
UOB Kay Hian ‘buy’ $2.19
DBS Group Research ‘buy’ $2.10
CGS International ‘add’ $1.96

Margin expansion, stronger orders

Analysts with UOB Kay Hian and DBS Group Research have raised their respective target prices for Yangzijiang Shipbuilding following better-than-expected FY2023 earnings.

For the 12 months ended Dec 2023, the China-based shipbuilder reported earnings of RMB4.1 billion ($780 million), up 57% y-o-y. The company was able to improve its net margins by 4.4 percentage points to 22% and generated an ROE of 19.6%. The company has declared a dividend of 6.5 cents, up from five cents paid for FY2022.

Yangzijiang’s management is guiding that it can maintain its margins into the current FY2024, where it is targeting some US$4.5 billion worth of new contracts, a significant jump from its historical guidance. More tellingly, it expects this level of new orders to run into FY2025.

As at the end of February, Yangzijiang has already won US$1.35 billion, or 30%, of its FY2024 target, bringing its total order book to US$14.5 billion.

In his March 1 note, Adrian Loh of UOB Kay Hian has estimated an FY2024 orderbook win target of US$5 billion which is higher than the company’s target of US$4.5 billion.

He has raised earnings estimates for FY2024 by 16% and for FT2025 by 13% respectively, as he projected higher gross margins of 18% for both years, up from 16% and 15% respectively previously.

Loh acknowledges that the gross margins for the shipbuilding business are at least 2ppt–4ppt below the company’s guidance, but he prefers to “err on the side of caution for now and upgrade earnings at a later stage”.

To reflect his higher earnings projections, Loh has raised his target price from $1.92 to $2.19, which is pegged to a target P/E multiple of 9.4 times, which is 1.5 s.d. (standard deviations) above the company’s five-year average of 6.3 times.

Loh believes that this valuation premium is justified given the company’s earnings visibility into 2027 as well as its strong track record of safe and efficient shipbuilding for its international customer base.

Ho Pei Hwa of DBS Group Research has also raised her target price while keeping her “buy” call. In her Feb 29 note, she projects the company to enjoy an earnings CAGR of 10% in the next two years, driven by both revenue growth and margin expansion, as over 70% of its order book is made up of containership orders that command higher value and margins.

“We expect further uplift in its order book, boosted by potential orders for large LNG carriers,” says Ho, whose new target price of $2.10, up from $1.90, is based on 1.8 times FY2024 book value and 10.2 times implied P/E.

Ho estimates that 60% of the re-rating could come from earnings growth and 40% from an uplift in the valuation multiple from 8 times towards 10 times P/E, on the back of more LNG carrier orders and ESG improvement.

Lim Siew Khee of CGS International is similarly upbeat. She maintains her liking for this counter with an “add” call, for the company’s upside from margin expansion, sustained annual order wins of US$4 billion to US$5 billion on decarbonisation commitments from liners to renew fleets and decent yield of 4%–5%.

Furthermore, fluctuating freight rates due to unexpected disruption in routes could see faster absorption of newbuild supply, says Lim.

In addition, Yangzijiang has maintained a predictable track record of better operating margins, of 19% in FY2023 for example, versus the mere single-digit margins that its Singapore and Korean peers could eke out.

For Lim, key risks include a sharp rise in steel costs affecting margins, order cancellations and a steep decline in freight rates impacting new orders. She believes that the dividend for FY2024 will be lifted further to 7 cents.

Her target price of $1.96, unchanged, is based on two times FY2024 book value, which is 40% above Yangzijiang’s peers and which is justified on the back of its better margin profile and order executing track record. — The Edge Singapore

Price target:
CGS International ‘add’ $1.47

Lower multiple unwarranted

Delfi has reported a better FY2023 ended December 2023, with both revenue and earnings up over the preceding year. While CGS International’s Tay Wee Kuang is keeping his “add” call, he has trimmed his target price for the chocolate maker to take into account lower valuation multiples as growth is seen slower ahead.

In his Feb 28 note, Tay now rates Delfi at $1.47, down from $1.56 previously.

Revenue for FY2023 was up 12.7% y-o-y to US$538.2 million ($723 million) but earnings for the same period were up by a lower 5.4% to US$46.3 million.

The management attributes the 2ppt drop in gross margin to higher spending on marketing and promotion for new and existing products.

In line with the better bottom line, Delfi has declared a final dividend of 1.74 US cents per share, plus a special dividend of 0.52 US cents, bringing the total payout for FY2023 to 4.32 US cents, up slightly from 4.3 US cents paid for FY2022.

However, Tay points out that with the depreciation of the US dollar for Singapore investors collecting their dividends in Singdollar, this translates into a payout of 5.77 cents for FY2022 versus 5.75 cents for FY2023.

Nonetheless, the payout ratio at 57% represents a yield of 6% based on Delfi’s Feb 28 closing price of 95.5 cents, which is above the company’s guidance of a 50% payout ratio, plus a “commendable” yield of above 5% for the current FY2024.

According to Tay, Delfi is confident that its hedging can help it lock in prices amid record cocoa prices while allowing it to reevaluate product, sizing, and pricing strategy ahead of the cost pressures that are coming through.

Delfi has also pointed out that some key ingredients such as milk and palm oil prices are moderating, thereby offsetting higher cocoa prices.

Costs aside, Delfi is achieving revenue growth via different sales channels across different markets.

“With their visibility on product sell-through across the markets, management is also positive about the structural growth in demand, highlighting that revenue growth observed in FY2023 was mostly driven by higher sales volume,” says Tay.

His revised target price is to take into account lowered revenue and margin assumptions, thereby with a lowered valuation multiple of 13.8 times earnings, its five-year mean, down from 15 times.

“We continue to like Delfi for its market leadership in Indonesia,” adds Tay, noting that the counter, trading valuation of 9 times forward one-year multiple is unwarranted, given how regional peers are fetching 14.9 times.— The Edge Singapore

Daiwa House Logistics Trust
Price target:
DBS Group Research ‘buy’ 75 cents

Sponsor support

DBS is keeping its “buy” on Daiwa House Logistics Trust DHLU -

(DHLT) with sponsor support “highly crucial plus point”. Dale Lai and Derek Tan of DBS Group Research have kept their “buy” call on DHLT but with a lower target price.

In FY2023 ended December 2023, the owner of a portfolio of logistics assets in Japan reported a distribution per unit (DPU) of 5.22 cents, 2.4% better than what the DBS analysts were expecting.

When denominated in yen, DHLT’s revenue and net property income gained by 4.7% and 4.6% y-o-y due to the full-year contributions from properties acquired in December 2022, but lower in Singdollar, the reporting currency.

Nonetheless, because of a weaker yen versus the Singdollar, distributable income increased by 3.1% y-o-y to $36.4 million, partly thanks to realised gains from hedging activities.

In the most recent 4QFY2023, DHLT was able to maintain a full occupancy rate and it has maintained a weighted average lease expiry of 6.2 years. The portfolio’s valuation was up 2% in yen but down 6% in Singdollar.

Just a week ago, Daiwa House REIT — DHLT’s sister REIT in Japan — acquired a logistics facility in the Chiba prefecture at a cap rate of 3.5%, demonstrating continued cap rate compressions for quality logistics assets.

At present, gearing remained healthy at 35.2% in 4QYF023, a slight improvement from the 36.2% reported in the preceding 3QFY2023, due to higher portfolio valuations in JPY terms.

“We remain upbeat about DHLT’s results and its DPU that has come in slightly above our estimates,” say the analysts in a Feb 28 note. “However, we remain slightly cautious about the 23.4% of leases that are expiring in FY2024.” The analysts warn that although these two leases account for only a small proportion of DHLT’s overall portfolio, the backfilling of these properties may take time.

DHLT has two acquisitions of $50.6 million generating 3% accretion that are under completion. When ready, these will help defend its earnings against rising borrowing costs and yen weakness.

“We believe that DHLT’s portfolio will continue to deliver strong and stable earnings in the medium term through management’s various proactive initiatives, including the optimisation of debt headroom by tapping accretive acquisitions from its sponsor,” they say.

The sponsor, Daiwa House, has consistently demonstrated its support of DHLT, which they see as a “highly crucial plus point”. They see DHLT as trading at a “very attractive” forward yield of 8.2% and a price-to-NAV multiple of 0.86 times. — The Edge Singapore

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