Analysts trim their target prices on Wilmar following 1QFY2023 earnings

RHB Bank Singapore has maintained its “buy” call on Wilmar International as it believes the stock remains “undervalued”. Along with a slightly reduced earnings assumption, RHB has trimmed the target price from $4.65 to $4.40.

The agri-food giant’s recent 1QFY2023 ended March earnings came in at just 20% of RHB’s earnings projected for the current FY2023 because of lower palm oil prices and processing margins. A slower-than-expected pick-up in demand in China, despite the end of lockdowns, contributed to the missed expectations too.

RHB expects the current 2QFY2023 to be better in terms of sales volumes for food products and crushing, while margins could strengthen in the second half of the year.

RHB points out that the combined value of Wilmar’s China-listed subsidiary Yihai Kerry plus India-based joint venture, Adani Wilmar, is almost double that of Wilmar’s own market cap.

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CGS-CIMB Research analysts, in their May 3 note, have similarly cut their target price from $4.82 to $4.63, while keeping their “add” call. CGS-CIMB’s Tay Wee Kuang and Lim Siew Khee have cut their earnings estimate for the current and coming FY2023 and FY2024 by 9.7% and 5.1% respectively, citing margin pressure on plantations and the feed and industrial segment. In addition, they have also taken into account the slower-than-expected recovery in China’s economy.

Their revised target price implies FY2024 earnings estimate of 11.7x slightly lower than its 10-year historical average of 12.2x.

UOB Kay Hian has offered a somewhat different take from the other brokerages. It has maintained its “buy” call and $5.50 target price on the stock after leaving the 1QFY2023 result briefing with a few “positive surprises” with the management “more upbeat than our expectation”.

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Citing the guidance provided by Wilmar’s management, UOB Kay Hian believes that the current 2QFY2023 may turn out to be another “exceptional quarter” where core earnings will at least match the US$382 million ($509 million) reported for the preceding 1QFY2023.

UOB Kay Hian, in its May 3 note, has kept its earnings forecast for the current FY2023 to FY2025 at US$1.9 billion, US$2.2 billion and US$2.4 billion respectively. — The Edge Singapore

RHB keeps ‘buy’ call on Sheng Siong but DBS downgrades to ‘hold’

RHB Bank Singapore’s Alfie Yeo has maintained his “buy” call and $2 target price for the 1QFY2023 ended March price on Sheng Siong Group, following its 1QFY2023 earnings that came in within expectations.

In 1QFY2023 ended March, Sheng Siong reported earnings of $33 million, down 5.3% y-o-y, while revenue was hardly changed at $357 million, down 0.4% y-o-y.

The supermarket chain operator has “continued to generate cash flow and expand its store network during that quarter, and defied the odds against the normalisation in Singapore supermarket retail sales,” writes Yeo in his May 2 note.

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The stock is still trading below its historical P/E mean of 19x. Yeo’s target price is based on 21x current year earnings.

Yeo believes that Sheng Siong’s earnings growth remains on track to meet his revenue and earnings estimate, as well as store opening assumptions from the acceleration of HDB projects after a slowdown during the pandemic.

Similarly, CGS-CIMB Research remains positive on Sheng Siong, citing how the stock possesses “defensive qualities” and is well poised to capture potential shifts in consumer behaviour amid an economic slowdown.

In their May 2 note, analysts Ong Khang Chuen and Kenneth Tan kept their “add” call and $1.88 price target on the stock, pegged to 20x FY2024 earnings.

Re-rating catalysts include faster store openings and stronger private label product sales, while downside risks heightened industry competition, further contraction of grocery demand, and worse-than-expected margin erosion from rising utilities costs.

On the other hand, DBS Group Research has turned cautious, downgrading its call from “buy” to “hold”, although the target price of $1.89, pegged to 21x earnings, remains.

The 1QFY2023 earnings are in line with their expectations. While same-store sales continued to decline, the overall revenue was made up by new stores opening.

Gross margins held up but operating margin declined by 1.2 percentage points y-o-y because of higher utility and manpower costs.

“We see limited upside at current levels after recent strong share price performance,” write DBS analysts Andy Sim and Chee Zheng Feng in their May 3 note.

Having said so, the analysts reaffirm their view that Sheng Siong is a “well-run quality business”, and that they would potentially suggest that investors accumulate the shares at lower levels. — The Edge Singapore

DBS and Citi like Singtel’s reorganisation; expects easier value unlocking of infrastructure assets

Analysts like Singapore Telecommunications’ (Singtel) latest reorganisation, with expectations that cost savings can be derived and that value of certain assets can be more easily unlocked.

On April 27, Singtel announced plans to merge its local consumer and enterprise units into one.

“This might lead to significant cost savings in our view although we are not sure of the magnitude of the savings at this stage,” writes DBS Group Research in its April 28 note.

It will also form a so-called “Digital InfraCo” to hold assets ranging from data centres, subsea cables, satellite carrier business and also its Paragon enterprise tech platform.

By grouping these assets as a standalone unit instead of being organic to a business unit, it will make be easier for Singtel to sell stakes to external investors who want a cut of the recurring income from these assets. Singtel, on the other hand, will be able to show investors the market value it can fetch for these assets.

According to estimates by DBS Group Research, the combined market value of Singtel’s overseas associates is around $45 billion. Yet, Singtel’s market cap is now just $42 billion.

This implies that investors are ignoring Singtel’s core Singapore and Australia businesses.

“InfraCo formation will help the investors to crystalize the value of the core business,” says DBS, which has a “buy” call and $3.18 target price on the stock.

Since April 2021, Singtel was able to recycle $6 billion worth of assets. By forming a standalone unit as Digital Infraco could accelerate further partial divestments, adds DBS.

Citi Research’s Arthur Pineda, is similarly positive towards Singtel’s plan. “While details remain limited, we believe the move should generate some degree of operational and financial synergies with likely overlaps on certain elements such as manpower,” writes Pineda in his April 27 note.

The setting up of the Digital InfraCo is likely the first step towards eventual monetization exercises via the taking of a strategic partner or via an IPO route, adds Pineda.

Meanwhile, Pineda likes Singtel for its “highly defensive” nature, giving investors a yield of 5%. “This makes it appealing in light of our view of a more challenging second half of thje year for the Singapore market,” writes Pineda, who has a “buy” call and $3.04 target price. — The Edge Singapore

With recovery underway, OCBC keeps ‘buy’ and $1.38 fair value on CLCT

OCBC Investment Research has kept its “buy” call and $1.38 fair value estimate on CapitaLand China Trust (CLCT), with a view that shopper traffic is improving and that the REIT’s overall business is undergoing a recovery.

“We continue to see CLCT as a beneficiary of China’s reopening and pro-growth policies,” states OCBC in its April 26 note.

CLCT owns a portfolio of 11 retail malls in China, five business parks and four logistics parks.

CLCT, in its 1QFY2023 ended March business update, says that shopper traffic improved 10.6% y-o-y. Overall tenants’ sales rose 15.4% y-o-y, reaching around 95% of pre-Covid levels with some of the malls within the portfolio even surpassing. Overall, retail occupancy increased from 95.4% in 4Q22 to 96.4% in 1QFY2023.

As of Mar 31, the occupancy rate of business parks dipped by 1.6 percentage points (ppt) q-o-q to 89.8% while logistics park’s occupancy fell slightly by 0.8 ppt q-o-q to 95.6%.

OCBC notes that leasing activities picked up in March and CLCT targets to capture new demand and tenant space expansion in engineering, electronics, biomedical trade sectors.

“As China reopens, we could see continued improvement in the retail segment in the coming quarters.

“Management expects its retail portfolio to register positive rental reversion in FY2023, aided by its asset enhancement initiatives while logistics park and business parks could remain resilient,” says OCBC. — The Edge Singapore

Analysts mixed on MPACT’s 4QFY2023 results

Analysts are mixed on their outlook for Mapletree Pan Asia Commercial Trust (MPACT) after the trust announced its results for the 4QFY2023 ended March on April 27.

Excluding the one-off release of retained cash in 4QFY2022 of 0.47 cents, MPACT’s 4QFY2023 DPU was flat y-o-y at 2.25 cents.

CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have downgraded MPACT to “hold” with a lower target price of $1.90 from $2.08 previously.

In their May 1 report, the CGS-CIMB analysts say that they have lowered their estimates for MPACT’s FY2024 and FY2025 DPU by 8.9% and 6.2% respectively on higher interest costs and unfavourable foreign exchange assumptions.

While the trust’s capitalisation rates were unchanged in FY2023, portfolio valuation dipped 2.3% y-o-y. This is because valuation gains in its Singapore portfolio were offset by lower valuation of its overseas portfolio and further exacerbated by unfavourable foreign exchange movement.

As at March, MPACT’s gearing inched up q-o-q to 40.9% from 40.1% previously due to lower asset value post-revaluation exercise. Its average all-in cost of debt increased 11 basis points q-o-q to 2.68% while adjusted interest coverage ratio slipped slightly from 3.8x to 3.5x.

Although 75.5% of MPACTs borrowings are on fixed rates, 11% of its borrowings are up for refinancing in FY2024, the CGS-CIMB analysts point out. The trust’s management has guided that based on current interest rates, cost of debt for FY2024 could land at 3.5%. While it considers divestment as a possible option to lower its gearing, valuation weakness — particularly in the North Asia markets — is a deterrent to the strategy, Ong and Lock say.

On the other hand, Krishna Guha of Maybank Securities has upgraded the stock from “hold” to “buy” as he believes that the known negative news on MPACT had already been taken into account by the market. These include Google renewing its lease at Mapletree Business City in phases and the multi-year woes suffered by the Festival Walk mall in Hong Kong.

While he has lowered his DPU estimates for the current FY2024 and coming FY2025 by 3.4% and 1.2% respectively, he has upgraded the stock to “buy”, given his previous target price of $1.65, versus the current estimate of $1.90.

“Catalysts may emerge from the stabilisation of rates and asset recycling. MPACT trades at book and yields 5.5%, which we believe compensates for some of the risks,” he adds.

Meanwhile, Citi Research’s Brandon Lee says MPACT’s 4QFY2023 results had again shown the strength and relative outperformance of its core assets in terms of reversion and occupancy, especially VivoCity which saw record-high tenant sales of over $1 billion in FY2023.

Lee highlights that MPACT’s portfolio occupancy remained stable at 95.4%, with improvement in Singapore mitigated by declines in China, Festival Walk in Hong Kong and Japan. Its portfolio rent reversion in FY2023 turned positive at 0.7% after being in the red over 9MFY2023, largely helped by its Singapore portfolio.

VivoCity’s tenant sales notched a fifth straight quarter of above pre-Covid-19 level in 4QFY2023 of $247.3 million, while its ongoing asset enhancement initiatives involving about 80,000 sq ft of space reconfiguration appears to have achieved a higher return of investment of over 20% versus the initial guidance of 10%.

Lee also notes that Festival Walk continued to witness negative reversion of –12.7% in FY2023 amid improving sales and traffic as a result of the border reopening with China, aside from the lifting of all remaining measures.

DBS Group Research analysts Rachel Tan and Derek Tan concurs. Although Hong Kong and China properties’ recovery from Covid-19 may seem a little slow, the analysts believe that it is just a matter of time before it recovers, likely picking up its pace from 2H2023.

“Festival Walk tenant sales continue to be impacted by the Covid-19 policy but saw a slight uptick this quarter to 77% of the pre-Covid-19 and pre-social incident levels, versus 74% in 3QFY2022/2023. We remain hopeful that this is a positive start to the long-awaited reopening of China,” the DBS analysts add.

Citi’s Lee is maintaining his “buy” on MPACT with a target price of $1.90. This comes on the back of the ongoing reopening theme in Singapore and Hong Kong’s retail sector, aside from the divestment of Japan and China assets which is the next major share price catalyst in Citi’s view.

The DBS analysts have also maintained “buy” with a target price of $2. However, the analysts have trimmed their FY2023/FY2024–FY2024/2025 estimates by 2% to 3% to factor in higher interest rates of 3.5% and 3.8%, versus 3% and 3.2% respectively. — Khairani Afifi Noordin

Brokers' Digest: Wilmar International, Sheng Siong Group, MPACT, Singtel, CLCT

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