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Broker's Digest: Yangzijiang Shipbuilding, Golden Agri-Resources, Genting Singapore, APAC Realty, FLCT

The Edge Singapore
The Edge Singapore11/17/2022 06:01 PM GMT+08  • 12 min read
Broker's Digest: Yangzijiang Shipbuilding, Golden Agri-Resources, Genting Singapore, APAC Realty, FLCT
See what the analysts have to say this week.
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Yangzijiang Shipbuilding Price target:

DBS Group Research ‘buy’ $1.70

Strong earnings growth

DBS Group Research analyst Ho Pei Hwa has kept her “buy” recommendation on Yangzijiang Shipbuilding with a higher target price of $1.70 from $1.40 previously

The new target price of $1.70 is based on an FY2023 P/B of 1.7x, which implies an FY2023 P/E of 11x, says Ho.

While the group’s share price has nearly doubled in a year, Ho notes the group’s shares could “re-rate further” towards her target multiples. This is as the group delivers strong earnings growth, makes headway into the liquefied natural gas (LNG) carrier market and makes advances in environmental, social and governance (ESG) improvement, she writes.

See also: UOB Kay Hian upgrades Frencken to 'buy' due to 'positive outlook' for its key customer and improving cost pressures

Yangzijiang is stepping up its ESG initiatives, with the introduction of two carbon strategies. The first, Green Factory, aims to reduce carbon footprint in its shipyards, while the second strategy, Green Vessels, aims to build more clean energy vessels.

“In fact, Yangzijiang has seen notable progress with [an estimated] 40% of order book coming from clean energy vessels. An ESG committee, comprising senior management and external advisors, has been set up to build a more structured ESG management system,” Ho writes.

The group’s record high order backlog will also help to boost the group’s earnings visibility through 2025, she adds.

See also: Citi maintains 'buy' rating on Genting Singapore off the back of MBS results beat

“Yangzijiang’s yards are full through 2025 with an order book of [over] US$10 billion ($13.70 billion). This is expected to propel an earnings CAGR of 19% in the next three years, driven by both revenue growth and margin expansion, as 80% of its order book is made up of containership orders that command higher value and margins,” she writes. “We expect further uplift in its order book, boosted by potential orders for large LNG carriers.”

At present, Ho deems Yangzijiang’s share price as “undemanding”.

“The stock remains undemanding, trading at 1.4x FY2023 P/BV and 9x FY2023 P/E against a projected 16.6% return on equity in FY2023, and three-year core earnings per share CAGR of 19%,” she says.

In her view, the market has overlooked the group’s earnings growth potential, as well as the structural uptrend of shipbuilding demand, and its ESG transformation into clean vessel space.

That said, key risks include the group’s revenue being denominated mainly in US dollars.

“Assuming the net exposure of [around] 50% is unhedged, every 1% depreciation in the US dollar (against the Chinese yuan) could lead to a 1.5% decline in earnings. Every 1% rise in steel cost, which accounts for [around] 20% of cost of goods sold, could result in a 0.8% drop in earnings,” says Ho. — Felicia Tan

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


Golden Agri-Resources

Price target:

RHB Group Research ‘buy’ 33 cents

Upgrade on improved 9MFY2022 results

Analysts at RHB Group Research have upgraded Golden Agri-Resources to “buy” with a higher target price of 33 cents from 30 cents previously following its 3QFY2022 ended September results announcement.

In its Nov 15 report, RHB notes that Golden Agri’s 9MFY2022 core net profit of US$683 million ($937 million) exceeded expectations at 103% of the analysts’ full-year forecasts. This is mainly due to the tax levy holiday, gains from forward hedges and lower effective tax rate.

Golden Agri achieved an estimated net of tax crude palm oil (CPO) average selling price of US$1,027 per tonne in 9MFY2022, 46% higher y-o-y. As for its downstream segment, the company managed to achieve a higher q-o-q ebitda margin in 3QFY2022 despite the smaller tax differential between CPO and processed palm oil (PPO). This was likely due to hedging gains which were “significant”, according to the company.

“We understand Golden Agri hedges one to two months of production three to six months forward, and would have benefitted from the tax levy holiday, as forward sales volumes contracted earlier during the high tax period were executed when levies were zeroised — thereby recording an additional gain.

“However, now that taxes have been reinstated since mid-November, the opposite would apply, where losses could be booked instead. Margins in 3QFY2022 were also supported by higher sales volumes, which grew 34% q-o-q,” the analysts add.

Golden Agri’s 3QFY2022 saw an 18.9% y-o-y fresh fruit bunches (FFB) output rise, resulting in 9MFY2022 nucleus FFB rising by a light 1.3% y-o-y. This is a significant recovery from 1HFY2022’s 6.5% y-o-y decline.

For FY2022, Golden Agri is now guiding for a slightly lower FFB growth of 3%, expecting 3QFY2022 to be the peak quarter. RHB has raised its FFB growth projections up to 3% for FY2022, while keeping its 3% growth for FY2023 and FY2024.

Golden Agri’s CPO inventory level at the end of June was 687,000 tonnes, which is about 1.5x more than its normal inventory levels of 400,000 to 500,000. The company expects to clear the excess inventory by end-4QFY2022.

RHB has raised its FY2022–FY2024 earnings estimates by 6% to 26% after imputing the tax levy holiday’s impact, lower effective tax rates and higher contributions from downstream operations. — Khairani Afifi Noordin


Genting Singapore

Price target:

UOB Kay Hian ‘buy’ $1.08

Maybank Securities ‘hold’ 88 cents

DBS Group Research ‘buy’ $1

Poised to ride recovery

Analysts at UOB Kay Hian (UOBKH), Maybank Securities and DBS Group Research are optimistic on Genting Singapore, following the announcement of its 3QFY2022 results ended September.

UOBKH analysts Vincent Khoo and Jack Goh have kept their “buy” call and target price of $1.08. They note Genting Singapore’s “remarkable” earnings recovery in 3QFY2022, with Resorts World Sentosa (RWS) charting strong revenue and ebitda recoveries at 107% and 143% y-o-y respectively

“Despite 3QFY2022’s adjusted ebitda of $249 million predictably still underperforming rival Marina Bay Sands due to lower gross gaming revenue market share, RWS recorded the best quarter since Covid-19 with revenue and net profit recovering to about 87% and 85% of 3QFY2019’s. 9MFY2022 ebitda represented 67% and 72% of our and consensus full-year forecasts, which we deem largely in line as we anticipate a sequentially stronger 4Q2022 performance,” the analysts add.

Genting Singapore’s 3QFY2022 gaming revenue recovered by 59% q-o-q, representing 106% of pre-pandemic level. This is mainly due to an exceptionally strong VIP win percentage and better operating capacity, following the gradual resolve of earlier labour shortage issues. Non-gaming revenue also recovered by 37% q-o-q, reflecting Singapore’s overall pent-up tourism demand which lifted hotel occupancy and average room rates.

UOBKH expects the recovery trend to sustain in upcoming quarters. It also believes that the reopening of Festive Hotel in 1QFY2023 will further elevate Genting Singapore’s earnings.

Meanwhile, Maybank analyst Yin Shao Yang says Genting Singapore’s 3QFY2022 earnings were within his expectations and appear to be sustainable in the future. “This is because we gather that the 3QFY2022 VIP win rate was within the theoretical range as the 3Q2022 ebitda margin of 48% is largely in- ine with our long-term ebitda margin forecast of 51%–52%,” he adds.

The analyst has maintained his “hold” call on Genting Singapore, raising his target price slightly to 88 cents from 86 cents previously. Yin expects Genting Singapore to report quarterly results similar to those of 3QFY2022 going forward.

DBS analyst Jason Sum concurs, adding that Genting Singapore is well positioned to recover with Singapore’s Vaccinated Travel Framework and synchronised reopening of borders in the region. He adds that the imminent return of foreign tourists — which accounted for 75%–80% of total attendance prior to the pandemic and higher average spending per visitor — will give a significant boost to Genting Singapore’s earnings over the next two years.

Sum points out that Genting Singapore has a robust balance sheet and strong operating cash flows to enhance shareholder returns. “We believe there may be an upside to our dividend-per-share projections as the management has signalled that they will be more generous going forward so as to reward shareholders.”

Despite macroeconomic headwinds, Genting Singapore’s outlook continues to be promising, although a strong Singapore dollar could have a slight negative impact on inbound tourism, says Sum. Overall indicators suggest that it will be some time before the substantial pent-up demand subsides, particularly as countries in the region continue to reopen.

“Nonetheless, Genting Singapore is insulated against rising interest rates because of its robust balance sheet, a stark contrast to most other gaming operators in the region,” says Sum.

He maintains his “buy” call with an unchanged target price of $1, raising his FY2022 and FY2023 earnings estimates by 10% and 2% respectively to reflect stronger gaming volumes and healthier operating margins on greater economies of scale.

UOBKH analysts expect the stock to re-rate in reaction to Singapore’s tourism recovery. With the world eventually fully unwinding Covid-19 curbs which presumably includes China by 4QFY2022 to 1QFY2023, the analysts forecast Genting Singapore’s ebitda to claw back to the pre-pandemic level of $1.2 billion in FY2023 as “the worst is likely over”.

“Theoretically, our target price for Genting Singapore would rise to $1.22 once our valuation horizon rolls over to FY2023, assuming ebitda recovers to $1.2 billion and historical mean EV/Ebitda valuation of 10x,” they add. — Khairani Afifi Noordin


APAC Realty

Price target:

DBS Group Research ‘hold’ 59 cents

Adapting to property cooling measures

APAC Realty is adapting to property cooling measures, with 9MFY2022 ended September results above expectations, writes DBS Group Research analyst Ling Lee Keng.

In a Nov 11 note, Ling is upgrading APAC Realty to “hold” from “fully valued”, with a higher target price of 59 cents from 41 cents previously. The new target price represents an upside of 6% against the traded price of 56 cents on Nov 10.

Ling points to the “resilient” property market, supported by a strong pipeline of new launches, stable prices and demand.

“The knee-jerk reaction to the latest round of cooling measures introduced on Sept 30 is expected to last one to two quarters,” says Ling. “[This is] similar to the previous rounds of measures in 2018 and 2021, based on the Private Property Price Index performance.”

Hence, APAC Realty could see a weaker 4QFY2022 and 1QFY2023. “Overall, the property market is expected to remain resilient in 2023, supported by the strong pipeline of new launches and resilient demand from both locals and foreigners. The pace of the price increase, however, could be muted given the macro headwinds including rising inflation and slower economic growth,” writes Ling.

Historically, the knee-jerk period for the cooling measures implemented in 2013 was about four years, notes Ling. “Notably, net profit for APAC only managed to reach the pre-measure level in 2017… Based on historical records, net profit for APAC Realty declined by about 30% to 40% following the implementation of major cooling measures, but the rebound in the subsequent years was also strong.”

On the other hand, Ling notes a slight drop in overall market share by APAC Realty’s agency ERA. “ERA’s overall market share eased slightly to 40.1% compared to 40.2% for 9MFY2021. New home and private resale segments were weaker while the HDB resale and leasing divisions were stable.”

Ling points to more new home supply in the pipeline for 2023. “ERA has secured marketing mandates for 13 projects with a total of 3,642 units launched so far. Another two more projects — Hill House and Tenet — with a total of 690 units are expected to be launched in 2022. For 2023, more than 24 projects with a total of more than 8,000 units are expected to be launched.”

Ling is now projecting new home sales of 8,500/9,000/9,500 units for FY2022/FY2023/ FY2024. “For the private resale segment, we project 14,000/13,000/15,000 for FY2022/FY2023/ FY2024. Projection for HDB resale transactions has also been adjusted to 28,000/26,000/27,000 units for FY2022/FY2023/FY2024.” — Jovi Ho


Frasers Logistics and Commercial Trust

Price target:

DBS Group Research ‘buy’ $1.55

Healthy portfolio fundamentals, positive rental reversions

DBS Group Research analysts Dale Lai and Derek Tan have kept their “buy” call on Frasers Logistics and Commercial Trust (FLCT) following its 2HFY2022 ended September results announcement.

FLCT’s FY2022 DPU of 7.62 cents came slightly below the analysts’ projections. This is mainly due to weaker foreign currencies against Singapore dollar as well as slower-than-expected pace of acquisition following the divestment of Cross Street Exchange.

Its FY2022 distributable income increased by 4.3% y-o-y, while revenues and net property income declined by 4.1% and 3.7% y-o-y respectively. This is due to the Cross Street Exchange divestment, partly offset by acquisitions in Australia and the UK.

Proceeds from divestment have mostly been used to repay loans, leading to lower financing costs in FY2022, the analysts point out.

FLCT’s portfolio occupancy remained stable at 96.4%, with only about 10% of portfolio leases due for expiry in FY2023. The trust also achieved positive rental reversions of 6.2% in FY2022, as well as a 6.5% uplift in portfolio valuations, driven mainly by underlying rent growth. This leads to a gearing improvement to 24.7% and an ample debt headroom of more than $3.2 billion. “Despite concerns of potential cap rate expansion, the strong growth in underlying rents will help FLCT maintain its portfolio valuations,” the analysts say.

They remain positive on FLCT, given its healthy portfolio fundamentals and continued positive rental reversions. Given how quickly market rents for logistics and industrials have grown over the past year, FLCT’s assets are now under-rented, they add.

Although FLCT has about $190 million in capital gains it can tap into, the REIT will be very disciplined in utilising it for capital distributions, the analysts highlight.

FLCT has paid out about $8.2 million in capital distributions in FY2022 to offset the absence of income from Cross Street Exchange, and is expected to continue paying out capital distributions in the near term. However, the amount of capital distributions will be limited to the amount required to offset the absence of income from the divestment, and will not be used to top up any decline in income from foreign exchange losses or higher financing costs.

“We have thus revised our projections to account for the weaker AUD, EUR, and GBP against the SGD. We have also assumed higher financing costs in the next two years, given the rising interest rate environment,” the analysts say.

The analysts have revised their target price to $1.55 from $1.75 previously. They expect FLCT to generate a forward dividend yield of about 6.5% at the current prices. — Khairani Afifi Noordin

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