RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Thu, 18 Aug 2022, 10:03 AM


Singapore Exchange- Market Statistics for July

Author: rhbinvest   |  Publish date: Thu, 18 Aug 2022, 10:03 AM

  • Maintain NEUTRAL and SGD10.70 TP, 8% upside and c.3% yield. July securities daily average value (SDAV) data and derivatives daily average volume (DDAV) missed our expectations. SDAV fell 23% MoM as investors were broadly on the sidelines amid continued concerns over the global economy’s path. DDAV fell 4% MoM. We await management’s thoughts on Singapore Exchange’s outlook at the upcoming results briefing before reviewing our forecasts. A modest growth outlook, below market dividend yield, and forward P/E being in line with historical average support our current call.
  • JulY securities market turnover and derivatives turnover tracking below our estimates. For the month of July, total securities market turnover value stood at SGD18bn (-28% YoY, -30% MoM), with SDAV at SGD901m (-25% YoY, -23% MoM). Stock investors were broadly on the sidelines for most of July amid continued concerns over the global economy’s path. Elsewhere, derivatives volumes declined over the previous month on reduced volatility. DDAV fell 4% MoM to 1m contracts. On an annualised basis, July SDAV is tracking 6% below our FY23 (Jun) estimate, while July derivatives trading volume is tracking 4% below our FY23 estimate.
  • SGX to report FY22 earnings on 18 Aug. For FY22, we expect SGX to report revenue of SGD1.1bn, similar to consensus and a net profit of SGD459m as compared to consensus estimates of SGD444m. At present our FY23 revenue and net profit estimates are in line with consensus. We will update our views on the stock post analyst briefing.
  • Forward P/E is in line with the historical average. SGX’s FY23F P/E of 21.8x is in line with its historical average and offers a modest yield of 3.3% (STI’s yield is +4%). Our TP is based on a target P/E of 22x FY23F EPS, in line with its historical average P/E. We view our target P/E as reasonable – given the expectation of a modest rise in profits in FY23F. The TP includes an ESG premium of 8% over its fair value of SGD9.90.
  • Risks. Downside risks: i) Higher-than-estimated operating costs for FY22F getting reported in the upcoming results; ii) a slower ramp-up in revenue contributions from acquisitions. Upside risks: i) Higher-than- estimated SDAV from the potential pipeline of exchange traded funds, REITs, and special purpose acquisition company listings; and ii) continued global macroeconomic uncertainties leading to higher derivatives volumes.

Source: RHB Research - 18 Aug 2022

Labels: SGX
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HRnetgroup- a Strong 1H22; Keep BUY

Author: rhbinvest   |  Publish date: Wed, 17 Aug 2022, 9:48 AM

  • Maintain BUY and TP of SGD1.01, 28% upside and c.6% yield. HRnetgroup announced a strong 1H22, in line with our estimates. Revenue rose 14.2% YoY to SGD314.2m, while core NPAT rose to 36.2% YoY to SGD42.6m. Going forward, we see hiring remaining resilient despite the possibility of a slight slowdown. A 2.13 SG cent interim dividend has also been declared. We believe that the current share buyback (SBB) programme will be a positive to its share price.
  • FY22F will likely end well. For 1H22, HRNET’s flexible and professional recruitment grew by 13.2% and 18.6% YoY, while Singapore continues to remain its largest market. Going forward, hiring is still expected to be strong from the technology, healthcare and consumer sectors. There is potential for a slowdown in hiring, especially if a recession hits, but for now, signs show hiring is still healthy.
  • SGD30m SBB programme. Management intends to buy up to SGD30m of company shares via the open market. The maximum number of shares which may be purchased by the company under the SBB programme is 100,377,338 (amounting to 10% of its issued shares). Depending on the prices at which the shares are purchased, the programme could take more than a year to be completed. As at 16 Aug 2022, management has already purchased 0.21% of the total shares outstanding. We expect the SBB programme to continue and be positive for its share price.
  • Attractive dividends likely to continue. Management has declared the first ever interim dividend of 2.13 SG cents. With the positive performance likely to continue, we expect management to reward shareholders with attractive dividends. As a result, we expect a 5.5% dividend yield for FY22F, or a 60% payout ratio.
  • Hiring activity still positive; maintain BUY. Management remains bullish for both its recruitment segments across all geographical areas and still see strong demand for the services YTD. As a result, we are optimistic the performance will continue, aided by higher margins as well. This counter is trading at 11x FY22F P/E, which is lower than its global peer average. We believe HRNET is a decent proxy to the global economic recovery, and as such, it will enjoy a solid FY22F. We maintain our BUY call on the stock, while pegging our TP to 14x FY22F P/E.
  • ESG. Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is on par with the country median. As a result, we apply a 0% discount or premium to our TP.

Source: RHB Research - 17 Aug 2022

Labels: HRnetGroup
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Frencken Group - a Muted Outlook; Downgrade to NEUTRAL

Author: rhbinvest   |  Publish date: Tue, 16 Aug 2022, 10:29 AM

  • Downgrade to NEUTRAL from Buy, SGD1.24 TP, 4% upside with c.3% FY22F yield. Frencken’s 1H22 revenue ticked up by 3.6% YoY to SGD388.9m, but its PATMI declined by 16.6% YoY to SGD26.1m – this accounts for 50% of our forecasts, ie in line. Going forward, we should see some margin recovery as old contracts and open purchase orders (POs) are extended, and higher prices are imputed into the new contracts. However, its performance in FY22 may worsen YoY, so we cut our call on the stock to NEUTRAL, for now.
  • Margins will likely improve, albeit gradually. Management thinks that margins likely bottomed in 1H22, and will likely strengthen in the subsequent quarters, as new contracts and POs with higher prices replace the existing, lower-margin ones. However, Frencken has started preparations on its non-new sites and production facilities in Europe, Malaysia and Singapore to cater for future business growth. This will increase costs. That said, revenue from the increased capacity will likely only flow in from FY23F onwards. As a result, we expect net margins to still remain muted in FY22.
  • Revenue growth will be muted till FY23F. Management continues to see growth in the semiconductor, medical and live science as well as automotive segments – the latter will likely undergo a rebound after a weak 1H22. However, we expect revenue growth to be muted this year, as many of the new projects will likely only ramp up after the new facilities are ready and qualified.
  • Downgrade to NEUTRAL for now. Our downgrade is premised on the fact that the stock’s closing price is now close to our TP, and the company’s outlook is somewhat lacklustre. There should be more clarity on its expansion plan by end-3Q or in 4Q – and, in the meantime, investors can focus on other stocks in the same sector to yield more returns. That said, we remain confident in management’s ability to enable Frencken to perform better once its expansion plans are completed, and FY22F should just be a temporary blip in its long-term outlook.
  • Key risks include a rise in material and overhead costs, and a downturn in semiconductor demand.
  • ESG. Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is on par with the country median. As a result, we apply a 0% premium to our intrinsic value to derive our TP.

Source: RHB Research - 16 Aug 2022

Labels: Frencken
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Centurion Corp - Headwind to Tailwind; BUY

Author: rhbinvest   |  Publish date: Tue, 16 Aug 2022, 10:28 AM

  • Maintain BUY, new TP of SGD0.51 from SGD0.43, 34% upside with c.5% upside. Centurion reported strong 1H22 results, with revenue rising 40% YoY to SGD90.5m and core PATMI surging 42% YoY to SGD29m. This affirms our view that both of its workers and student accommodation businesses are recovering rapidly. We believe that FY22F will be a superb year for the company, and lift our TP to SGD0.51 – pegged to 7.5x FY22F P/E, to better reflect its value.
  • Solid recovery in demand for worker accommodations. Revenue from its worker accommodation segment expanded by 38% YoY to SGD67m in 1H22, as the demand for labour spiked up post lifting of COVID-19 measures. Centurion’s average occupancy rate in its Singapore worker dormitories recovered to >95%. We also expect a potential rise in its rental prices to mitigate the rise in operational costs it will incur due to inflation – and the company may pass on the cost increases to its customers.
  • Strong demand still intact, with rate hikes being likely. Its student accommodation business in 1H22 grew by 43% YoY to SGD22.5m, mainly due to the improvement in the occupancy rates of its facilities in the UK, Australia, the US and Korea. Pre-leasing for 2022-2023F is ongoing and bookings for the year are also strong. Centurion has also acquired a 103- bed freehold asset in Nottingham in the UK, which will be completed in 4Q22 and should boost overall profitability. The Centurion US Student Housing Fund has commenced the sale process of its US assets (where the company owns 28.7% of the units), as management continues its strategic review of its portfolio assets. We think that it will also sell its UK assets if a good offer comes along, which should help to reduce gearing even further. In addition, with inflation rates spiking up – especially in the UK and the US – we think Centurion is likely to raise its dormitory rates by the end of the year, which will be positive for overall numbers.
  • Resilient and defensive business. With construction activities resuming actively and demand for workers surging, coupled with global COVID-19 restrictions loosening, we expect its worker and student accommodation business to continue recovering strongly. As the stock is trading at just 5.6x FY22F P/E and at a 52% discount to its NAV of SGD0.796, Centurion is undervalued – even though this company has upbeat growth prospects. It also declared an interim DPS of SGD0.5 cents for 1H22.
  • ESG. Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is on par with the country median. As a result, we apply a 0% discount or premium to our intrinsic value to derive our TP.
  • Key downside risk: New dormitory specifications to be announced will likely lower total bed capacity – and Centurion may need more capex to enable it to tailor facilities to meet the new specifications.

Source: RHB Research - 16 Aug 2022

Labels: Centurion
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ComfortDelGro - Sequential Improvement Continues; BUY

Author: rhbinvest   |  Publish date: Mon, 15 Aug 2022, 10:29 AM

  • BUY, new SGD1.75 TP from SGD1.77, 20% upside with c.3% yield. ComfortDelGro’s 1H22 core profit was slightly below our estimate. The one-off gain from the sale of its Alperton property in London was paid to investors as special dividends. While we remain upbeat on its earnings recovery, there could be a near-term share price overhang as investors assess: i) The impact of the amended service fee from 1 Sep onwards, for five public bus contracts in Singapore; and ii) whether CD extends the taxi rental rebates beyond end-Sep 2022.
  • 1H22 core profit was a tad below expectations, but operating profit continued to improve. CD reported 1H22 revenue of SGD1.8bn (+7% YoY, 50% of our full-year estimate) and net profit of SGD119m (+30% YoY, 61% of our FY22 projection). However, net profit included a one off gain of SGD37.2m (post-tax gain of SGD30.5m) from the disposal of a property in London. Excluding this gain, core net profit of SGD88m (-3% YoY) accounted for 46% of our full-year estimate. Nevertheless, the operating metrics continued to improve, as EBIT (excluding the one off gain and government relief) increased 68% YoY to SGD51m – aided by improving economic activity in Singapore and the UK as COVID-19 related restrictions have been relaxed.
  • A surprise special dividend for investors. CD announced an interim DPS of 2.85 SG cents, which implies a payout ratio of 70% excluding the exceptional gain from the sale of the Alperton property in London. On top of that, the one-off gain from the sale of the London property was paid to investors as 1.41 SG cents of a special DPS.
  • Tweaking earnings forecasts; valuations are still reasonable. We have lowered our 2022-2024F profits by 2-4%. Our DCF-derived SGD1.75 TP implies 17.7x 2023F P/E. While this is higher than CD’s 10-year average of c.16x, it seems reasonable – in view of its ongoing earnings recovery. This stock is trading at 14.7x 2023F P/E. Our TP also includes a 12% ESG premium over the SGD1.56 fair value, based on our proprietary in-house methodology.
  • Downside risks: i) Extension of rental rebates to Singapore taxi drivers beyond Sep 2022; ii) continuing decline in its taxi fleet size; iii) lower-than- estimated Singapore bus revenue amidst amended bus contracts; iv) lower margins for key businesses; and v) the UK witnessing a sharp decline in economic growth.

Source: RHB Research - 15 Aug 2022

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Bumitama Agri - Strong Quarter Despite Export Ban Impact; BUY

Author: rhbinvest   |  Publish date: Mon, 15 Aug 2022, 10:24 AM

  • Keep BUY, new SGD0.80 TP from SGD0.71, 23% upside. Bumitama Agri’s 1H22 results came in significantly above our and Street estimates. Although CPO prices have moderated so far in 2H22, FFB growth is expected to remain robust, hence keeping earnings strong. BAL’s valuation of 5.3x CY23F P/E is unwarranted, even below -1SD of its historical mean and below its peers’ range of 6-11x. Assuming it pays out 40% of earnings, its FY22F dividend yield is also attractive, at c.13%.
  • BAL booked a >280% YoY rise in 1H22 earnings on higher ASPs and FFB output, which was above both our and Street’s expectations at 86-98% of full-year estimates. This was on higher-than-expected FFB growth in 2Q22 (+29% QoQ, +19% YoY) and stronger-than-expected ASPs despite the export ban impact – this led to lower-than-expected unit costs in 1H22.
  • BAL recorded FFB growth of 8.7% YoY in 1H22, above our projection of +3% but in line with management’s guidance of 5-10% growth. It had raised its FY22 FFB growth guidance to +16-18%, as BAL continues to see strong growth at its estates while weather has been conducive too. Management also expects 1H:2H output to be in the 50%:50% range. As such, we raise our FFB growth assumption to 14% from 3% while keeping our FY23F-24F growth at 5-6%.
  • Strong CPO prices despite export ban impact. Unlike most of its peers, BAL managed to achieve a higher ASP of IDR14,300/kg in 1H (+83% YoY), with 2Q ASP of IDR15,000/kg being 10% and 83% above 1Q22 and 2Q21’s prices. This was achieved despite the export ban impact, which resulted in domestic prices collapsing – likely due to BAL’s long-term relationships with its clients. Nevertheless, 1H22 CPO sales volumes fell 35% YoY as refiners cut back on purchases. Consequently, BAL’s inventory levels rose to c.2 months’ supply, approximately one month more than normal. BAL believes it will be able to normalise this by 3Q.
  • Unit costs rose 14% YoY in 1H22, to rise further to 20-25% for FY22F. For 2Q22, BAL recorded a unit cost of IDR5,700/kg (+27% QoQ, +7.5% YoY), bringing 1H22 costs to IDR5,200/kg (+14% YoY). It has applied 50% of its fertiliser requirements for FY22 so far. For 2H22, costs should rise due to higher-priced fertiliser recognised, leading to overall FY22 unit costs to rise by 20-25% YoY, given the higher fertiliser prices (+60-80% YoY).
  • We raise FY22F earnings by 45% and FY23F-24F by 10-12% after imputing higher FFB growth and slightly lower unit costs.
  • Maintain BUY, with a higher TP of SGD0.80 based on unchanged 7x 2023F P/E. Our TP has already taken into account an ESG discount of 8%, given our in-house ESG score of 2.6. The stock is now trading at 5x 2023F, even below -1SD from its 5-year mean – we believe this is unwarranted. Assuming the dividend payout is at the maximum 40%, the FY22F dividend yield is also attractive, at c.13%.

Source: RHB Research - 15 Aug 2022

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