Singapore Market Monitor - Maybank Kim Eng 2017-03-24: Post-Conference Company Meeting Snippets


Singapore Market Monitor - Invest ASEAN 2017 Post-Conference Company Meeting Snippets

.... Continued from Singapore Market Monitor - Essential Bites – What We Learnt

Ascendas REIT 

  • Presenters: Ms Yeow Kit Peng (Head, Capital Markets and Corporate Development) and Ms Liu Wylyn (Senior Manager, IR and Communications)
  • Rating: NOT RATED
  • Target price: NA
  1. The industrial landscape has changed. Demand is now being driven by tenants mostly focused on low-volume, high-mix manufacturing. Highvolume, low-mix manufacturing tenants have already shifted out of Singapore to China/Malaysia.
  2. Business parks - new demand is coming from banks’ back offices (RHB, CIMB, and other Japanese), especially at Changi Business Park.
  3. The outlook has improved, with oversupply challenges earlier dissipating. Warehouse space is the sub-segment facing the most oversupply pressure, and could encounter negative rental reversion this year.
  4. Management reiterated its growth strategy and targets: Singapore AUM from SGD8-9b to SGD10b, and Australia from SGD1.3b to SGD2b. The medium-term portfolio mix is targeted to be 70-80% Singapore and 20- 30% Australia from 85%/15% currently.
  • The key concerns: The company is apprehensive as to whether the more positive business sentiment in Singapore and improving economic data in recent months can be sustained.
  • Valuation: Not Rated. Based on Bloomberg data, consensus 12-month target price is SGD2.58 with analyst Buy/Hold Sell ratio of 16/7/0.

Ascendas Hospitality Trust 

  • Presenters: Tan Juay Hiang (CEO) and team
  • Rating: NOT RATED
  • Target price: NA
  1. It stands out from peers as it has higher variable income from management agreement contracts. This implies that unit holders will benefit in an up-cycle.
  2. Its key markets Sydney and Melbourne are strong. The company expects positive performance for Japan to 2020 due to the Olympics.
  3. It believes the Singapore government will not sell more hotel sites in the near term due to oversupply. It expects the Singapore hospitality sector to bottom out in 24 month’s time and it will be keen to make acquisitions if opportunities arise. However, high asking prices make deals hard to come by currently.
  • The key concerns: The Singapore and Brisbane hospitality markets remain weak. However, strength in the other key markets is offsetting this weakness. While Airbnb is disrupting the hospitality market, it believes the leisure market will be affected more. The company is relatively less affected as its Australia and Singapore hotels cater to a greater proportion of corporate clients.
  • Valuation: Not rated. Based on Bloomberg data, consensus 12-month target price is SGD0.75 with analyst Buy/Hold/Sell ratio of 1/0/0.

Best World International 

  • Presenters: Huang Ban Chin (COO), Koh Hui (Group Financial Controller) 
  • Rating: BUY 
  • Target Price: SGD2.34 
  1. Sales in China are gaining traction as it secured a direct selling licence in Nov-16. Demand for its products is growing rapidly and there is more interest from members of other direct-selling companies. Currently, more than 250 outlets in China are selling BEST’s skincare products.
  2. Management targets to increase market coverage in China. In the near term, it plans to expand its licence to Changsha City in Hunan province as this is where most of its selling activities take place.
  3. It aims is to be within top-15 in China in the next 5 years, which will require at least CNY2.6b in sales. This is almost 4x higher compared to BEST’s 2016 sales of CNY0.7m. Its target in Taiwan is to reach top-5 in 2017. Sales would have to grow by c.60% to TWD4.6b to achieve this target.
  4. The company is also exploring inorganic expansion for entering into new markets.
  • The key concerns: Regulatory changes restricting direct selling activities, competition with other direct sellers and the traditional retail channel, and reputational risks caused by fake product scandals of other direct sellers.
  • Valuation: We have a TP of SGD2.34, based on 16x FY17E EPS (based on peer average).

Capitaland Commercial Trust 

  • Presenters: Kevin Chee (Deputy CEO) and team 
  • Rating: BUY 
  • Target price: SGD1.81 
  1. Management continues to evaluate opportunities for value-creation and it will assess the feasibility of the Golden Shoe redevelopment. Based on DP payable, it will decide whether to proceed with the project.
  2. Given the high passing rents locked in 3-4 years ago, CCT may experience negative rental reversions in the year ahead. However, it has $20m in tax exempt income that may be distributed if necessary to ensure a stable DPU.
  3. Credit spreads for borrowings are very tight with cheaper rates than a year ago.
  • The key concerns: Supply in the market remains high. However, with improving pre-commitments at key buildings, landlords should start to raise rents to meet their required investment returns.
  • Valuation: We have a TP of SGD1.81, based on a target yield of 5.0%.

Keppel Infrastructure Trust 

  • Presenters: Khor Un-Hun (CEO), Lionel Chua (CFO), Ms. Foo Chih Chi (Senior Investment Manager) 
  • Rating: NOT RATED  
  • Target price: NA 
  1. The company is enjoying very stable cashflows from the asset portfolio from long-term (some stretching up to 19 years) capacity-availability-based contracts. The variable portion of the fee stream is less than 10%.
  2. It has a net debt to EBITDA of 6.6x but most of the debt is in Australian asset Basslink, excluding which, net debt/EBITDA is just 1.6x, which is low for stable infrastructure assets. Management indicated that the balance sheet has headroom to take on additional debts of around SGD500m to pursue new acquisitions and hence assets in the ballpark of SGD1.5b (based on a typical 2/3:1/3 D/E structure seen for infrastructure assets).
  3. Good ROFR pipeline from sponsor. Management mentioned that competition for good infrastructure assets in the region has increased as pension funds are also looking for long-term stable cashflow.
  4. It’s open to greenfield asset developments too but this will be funded by its balance sheet and not new unit issuance as this would be dilutive for DPU during the gestation period to the start-up of the project.
  • The key concerns: Management hopes to see a favourable closure to the current dispute with Hydro Tasmania over the stalled payments for the period during the Basslink service outage (which the company states was caused by factors beyond its operational control).
  • Valuation: Not Rated. Based on Bloomberg data, consensus 12-month target price is SGD0.56 analyst Buy/Hold/Sell ratio of 2/0/0.

Raffles Medical (RFMD SP) 

  • Presenters: Ms. Goh Ann Nee (CFO), James Tan (Investor Relations) 
  • Rating: BUY 
  • Target Price: SGD1.70 
  1. Its Shanghai hospital is progressing according to plan and it’s expected to open in early 2019. Currently, piling works are being carried out and management is evaluating which contractors to use for constructing the hospital building. The potential in Shanghai is exciting, given the huge population and the high income level.
  2. Its Shenzhen hospital plan is still under discussion but it’s unlikely to have material development in the near term, due to the city’s proximity to Hong Kong, which has a developed healthcare system. However, discussions of building hospitals in other cities are ongoing.
  3. Restructuring of MCH acquired from International SOS will take time, as the business model is being expanded to serve the mass market from just its own members. The target is to grow the topline and manage staff costs to raise profitability.
  4. The Raffles Hospital extension is on track to open in late-2017. The current capacity utilisation remains efficient due to the tie up with the government under emergency collaboration care.
  • The key concerns: Manpower shortages, especially for nurses. Regulatory risks in China. Weaker medical tourism if the SGD strengthens against regional currencies.
  • Valuation: We have a DCF-based TP of SGD1.70 (WACC 7.1% and LTG 1.5%).

Sarine Technologies (SARINE SP) 

  • Presenters: Mr. Daniel B. Glinert (Chairman), Mr. Bill Kessler (CFO), Mr. Lee Teong Sang (Cyrus Capital Consulting) 
  • Rating: NOT RATED 
  • Target Price: NA 
  1. Management’s overall tone was optimistic during the meetings.
  2. Management expects recurring revenue stream to increase in the long term, with a target for recurring income to be above 50% of total revenue.
  3. Management is positive on the take-up rate for Sarine Profile, which is now gaining traction from retailers for the Asia Pacific market.
  4. Management expects the US market to gain traction over time, although it still expects that to be slower than in the Asia Pacific.
  5. Management will focus on the polished diamond segment for future growth. Clarity (one of the 4Cs) is currently evaluated almost manually and subjectively in the polished diamond space. Its new Clarity grading technology will automate the process, and management expects this technology to be a major catalyst in driving earnings growth over the next few years. 
  6. Management said it can either work with existing gem labs such as GIA, or compete with gem labs. However, competing with gem labs may take longer and would require more marketing and advertising spending to gain consumer traction. Management expects topline growth to double in 6-7 years time if commerciality for the Clarity grading technology comes through.
  • The key concerns: Greater earnings visibility needs to be seen for the Clarity grading technology.
  • Valuation: Not Rated. Based on Bloomberg data, consensus 12-month target price is SGD1.96 with analyst Buy/Hold/Sell ratio of 1/2/0.

Singapore Medical Group 

  • Presenter name & designation: Dr Beng Teck Liang, CEO 
  • Rating: BUY 
  • Target Price: SGD0.67 
  1. It’s pursuing a strategy to acquire promising doctors and medical groups when they are undervalued and give them equity in the listed company.
  2. Management expects revenue growth to be accompanied by margin expansion in the next few years.
  3. The company does not expect competition to derail its growth strategy as the trend of government doctors leaving the public service to form a competing organisation is absent.
  • The key concerns: Dr Beng is in charge of deal origination and already has a strong team to take care of follow-up and execution, but needs more. The company will be looking to hire a deputy CEO at some point.
  • Valuation: Our TP is derived from 27x FY12/18 earnings, pegged to the 2-year forward P/E mean of small-cap healthcare peers in Singapore.

Singapore Post 

  • Presenters: Mervyn Lim (Group CFO and Acting Group CEO), Jason Lim (Assistant Vice President, Investor Relations) 
  • Rating: HOLD 
  • Target Price: SGD1.34 
  1. Loss-making US e-commerce business, Trade Global, is going through restructuring under the new CEO Paul Demirdjian. He has a good track record in building up Jagged Peak and running an asset-light business model. Possible improvements for Trade Global include more automation to reduce reliance on labour and charging discriminatory pricing to customers based on season and volume. The amount of asset impairment will be determined in 4Q17 results.
  2. To differentiate itself in the competitive logistics industry, SingPost intends to offer more extensively a hybrid solution to its clients; this will enable its clients to choose between postal or commercial delivery in different markets.
  3. The refurbishment of the Singapore Post Centre Mall will be completed around Aug-17. Three anchor tenants have been secured to pull in the crowds; these tenants include a cinema, a supermarket and a food court. There is no rush to unlock the value of this asset in the near term given the depressed property market.
  • The key concerns: Competition in the e-commerce logistics industry, such as its recent tie up between Alibaba and Malaysia to set up a regional logistics hub near Malaysia’s airport. The continued decline in traditional mail has not bottomed out yet. Turnaround of loss-making Trade Global might not materialise and this could continue to drag earnings.
  • Valuation: We have a DCF-based TP of SGD1.34 (WACC 7.6% and LTG 1%).

ST Engineering 

  • Presenters: Ms Elena Tan (CFO), Ms Lina Poa (Senior Vice President) 
  • Rating: HOLD 
  • Target price: SGD3.17 
  1. The US aerospace facilities are key to having a global network and the third-party holistic service offering has been a competitive advantage.
  2. Meanwhile, the US marine assets are strategic as they can build vessels to ply domestic waters. That said, it will not commit to keeping any specific assets and it will constantly evaluate divestments (similar to the recent restructuring of the China Land Systems business).
  3. Increase in US defense and infrastructure spending should be positive for the company. Also, management believes that the STE can play a bigger role in Singapore government contracts and initiatives outside of the defense-related sphere.
  4. In electronics, management sees opportunities in Smart City solutions, which it is working on in markets like Canada and can roll out in other markets. Other interesting projects being worked on is robotics-based baggage handling for the Singapore Civil Aviation Authorities. In aerospace, it is optimistic about the Airbus 330 family passenger-tofreighter conversion potential given the size of the fleet in service.
  5. Customers for the first few aircraft are DHL and Egypt Air. The marine business is still tough and it’s expected to remain so in 2017.
  • The key concerns: Intensifying price competition in aerospace driven by smaller players struggling with excess capacity. Structural threat from aircraft OEMs encroaching further into the MRO space.
  • Valuation: TP of SGD3.17 is based on 18x FY17 EPS, 0.5SD below 5-year mean to reflect soft near-term demand.


  • Presenters: Tan Tong Hai (CEO), Ms. Jeannie Ong (Chief Strategic Partnerships Officer.
  • Rating: SELL 
  • Target Price: SGD2.49 
  1. It plans to drive revenue contribution from the Enterprise Fixed and Mobile businesses to 75% from 68% now. These two businesses have the highest margins.
  2. StarHub expects the decline in Pay-TV revenue to continue.
  3. Management will focus on maintaining margins by managing content costs.
  4. The company is keen on collaborating with M1 to reduce operating costs and capex through network sharing. StarHub does not expect this collaboration to be threatened by any changes in ownership of M1.
  5. StarHub has no plans to acquire M1. It would prefer to achieve the same goals through collaboration. However, StarHub’s CEO believes the regulator will be open to the idea as long as consumer interests are protected.
  • The key concerns: The need to stay ahead of the competition, to the extent of always assuming the worst-case scenario as the default scenario. For example, assume TPG will enter the market ahead of the scheduled 2018.
  • Valuation: TP based on DCF (WACC 5.5%, LTG 0.5%).

Viva Industrial Trust 

  • Presenters: Wilson Ang (CEO), Frank Ng (Head of IR and Investment), Ms. Lyn Ong (IR Manager) 
  • Rating: NOT RATED 
  • Target Price: SGD2.49 
  1. It is mindful the government aims to maximise efficiency in the use of industrial space and hence AEI plans and lease extension will need to consider these factors.
  2. The industry appears to have turned the corner as manufacturers that are focused on high-volume, lower-mix manufacturing have shifted operations out of Singapore. There are enquiries from electronic tenants and new demand from telcos and precision engineering companies, eg, Pegatron (Taiwan).
  3. It target is to reduce gearing to 35% from 39% currently.
  4. There is market talk of consolidation amongst the smaller listed players given common controlling shareholders. There will be benefits from lower borrowing costs.
  • The key concerns: The overall macro uncertainties as overall industrial demand is still soft.
  • Valuation: Not Rated. Based on Bloomberg data, consensus 12-month target price is SGD0.85 with analyst Buy/Hold/Sell ratio of 3/0/0.

Neel Sinha Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-03-24
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.170 Same 3.170
HOLD Maintain HOLD 1.340 Same 1.340
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 2.490 Same 2.490
BUY Maintain BUY 2.340 Same 2.340
BUY Maintain BUY 1.810 Same 1.810
BUY Maintain BUY 1.700 Same 1.700
BUY Maintain BUY 0.670 Same 0.670