SHENG SIONG GROUP LTD (SGX:OV8)
JAPFA LTD. (SGX:UD2)
PROPNEX LIMITED (SGX:OYY)
FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)
PENGUIN INTERNATIONAL LIMITED (SGX:BTM)
Small Mid Cap Highlights - Assessing Impact Of COVID-19
- We highlight some of the small/mid cap companies under our coverage whose earnings would see a more significant impact from the COVID-19 outbreak, namely those in the F&B services and EMS sectors. Conversely, stocks that would see relatively minimal impact include PropNex, Penguin International and consumer staple names such as Japfa and Sheng Siong , in our view.
- Our top picks are Japfa (SGX:UD2) (2020F PE of 6.3x) PropNex (SGX:OYY) (2020F PE of 9.1x), Food Empire (SGX:F03) (2020F PE of 8.0x) and Penguin International (SGX:BTM) (2020F PE of 4.5x).
MAJOR IMPACT - F&B SERVICES SECTOR
- Singapore has recently put in place additional travel restrictions aimed at limiting the spread of COVID-19. In addition to the earlier ban on tourists from Mainland China, all new visitors with recent travel history to Iran, northern Italy and South Korea will not be allowed entry into or transit through Singapore.
- Needless to say, tourism related sectors such as the F&B are negatively impacted and are likely to take a significant hit in 2020. Tourism receipts for food & beverage reached S$1.8b for 9M19 of which China and South Korea contributed to approximately 12.2% and 3.6% respectively.
- Full-service restaurants located in malls that more dependent on tourist will be harder hit. Apart from a drop in sales, fixed overheads will further impact earnings of F&B services companies. The impact could however be partially absorbed by rental subsidies from landlords and budget relief measures.
- Jumbo has a total of nine outlets in China - Shanghai (6), Beijing (1), Xi’an(1) and Fuzhou (1) which collectively contributed to 18% of total revenue for FY19. The COVID-19 outbreak will further weaken the already loss-making operations in China, in our view.
- Famous with tourists, Jumbo Seafood Singapore contributed 64% of FY19 revenue while its Teochew outlets including full-service restaurants – Zui Yu Xuan & Chui Huay Lim – contributed 12%.
- We reduced our net profit estimates for FY20-22 to S$9.8m (-29.2%), S$12.9m (-11.9%) and S$13.8m (-10.7%) respectively as we lowered our revenue estimates by 14.5%, 5.3% and 4.8%. Our revenue estimates incorporate one quarter of decline in revenue for its China and Singapore operations, and flat growth for the rest of the year. We also downgraded our call to a HOLD with a lower target price of S$0.32, from S$0.44. See report: Jumbo Group - UOB Kay Hian 2020-02-13: Novel Coronavirus To Impact Earnings; Downgrade To HOLD.
- See Jumbo Group Share Price; Jumbo Group Target Price; Jumbo Group Analyst Reports; Jumbo Group Dividend History; Jumbo Group Announcements; Jumbo Group Latest News.
- We expect a decline in revenue from outlets in Macau (contributed to 8% in 2019) and Marina Bay Sands, Singapore which sees a high tourist footfall. Management shared that sales from both of the outlets have declined significantly and are expecting to see negative earnings impact in 2020.
- We made two rounds of earnings cuts. Prior to the full-year results announcement, we lowered our net profit estimates by 3.1%, 14.1% and 8.7% for FY19, FY20 and FY21. Concurrently, our target price was reduced to S$0.83, from S$0.95.
- We further lowered our estimate post the results briefing, by 2% and 10% for 2020 and 2021. Our target price was reduced to S$0.81. See report: Koufu Group - UOB Kay Hian 2020-03-03: 4Q19 Results In Line; Temporary Challenges From COVID-19.
- See Koufu Share Price; Koufu Target Price; Koufu Analyst Reports; Koufu Dividend History; Koufu Announcements; Koufu Latest News.
MAJOR IMPACT – ELECTRONIC MANUFACTURING SERVICES SECTOR
- SGX-listed EMS players with exposure to China would see an adverse impact from the near-term drop in production capacity, supply chain disruptions, delay in shipments and potentially weaker demand as the outbreak escalates in other countries.
- For the EMS players under our coverage, we believe companies such as Sunningdale Tech (SGX:BHQ) and Valuetronics would be more heavily impacted as its factories are mainly located in China with the former potentially seeing a more significant impact given its higher exposure to the automobile and consumer segments.
- National Bureau of Statistics (NBS) on 29 February reported that China’s manufacturing sector PMI stood at 53.7 in Feb 20, a decline from 50 in Jan 20. That said, it appears that production activities are recovering, given that 78.9% of the enterprises surveyed by purchasing managers in China had returned to work as of 25 Feb 20, of which 85.6% were large and medium-sized manufacturing enterprises.
- Manufacturing facilities in PRC include Chuzhou, Guangzhou, Shanghai, Suzhou, Tianjin and Zhongshan.
- Revenue from China and Hong Kong contributed to 32% of total revenue in 2019.
- We lowered our earnings estimates by 5.7% and 4.9% for 2020 and 2021 respectively as we factored in lower sales.
- We also reduced our target price to S$1.06, from S$1.13. See report: Sunningdale Tech - UOB Kay Hian 2020-03-02: 4Q19 Results Ahead Of Expectations, But Outlook Appears Challenging.
- See Sunningdale Tech Share Price; Sunningdale Tech Target Price; Sunningdale Tech Analyst Reports; Sunningdale Tech Dividend History; Sunningdale Tech Announcements; Sunningdale Tech Latest News.
- On 19 Feb 20, the group announced that its factories in China have resumed production this week. However, various measures implemented by the government in efforts to contain the COVID 19 outbreak will lead to a temporary drop in production capacity and delays in shipments, at least in the first quarter.
- We do however note that the first quarter of the calendar year (Valuetronics’ fiscal fourth quarter) typically contributes to a smaller degree of the group’s full-year earnings of approximately 23% due to the downtime during the Chinese New Year holidays.
- We reduced our FY20-22 net profit forecasts by 7.0%, 4.2% and 2.4% respectively as we assumed one full month of disruption.
- We also reduced our target price to S$0.85, from S$0.91. See report: Valuetronics - UOB Kay Hian 2020-02-21: Temporary Disruption From Covid-19 Outbreak Largely Priced In.
- See Valuetronics Share Price; Valuetronics Target Price; Valuetronics Analyst Reports; Valuetronics Dividend History; Valuetronics Announcements; Valuetronics Latest News.
INDIRECT IMPACT FROM EXPOSURE TO O&G SECTOR
- In 2019, 65% and 58% of the group’s revenue and EBIT came from O&G customers. This compares to 84% and 75% in 2015 as CSE has significantly built up its two-way radio communication business (which contributed 14% of total revenue in 2019) over the years. Furthermore, recurring income (brownfield and small greenfield projects) which relies more on O&G players’ operating expenditure (rather than CAPEX) forms more than 90% of its revenue. Thus, we do not think the impact would be as severe as that of 2015-16 where the group saw a 30% decline in revenue from O&G due to a significant reduction in greenfield orders.
- Indirect impact from the outbreak could however come in the form of a delay in greenfield projects secured and margin contraction.
- We raised our 2020 and 2021 net profit estimates up by 4.1% and 3.6% as we factor in a slightly higher orderbook. We also introduced our 2022 net profit forecast of S$31m.
- We raised our target price to S$0.72, from S$0.70. See report: CSE Global - UOB Kay Hian 2020-02-28: 4Q19 Slightly Ahead Of Expectations; Strong Order Backlog To Drive Growth.
- See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
- The collapse in oil prices following the failure in production quota talks between OPEC and Russia have led to a weaker ruble. The RUB against the dollar closed at 71.3 on 10 Mar, from an average of 65 for 2019. Our back of the envelope calculations indicates approximately 7% negative impact on earnings given a 10% weakness in the ruble, implying a 2020F PE of 8.6x at the current share price.
- We do note that prior to the collapse in oil price, the group shared in its results briefing that the COVID-19 outbreak is unlikely to have any direct or significant impact on its plans for the year.
- We made no changes to our estimates.
- We raised our target price to S$0.91, from S$0.89 as we factor in the appreciation of the USD against the SGD. See report: Food Empire - UOB Kay Hian 2020-02-26: 2019 Record-High Earnings; 194% Higher Dividend Signals Strong Confidence.
- See Food Empire Share Price; Food Empire Target Price; Food Empire Analyst Reports; Food Empire Dividend History; Food Empire Announcements; Food Empire Latest News.
MINIMAL IMPACT
- Japfa does not see a significant impact from COVID-19 on its business due to the nature of its business in supplying staple protein foods to its domestic markets.
- We raised our 2020-21 net profit forecasts by 35% and 31% respectively after raising our net profit forecasts for Japfa’s Vietnam swine segment and marginally for the China dairy segment on higher-than-expected ASPs which will lead to higher operating margins.
- We raised our target price to S$0.88, from S$0.80. See report: Japfa Ltd - UOB Kay Hian 2020-03-03: 4Q19 Strong Beat & Positive Outlook.
- See Japfa Share Price; Japfa Target Price; Japfa Analyst Reports; Japfa Dividend History; Japfa Announcements; Japfa Latest News.
- So far, impact has been limited, as the first two months of 2020 had been quieter with fewer launches due to the Chinese New Year. Training and development have also not been affected.
- While there were initially fewer attendees at its consumer seminars (during the peak of the Covid-19 outbreak), the crowds have returned since.
- We believe coronavirus stimulus (e.g. aggressive rate cuts) will more than offset the impact on home-buying (since these are long-term commitments).
- We raised our 2020-21 net profit forecasts by 5-11% on the back of lower operating overheads assumptions.
- We raised our target price to S$0.68, from S$0.62. See report: PropNex - UOB Kay Hian 2020-02-28: A Strong Finish To 2019.
- See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
- In the latest results briefing, management highlighted that the impact of COVID-19 apart from the short period of panic buying which has now stabilised, is the potential disruption to supply chains should the outbreak escalate. However, thus far, there has been no major disruption to supply chain products, with the exception of a few hygiene-related products and pork (due to African Swine Fever).
- We made changes to our estimates as we factored in a higher SFRS16 impact, adjusted our revenue psf forecast upward slightly and included additional income from the job support scheme, credit wage scheme and HDB rental waivers announced in the budget. We raise our 2020 and 2021 net profit estimates by 0.1% and 0.2%.
- We raised our target to S$1.32, from S$1.29.
- See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
- With resilient demand and a strong orderbook, we reckon the ongoing COVID-19 epidemic has little impact on Penguin.
- Penguin's shipbuilding portfolio is also more diversified compared to the past where it was highly concentrated in Africa and a single product. Since then, it has expanded into more new markets including Taiwan, Australia and Europe. In addition, it has added its product portfolio to include fire fighting ships, windfarm vessels and passenger ferries.
- We made no changes to our estimates. Penguin has a strong balance sheet with net cash of S$60m (54% of market cap) as of Dec 2019. See report: Penguin International Ltd - UOB Kay Hian 2020-02-26: 4Q19 Excellent Results To Round Off 2019, Weakness In Share Price Unfounded.
- See Penguin International Share Price; Penguin International Target Price; Penguin International Analyst Reports; Penguin International Dividend History; Penguin International Announcements; Penguin International Latest News.
- Although its China operations contributed to 54% of total revenue in 2019, its China factories operate at a lower utilisation compared to its plants in Singapore thus contributing to a smaller degree of bottom line at approximately 20%.
- We raised our 2021-22 net profit forecasts by 33.2-27.5% as we adjusted our gross margin assumption.
- We raised our target price to S$0.30, from S$0.295. See report: Fu Yu Corp - UOB Kay Hian 2020-02-26: 2019 Strong Results.
- See Fu Yu Share Price; Fu Yu Target Price; Fu Yu Analyst Reports; Fu Yu Dividend History; Fu Yu Announcements; Fu Yu Latest News.
John Cheong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-03-12
SGX Stock
Analyst Report
1.32
UP
1.290
0.880
SAME
0.880
0.680
SAME
0.680
0.920
SAME
0.920
0.850
SAME
0.850