Singapore Stock Alpha Picks (Aug 2020) - UOB Kay Hian 2020-08-05: Strong Beat; Adding In Thai Beverage

Singapore Stock Alpha Picks - UOB Kay Hian Research | SGinvestors.io CAPITALAND MALL TRUST (SGX:C38U) COMFORTDELGRO CORPORATION LTD (SGX:C52) CSE GLOBAL LTD (SGX:544) DBS GROUP HOLDINGS LTD (SGX:D05) FAR EAST HOSPITALITY TRUST (SGX:Q5T) JAPFA LTD. (SGX:UD2) KEPPEL CORPORATION LIMITED (SGX:BN4) RIVERSTONE HOLDINGS LIMITED (SGX:AP4) SINGTEL (SGX:Z74) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Singapore Stock Alpha Picks (Aug 2020) - Strong Beat; Adding In Thai Beverage




WHAT’S NEW



ACTION


Taking profit on Mapletree Industrial Trust and adding in Thai Beverage.

  • We remove Mapletree Industrial Trust to lock in gains of 35.3% since its inclusion into our portfolio. In its place, we add Thai Beverage which currently trades at an attractive valuation at 16.3x FY20F PE, slightly below -1SD to its 5-year mean PE of 20x.
  • We see resilient consumption volumes from its off-trade spirits segment, which could shelter the group from the full-blown effects of COVID-19 even if a subsequent round of stay-home measure materialises. We also highlight that industry data for Thailand Domestic Sales of white spirits was up +8.5% y-o-y in 3QFY20 (April-June quarter).


Thai Beverage (SGX:Y92) – BUY (Lucas Teng)


Spirits segment recovery remains a key support.

  • The spirits segment remains the largest segment for Thai Beverage (SGX:Y92). With its majority off-trade sales, the product offering is more resilient in nature, as it would be sheltered from the full effects, if there are subsequent lockdown measures.
  • Thai Beverage noted that Thailand spirits sales were up y-o-y in May 20, during its recent Annual Information Meeting. We also noted that industry data for Thailand Domestic Sales of White Spirits was up +8.5% y-o-y in 3QFY20 (April-June quarter)

V is for Vietnam.


Share Price Catalysts

  • Events: Recovery of volume consumption due to easing of stay-at-home measures.
  • Timeline: 3-6 months.


CapitaLand Mall Trust (SGX:C38U) – BUY (Jonathan Koh & Peihao Loke)

  • CapitaLand Mall Trust (SGX:C38U) reported DPU of 2.11 S cents, down 27.7% y-o-y but in line with our expectations. Distributable income of S$78.1m was lower by 27.5% y-o-y and included the release of S$23.2m or one-third of the taxable distribution of S$69.6m retained during 1Q20.

Tenant sales gaining momentum.

  • Management has maintained a cautious view due to the uncertain economic climate. Currently, 95% of CapitaLand Mall Trust’s tenants have resumed operations. The remaining 5% of tenants are to return to retail malls as more activities are permitted to resume operations. Tenant sales are gaining momentum although consumer sentiment remains cautious.

Steady recovery of shoppers’ traffic post-circuit breaker.

  • Shopper traffic and tenant sales in 2Q20 contracted 40.6% and 15.4% y-o-y respectively in 1H20 due to the nationwide Circuit Breaker, which lasted eight weeks (7 April to 1 June). However, shopper traffic has recovered steadily since the transition to Phase 2 of reopening (19 June to 5 July) to 53% of the level prevailing a year ago (downtown malls: 49%, suburban malls: 57%).

Flexible leasing to adapt to new operating environment.


Share Price Catalysts



ComfortDelGro (SGX:C52) – BUY (Lucas Teng)


Dismal 1H20 results should not be a surprise.

  • Given ComfortDelGro's guidance announcement for a net loss in 1H20, dismal results should not be a major surprise. Risks from the lockdown to Melbourne have also been largely factored in, even though public buses remain operational.

Ridership recovery in play.

  • The circuit breaker was lifted on 2 June, with Phase 1 of reopening taking place. Through the gradual return to workplace activities, land transport activities are likely to recover and the worst may be over in terms of ridership. Potential updates to the rail financing model by authorities to accommodate lower riderships in the near term would be a positive for the loss-making Downtown Line (DTL). Gradual easing of rental relief for Singapore Taxis is also in place, with a 40% rental waiver till mid-Aug 20.

Watching bus tenders.


Share Price Catalyst

  • Events: Faster-than-expected recovery in riderships from easing stay-home measures and bus tender contract wins.
  • Timeline: 3-6 months.


Riverstone (SGX:AP4) – BUY (Llelleythan Tan/John Cheong)


Demand for healthcare gloves remains strong as second wave of infections hit various countries.

  • For 2Q20, Riverstone (SGX:AP4)’s management highlighted that ASPs for healthcare gloves have risen as global demand continues to outpace supply. As more countries start to experience a second wave of COVID-19 infections, demand for healthcare gloves continues to increase and customers have offered to pay higher prices to secure inventories.
  • Healthcare glove ASP is expected to increase by around 10% every month up to Aug 20. ASP has not been fixed for Sep 20 but management expects ASP to be at least the same as in Aug 20. Also, the favourable ASP environment is expected to continue up to 1H21, based on customers’ strong indicative demand.

Positive surprise for ASP from new-tier pricing.


Share Price Catalyst



CSE Global (SGX:544) – BUY (Joohijit Kaur/ John Cheong)


Emergence of Heliconia as largest shareholder.

  • CSE Global (SGX:544) announced on 7 Jul 20 that Heliconia, a wholly-owned subsidiary of Temasek, has emerged as its largest shareholder after acquiring a 25% stake from Serba Dinamik. Apart from the strong institutional investor brand, we believe this puts CSE Global in a stronger position to expand its business, especially in smart city projects in Singapore, and also access to cheaper financing options.
  • Stronger orderbook backed by flow orders; increasingly diversified business gives the group a stronger footing than it did in previous crises. More than 90% of the group’s revenue comes from the flow business (brownfield or small green field projects) which are recurring in nature. Although the group has exposure to O&G (formed 65% of 2019 earnings), we do not expect a severe impact from the slump in oil prices given that the majority of revenue is recurring in nature, relying more on its customer’s opex rather than capex budget.
  • Additionally, following the O&G crisis in 2015-16, the group built up a radio communications business in Australia through a series of acquisitions as part of its business diversification plan and also pursued market share in the onshore O&G segment. We also highlight that the group ended 2019 with a backlog of S$307.3m, 60% higher compared to S$192.7m in 2015, putting the group in a better position.

Attractive 2020F dividend yield of 5.2%, backed by strong cash flow and balance sheet.


Share Price Catalyst

  • Events: Recovery in oil prices.
  • Timeline: 6-12 months.


Far East Hospitality Trust (SGX:Q5T) – BUY (Jonathan Koh & Peihao Loke)


Paid while waiting for recovery.

  • Inbound travel continues to be impacted by the closure of international borders. Timing of recovery for international travel is contingent on an effective vaccine, which is being developed across various countries. We expect a recovery to take place in mid-21 and normalcy to return in 2H21. Meanwhile, Far East Hospitality Trust (SGX:Q5T)’s master leases with its sponsor which runs till 2032 provide downside protection and accounted for 72% of rental income from its hotels and serviced residences (SR) in 2019. Management estimates that fixed rents provide a distribution yield of 4% based on current share price.

Prudent to retain 21.5% of distributable income in 1H20.

  • Management estimated the out-of-pocket rental waivers (net of property tax rebate and cash grants provided by the government) for retail and office tenants to be S$2m-3m. We have assumed that Far East Hospitality Trust will disburse S$3m of the S$5.5m retained in 4Q20. Our estimated payout ratio for 2020 is 95% (management intends to maintain payout at minimum of 90% of taxable income).

Staycation provides some reprieve.

  • The government has earmarked S$45m to promote staycations among Singaporeans. Far East Hospitality Trust will receive local guests on staycation at Oasia Downtown and Barracks Hotel in 2H20. The government will set up “green lane” arrangements with partner countries to provide the first wave of corporate travellers.

No refinancing risks.

  • Finance expenses declined 14.9% y-o-y due to repayment of revolving credit facilities and lower interest rates. The average cost of debt has further improved by 0.3ppt q-o-q to 2.5%. Aggregate leverage was stable at 39.2%. There are no term loans due for refinancing in 2020.

Maintain BUY.


Share Price Catalyst

  • Event: Green lanes, travel bubbles and staycation demand to provide some reprieve in 2H20.
  • Timeline: 6-12 months.


SingTel (SGX:Z74) – BUY (Lee Len Chong/Chloe Tan Jie Ying)


Earnings recovery in 2HFY21.

  • We expect the full impact of COVID-19 to translate by 1QFY21. SingTel (SGX:Z74) withdrew its FY21 guidance in view of the COVID-19-induced uncertainties. We expect consumer weakness to be reflected in 1QFY21 alongside pockets of cutbacks in enterprise business revenue. Thereafter, the opening of economies in the ASEAN region will provide for the gradual recovery in roaming revenue and sentiment.
  • SingTel's dividends.
  • Management will focus on preserving cash amid global uncertainties and will prepare to invest in 5G from FY22 onwards. As a result, we have cut our SingTel's FY21-22 net DPS to 12.25 S cents and 13.95 S cents respectively (~80% payout). This translates to a net dividend yield of 5.1% and 5.8%.

Tower sales.


Share Price Catalyst



Japfa (SGX:UD2) – BUY (John Cheong & Joohijit Kaur)


Vietnam’s swine prices have exceeded 5-year high due to ASF.

  • We believe the development of the African swine fever (ASF) in Vietnam is somewhat similar to that in China, where the number of affected cases will peak in the first six months and then start to fall. This is in line with Japfa (SGX:UD2)’s base-case scenario.
  • Also, we understand that the affected swine count is within Japfa’s expectation of < 25% of its total swine population. We estimate that on a net basis, the profitability of Japfa’s Vietnam swine segment should benefit as the spike in swine ASP should more than offset the volume decline.

China’s raw milk prices have exceeded 5-year high due to undersupply.


Share Price Catalyst



Keppel Corporation (SGX:BN4) – BUY (Adrian Loh)


Keppel’s 2Q20 results disappointed

  • Keppel Corporation's 2Q20 results disappointed us and the market due to its S$919m in impairments for the quarter which led to a net loss of S$698m. We highlight that excluding the impairment, its 2Q20 net profit of S$222m (+45% y-o-y) would have slightly exceeded our expectations. Despite the loss of S$537m for 1H20, Keppel Corporation elected to declare an interim dividend of S$0.03/share (1H19: S$0.08/share).

MAC clause triggered.

  • Keppel Corporation’s CEO stated that the 2Q20 loss has triggered the Material Adverse Change (MAC) clause but rightfully did not postulate as to whether Temasek would go ahead with the partial offer. In our view, Temasek has the right to waive the MAC clause, and we believe that it will continue with the partial offer albeit at a lower price given that Keppel Corporation’s end-1H20 P/NAV of nearly 1.3x is higher than the 1.2x at end- 3Q19 when the initial partial offer was announced.

Lower bid price likely.

  • Using a target P/B multiple of 1.1-1.2x, we estimate that Temasek’s lower bid may come in at S$6.29 to S$6.86. In our view, a revised offer from Temasek will only be made after 11 August which is the date for the concurrent EGMs for Sembcorp Industries (SGX:U96) and Sembcorp Marine (SGX:S51).

Maintain BUY recommendation


Share Price Catalyst



DBS (SGX:D05) – BUY (Jonathan Koh)


Weathering the COVID-19 pandemic.

  • We forecast net profit of S$1,079m for 2Q20, down 32.7% y-o-y and down 7.4% q-o-q. Operationally, total income receded 15.8% q-o-q from a record S$4,026m in 1Q20. This was partially mitigated by a reduction in operating expenses and moderations in credit costs (1Q20 affected by huge general provision of S$703m and exposure to Hin Leong of US$290m or S$415m).

Two years of elevated credit costs.

  • Management expects credit costs to rise to between S$3b-5b (80-130bp) cumulatively over two years. Management guided credit costs at 65bp each for 2020 and 2021. The new guidance factors in a deep and prolonged economic impact from the COVID-19 pandemic.

Dividend yield.

  • MAS imposed a cap on 2020 DPS based on 60% of 2019 DPS. The restriction is pre-emptive to ensure local banks are able to support a recovery in the real economy even if the adverse scenario of a prolonged public health crisis materialises. While there is no formal guidance, we have tentatively assumed that 2021 DPS would be 80% of 2019 DPS. DBS provides a dividend yield of 4.4% for 2020 and 4.6% for 2021.
  • See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.

Share Price Catalysts

  • Event:
    • Targeted fiscal measures from Singapore government will bring some relief to vulnerable industry sectors,
    • easing of social distancing measures will help to generate some recovery in domestic consumption, and
    • recovery in DPS in 2021.
  • Timeline: 6-12 months.





Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-05
SGX Stock Analyst Report BUY MAINTAIN BUY 2.550 SAME 2.550
BUY MAINTAIN BUY 1.820 SAME 1.820
BUY MAINTAIN BUY 0.650 SAME 0.650
BUY MAINTAIN BUY 23.120 SAME 23.120
BUY MAINTAIN BUY 0.620 SAME 0.620
BUY MAINTAIN BUY 0.980 SAME 0.980
BUY MAINTAIN BUY 7.100 SAME 7.100
BUY MAINTAIN BUY 6.000 SAME 6.000
BUY MAINTAIN BUY 2.800 SAME 2.800
BUY MAINTAIN BUY 0.780 SAME 0.780



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