Singapore Stock Alpha Picks (Nov 2020) - UOB Kay Hian 2020-11-04: Adding In Venture Corp & Ascendas REIT

Singapore Stock Alpha Picks - UOB Kay Hian Research | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) COMFORTDELGRO CORPORATION LTD (SGX:C52) DBS GROUP HOLDINGS LTD (SGX:D05) FOOD EMPIRE HOLDINGS LIMITED (SGX:F03) FAR EAST HOSPITALITY TRUST (SGX:Q5T) FRENCKEN GROUP LIMITED (SGX:E28) JAPFA LTD. (SGX:UD2) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) VENTURE CORPORATION LIMITED (SGX:V03) WILMAR INTERNATIONAL LIMITED (SGX:F34) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Singapore Stock Alpha Picks (Nov 2020) - Adding In Venture Corp & Ascendas REIT




Reviewing our SG alpha picks in October.

  • Our portfolio recorded a 3.0% m-o-m decline vs the FSSTI’s retreat of 1.7% m-o-m. The hardest hit within our portfolio were CapitaLand Mall Trust (-10.4% m-o-m), Wilmar (-8.2% m-o-m) and Yangzijiang Shipbuilding (-7.1% m-o-m).
  • Notable outperformers include Japfa (+7.5% m-o-m) which reported stronger-than-expected 3Q20 results.

Remove Singtel, add Venture Corp.

  • While we retain our BUY rating on SingTel, we remove the stock from our portfolio given the risk of higher-than-expected impairments in the near term.
  • In its place, we add Venture Corp (SGX:V03) which we believe deserves to trade at higher valuation multiples, given its clients’ better earnings prospects, sustainable dividend yield of 3.9% and outperformance vs peers, with net margin of about 10% even during the challenging environment in 1H20. Consensus revenue forecasts for its clients show expectations of a strong recovery in 2021, to levels comparable or higher than 2019’s for key clients in its Test & Measurement (+4.2% y-o-y) and Life Sciences/Medical (+18.8% y-o-y) domains.

Switch out of CapitaLand Mall Trust for Ascendas REIT.



SG Stocks Alpha Picks for November 2020.



Ascendas REIT (SGX:A17U) – BUY (Jonathan Koh/ Peihao Loke)


Portfolio occupancy edged higher by 0.4ppt q-o-q to 91.9% in 3Q20.

  • Singapore occupancy improved 0.9ppt q-o-q to 88.8% due to higher occupancies at Cintech II and 40 Penjuru Lane. Occupancies in the UK and US were stable at 97.5% and 92% respectively.
  • Occupancy for Australia eased slightly by 0.9ppt to 97.5% due to non-renewal at 92 Sandstone Place at Brisbane.

Management maintains guidance of positive low single-digit rental reversion for 2020.

  • Rental reversion swung from a positive 4.3% in 2Q20 to a negative 2.3% in 3Q20.
    • In Singapore, its business & science parks segment registered a positive reversion of 4.5%. Overall 3Q20 rental reversion for Singapore was a negative 2.8% due to its high-specification industrial (-3.3%) and logistics & distribution centres (-16.2%) segments.
    • In the US, Ascendas REIT’s business park properties achieved positive rental reversion of 11.5%. That being said, on a ytd basis, rental reversion is a positive 4.2%.
  • Further, management has maintained guidance of positive low single-digit rental reversion for 2020.

Overseas properties more resilient.


Ascendas REIT share price catalysts



Venture Corp (SGX:V03) – BUY (John Cheong & Joohijit Kaur)


Expect sequential earnings recovery.

  • We expect Venture Corp to report 3Q20 and 2H20 net profit of S$78m (+11% q-o-q, -8.5% y-o-y) and S$165m (+26% h-o-h, -9.3% y-o-y), respectively. The q-o-q recovery would be led by a gradual reopening of markets since Apr 20 and the group working to fulfil orders from other technology domains serving non-essential end markets. This mirrors Venture Corp’s clients’ results of a sequential recovery for this quarter and short-term guidance of continued sales momentum going into 4Q20.

Consensus revenue forecasts suggest strong recovery for some of Venture’s clients in 2021.

  • Consensus revenue forecasts show expectations of a strong recovery in 2021, to levels comparable or higher than 2019’s for key clients in its Test & Measurement (+4.2% y-o-y) and Life Sciences/Medical (+18.8% y-o-y) domains. We estimate these domains (including contribution from “I quit ordinary smoking” (IQOS) device) form more than 50% of Venture Corp’s revenue.
  • Other domains that we think Venture Corp could see more traction include semiconductor-related equipment and networking & communications.

Strong balance sheet and good dividends provide share price downside.


Venture Corp share price catalysts



Wilmar International (SGX:F34) – BUY (Leow Huey Chuen & Jacquelyn Yow)


Optimistic earnings outlook for 4Q20 and 1Q21.

  • After posting record-high 3Q profit, Wilmar is likely to deliver another strong set of results in 4Q20. The key supports are still the strong recovery in sales of medium pack and bulk, as well as good oilseeds crushing and margins. The other two major segments, ie tropical oils and sugar, may see flattish contribution as the pick-up in sales volume may offset by lower margins, while the sugar segment is likely to post one of the best performances in 2020 as margins are strongly supported by the good white sugar premium.

Special dividend and final dividend to give combined dividend yield of 3.7%.

  • Besides the ~6.5 S cents special dividend from the listing proceeds of Yihai Kerry Arawana (YKA) in China, Wilmar is likely to announce a final dividend of not less than 9.5 S cents/share in the coming full-year results announcement in Feb 21. A total DPS of at least 16 S cents will translate into a reasonable good dividend yield of 3.7% based on the closing price of S$4.30 on 3 November. See Wilmar's dividend history.

Huge holding company discount not justified.


Wilmar share price catalysts



Yangzijiang Shipbuilding (SGX:BS6) – BUY (Adrian Loh)


Continuation of proven strategy.

  • News reports indicate that Yangzijiang Shipbuilding may be close to buying a half-finished 300,000dwt very large crude carrier (VLCC) from troubled HNA-owned Jinhai yard, and then finishing off the vessel and selling it. This would mirror a very profitable Suezmax deal that the company carried out in 2Q20.
  • During its 1H20 results call, Yangzijiang Shipbuilding said that this refurbish-to-sell strategy will be a continuing one for the future given the large number of uncompleted vessels in China.

Ytd order wins total US$714m

  • Ytd order wins total US$714m, which exclude the value of options in hand that total US$1.3b. Our current estimate for Yangzijiang Shipbuilding to win US$1b of orders in 2020 remains unchanged.

Maintain BUY and target price of S$1.17.


Yangzijiang Shipbuilding share price catalysts



Food Empire (SGX:F03) – BUY (Joohijit Kaur & Clement Ho)


Worst likely over in core markets.

  • Although some of Food Empire’s core markets in Eastern Europe are under a partial lockdown, the restrictions are much less stringent compared with Mar-Apr 20, and have been gradually eased since May-Jun 20. The gradual resumption of activities in these markets is evident in the improvement in the country’s retail sales, including the group’s largest contributors in the region - Russia (retail food sales: Jul 20: - 2.2% y-o-y, Apr 20: -9.2% y-o-y) and Ukraine (retail trade turnover: Jul 20: +7.8% y-o-y, Apr 20: - 11.6% y-o-y). Mirroring this, management shared that its business in Russia - the group’s largest revenue contributor - has reached to more than 90% of pre-COVID-19 levels while its sales in Vietnam is gradually reverting to pre-COVID-19 levels.
  • Post results, we have revised our forecast to a more marginal earnings decline of 2.4% in 2020 before resuming growth of 9.6% in 2021.

Resilient product offering and strong brand equity.

  • Given the low price, relatively inelastic and consumer-staple nature of its products, Food Empire is likely to be more resilient and sheltered from an economic slowdown, in our view. A
  • dditionally, we highlight that in spite of the weaker ruble against the US dollar, the group has managed to mitigate some of the adverse impact on bottom-line through gradual increases in ASP, which helped to boost gross margin in 2Q20 by 1.4ppt. We are encouraged by Food Empire’s ability to pass on cost and report a decent set of 2Q20 results amid the lockdown, which we believe is testament of its strong brand equity in its core markets that has been developed over many years.

Compelling valuation.


Food Empire share price catalysts



Frencken Group (SGX:E28) – BUY (Clement Ho)


1H20 issues now resolved.

  • Frencken's internal supply chain issues, reflected in 1H20 financials, due to lockdown measures carried out across the globe, are now largely resolved. Management has indicated that most clients have returned to normal production levels, and that the mechatronics division is back in full operations, working to fulfil some urgent deliveries to clients.

EUV lithography technology in stage of maturity.

  • Frencken’s decade-long investment in producing tools for Extreme Ultraviolet (EUV) lithography machines is finally gaining traction. Samsung will be using EUV lithography to build its newest batch of 10-nanometer 16Gb LPDDR5 memory modules, a signal that the technology is ripe for ramp-up and sustain Frencken’s growth in the semiconductor segment going forward.

Poised for recovery after healthy share price consolidation.


Frencken share price catalysts



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


Domestic consumption still key.

  • The Thai authorities are still aiming to boost domestic consumption, in spite of the potential political uncertainty. We note that the domestic tourism stimulus package as well as welfare support for locals and farm income have been well-supported by agriculture prices and boosted domestic consumption.

Vietnam recovers again.


Thai Beverage's share price catalysts



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


Remain optimistic on Singapore.

  • Taxi rides and fares have seen an encouraging uptrend, while we also note that taxis have largely maintained their market share of point-to-point rides despite the effects of the pandemic, a positive sign for continued demand in street hail rides.
  • Gradual ridership recovery still remains in play as Phase 3 reopening could further ease COVID-19 restrictions.

Upturn in Australia will be a positive.


ComfortDelGro share price catalysts



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


Paid while waiting for recovery.

  • The recovery in tourism is being threatened by a new wave of COVID-19 infections across Europe and the UK. Inbound travel continues to be impacted by closure of international borders. The timing of recovery is contingent on the development of effective vaccines and accurate rapid antigen tests. We expect a recovery in mid-21 and normalcy to return in 2H21.
  • Meanwhile, Far East Hospitality Trust (SGX:Q5T)’s master leases with its sponsor provide downside protection, and accounted for 72% of rental income from its hotels and serviced residences in 2019.

Getting ready for recovery in 2H21.

  • Far East Hospitality Trust plans to carry out AEI at The Elizabeth Hotel (renovations in main lobby, reception areas, lift lobbies, dinning outlets, function rooms, 156 superior & deluxe rooms, 100 premier rooms), Orchard Rendezvous Hotel (upgrading outdoor refreshment area) and Rendezvous Hotel Singapore (repainting to highlight decorative corbels). The Elizabeth Hotel will be closed for four months for AEI works once it is taken off from government contracts. Far East Hospitality Trust’s share of the capex is estimated at S$2m.

Sponsor aligns with unitholders’ interest.

  • Far East Hospitality Trust's manager’s fees declined 21.9% y-o-y in 3Q20 due to changes in the management fee structure. Base fee was reduced from 0.3% to 0.28% of deposited property from 1 Jan 20. Performance fee was changed from 4% of NPI to “4% of NPI or distributable income”, whichever is lower.

Steep reduction in finance expense.


Far East Hospitality Trust share price catalysts



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


Vietnam’s swine prices exceeded five-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’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 exceeded five-year high due to undersupply.


Japfa share price catalysts



DBS (SGX:D05) – BUY (Jonathan Koh)

  • Assuming the Monetary Authority of Singapore does not interfere with banks’ dividend policies, we expect DBS to provide DPS of S$1.08 for 2021 and S$1.32 for 2022, which represent dividend yields of 5.0% and 6.2% respectively. See DBS Dividend History.

Guidance for 2020.

  • DBS expects loan growth of 5%, driven by non-trade corporate loans in 2020. Total income is expected to be flat compared to last year. NIM is expected to be 1.60% for the full year. Management guided stable cost/income ratio at 43%. Management maintained its guidance on credit costs at S$3b-5b (80-130bp) cumulatively over two years.

Recovery in fee income.


DBS share price catalysts






Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-11-04
SGX Stock Analyst Report BUY MAINTAIN BUY 3.650 SAME 3.650
BUY MAINTAIN BUY 1.780 SAME 1.780
BUY MAINTAIN BUY 23.500 SAME 23.500
BUY MAINTAIN BUY 0.850 SAME 0.850
BUY MAINTAIN BUY 0.740 SAME 0.740
BUY MAINTAIN BUY 1.370 SAME 1.370
BUY MAINTAIN BUY 0.980 SAME 0.980
BUY MAINTAIN BUY 0.780 SAME 0.780
BUY MAINTAIN BUY 23.760 SAME 23.760
BUY MAINTAIN BUY 5.350 SAME 5.350
BUY MAINTAIN BUY 1.170 SAME 1.170



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