Singapore Stock March 2022 Alpha Picks - UOB Kay Hian 2022-03-03: Switch Out Wilmar For Bumitama, Drop Lendlease REIT & Add CapitaLand Investment


Singapore Stock March 2022 Alpha Picks - Switch Out Wilmar For Bumitama, Drop Lendlease REIT & Add CapitaLand Investment

  • Our Alpha Picks rose 2.5% m-o-m on an equal-weight basis and outperformed the STI which fell marginally by 0.2%.
  • For Mar 22, we have switched out of Wilmar (SGX:F34) and into Bumitama Agri (SGX:P8Z) as we prefer the latter’s purer exposure to CPO prices as well as having solid production growth in 2022.
  • We cut our losses on Lendlease REIT (SGX:JYEU) and instead add CapitaLand Investment (SGX:9CI) as we foresee earnings growth from its lodging segment as well as its funds management segment.

A stronger February.

  • Our Alpha Picks portfolio reversed its recent bout of poor performance, up 2.5% for Feb 22, vs the STI which was relatively flat at -0.2% m-o-m. The broader market was hurt by weakness in financials and REITs while Aztech (SGX:8AZ) (+10.1% m-o-m), Yangzijiang (SGX:BS6) (+7.0%) and SingTel (SGX:Z74) (+3.7%) were the key outperformers in our portfolio. The only stock that fell during Feb 22 was OCBC (SGX:O39) (-6.4% m-o-m) which gave up most of its 9% m-o-m gain from Jan 22 as its 4Q21 and 2021 results were weaker than expected.
  • Making a switch in the plantation sector. For Mar 22, we take profit on Wilmar (SGX:F34) and instead have added Bumitama Agri (SGX:P8Z) on the back of its strong 2021 results which we expect to continue into 2022. We expect the company to benefit from higher forecast CPO prices as well as better production growth with management guiding for 5-10% growth.
  • We also add CapitaLand Investment (SGX:9CI) as we like it as a proxy to reopening, particularly in its lodging segment which we expect to drive earnings growth in 2022. In addition, the company has plans for a significant expansion of its private funds this year while continuing to convert its assets into funds under management and thus generate higher recurring fee-related earnings.
  • Last but not least, we cut our loss on Lendlease REIT (SGX:JYEU) as we see few catalysts for the stock in the near term.

Bumitama Agri (SGX:P8Z) – BUY (Leow Huey Chuen)

  • We expect earnings to continue performing. Being a pure upstream palm oil producer, Bumitama Agri (SGX:P8Z) will have high earnings leverage during the current high CPO price environment. In addition, management also has reassured the market that BAL has not entered into any forward sales since 1H21, thus giving it full exposure to the high prevailing CPO prices.
  • FFB production growth for 2022. For 2022, management guided for a 5-10% y-o-y nucleus FFB production growth with the production pattern having normalised recently. CPO production is expected to deliver a higher 17% y-o-y growth as we expect Bumitama Agri to increase its third-party FFB purchases in view of the expectation of higher production from Indonesia in 2022, as a result of the good rainfall over the past two years. Higher utilisation rate at its mills will enhance its milling margin as well.
  • Post 2021, we upgraded earnings forecasts by around 35% for 2022, factoring in higher CPO price assumption of RM4,200/tonne. Our net profit forecasts for 2022-24F net profit are at Rp2.30t, Rp1.80t and Rp1.97t respectively. Maintain BUY call on Bumitama Agri with a target price of S$0.85 based on 7x 2022F P/E. As cash flow improves with a significantly lower gearing, we expect Bumitama Agri to potentially announce a higher-than-expected dividend in the coming quarter.
  • Share price catalysts:
    • Events:
      • Strength/stability in CPO prices,
      • evidence of > 15% production growth at its 1Q22 business update, and
      • better-than-expected dividends.
    • Timeline: 3-6 months.
  • Recent report: Bumitama Agri - UOB Kay Hian 2022-03-01: 2H21 Results Above Expectations.
  • See also

CapitaLand Investment (SGX:9CI) – BUY (Adrian Loh)

Aztech (SGX:8AZ) – BUY (John Cheong)

  • Recent share price correction presents good buying opportunity. Aztech's share price has corrected by more than 30% since its IPO in Mar 21, with the majority of its correction taking place in the last two months of 2021 due to concerns over component shortages and fear over labour issues.
  • Operations remain intact. We understand that Aztech (SGX:8AZ)’s facilities are currently enjoying high utilisation rates and it is managing the components shortages well on the back of:
    1. leveraging the strong brand name of customers,
    2. maintaining its good long-term relationship with suppliers, and
    3. modifying the product designs to switch reliance to parts that are more readily available.
  • Optimistic on 2022 business outlook, backed by robust orderbook. Aztech is optimistic on its 2022 business outlook as it expects its operations to benefit from:
    • healthy global demand for IoT and data communication products,
    • improving vaccination rates against COVID-19.
  • To date, 98% of Aztech’s employees in China had been fully vaccinated and 46% have received their third dose. In Malaysia, its manufacturing facility is back to operating at 100% workforce after achieving a plant-wide vaccination rate of 100% with close to 17% of eligible workforce being vaccinated with the third dose, and Aztech recorded a robust orderbook of S$762m as at 22 Feb 22, which is 22% higher than its 2021 revenue, indicating a strong revenue growth for 2022.
  • Attractive valuation. Trading at 7x 2022F P/E, we opine this is unjustified as peers are trading at above 10x. We continue to like Aztech as it is a proxy to high-growth IoT products, where we believe orders are just starting to ramp up in 2021 and would sustain into 2022. Maintain BUY. Target price S$1.55.
  • Share Price Catalysts
    • Events: More order wins, better-than-expected cost management, and earnings or dividend surprise.
    • Timeline: 2-6 months.
  • Recent report: Aztech Global - UOB Kay Hian 2022-02-23: 2021 Results In Line, Robust Orderbook Indicates Strong Growth For 2022.
  • See also

Thai Beverage (SGX:Y92) – BUY (Llelleythan Tan)

  • Restart of international travel. Thailand has reopened its international borders to fully-vaccinated travellers from 1 Feb 22. This is after suspending its initial quarantine-free visa programme in Dec 21 for seven weeks. From 1 Feb 22, fully-vaccinated international travellers are able to enter Thailand quarantine-free upon a negative pre-departure/on-arrival PCR swab test. Thailand is also planning on bilateral travel arrangements with neighbouring countries such as Thailand and China.
  • Pent-up tourism demand. Tourism data from Thailand’s authorities showed a sharp surge in tourist arrivals due to the quarantine-free programme in Dec 21. Total number of international arrivals in Dec 21 came in at 230,497, a sharp increase from 91,255 in Nov 21 and 20,272 in Oct 21. Jan 22 international arrivals softened to 133,903 due to the brief suspension of the quarantine-free programme caused by domestic Omicron outbreaks. However, 200,000-300,000 international travellers are forecast for Feb 22, and this is expected increase further in Mar 22.
  • Relaxation of alcohol consumption rules. As of 24 Jan 22, restaurants across a number of Thailand’s “blue zone” provinces are now allowed to serve alcohol till 11pm (vs 9pm previously). Blue zones include popular tourist destinations such as Bangkok and Phuket. Although bars, nightclubs and other entertainment venues are not legally allowed to open, Thailand’s authorities have allowed these entertainment venues to temporarily reopen as restaurants, allowing the sale of alcohol but only after meeting strict COVID-19 guidelines.
  • Unlocking value through BeerCo IPO. We believe that the potential Singapore IPO of Thai Beverage (SGX:Y92)’s beer business may unlock value for the group in 1H22. Conservatively, we value the beer business at roughly US$5b using 13x 2022 EBITDA, which is relatively small compared to Tsingtao Brewery Company (US$16b), Budweiser Brewing Company APAC (US$35b) and Asahi Group Holdings (US$21b). Maintain BUY call on Thai Beverage, with target price of S$0.90.
  • Share Price Catalyst:
    • Events: BeerCo IPO, and resumption of international tourism.
    • Timeline: 6+ months.
  • Recent report: Thai Beverage 1QFY22 - Solid Results; Recovery Has Just Started.
  • See

OCBC (SGX:O39) – BUY (Jonathan Koh)

  • Three-year strategy refresh. OCBC (SGX:O39) plans to tap on four growth drivers:
    1. rising wealth in Asia through hubs in Singapore and Hong Kong,
    2. ASEAN-China trade and investment flows,
    3. new economy and high-growth industries, and
    4. transition to a sustainable low carbon world.
  • It will invest to strengthen its comprehensive regional franchise and accelerate digital transformation. Management aims to achieve growth at CAGR of above 10%.
  • Guidance for 2022. Management guided mid-to-high single-digit loan growth for 2022. NIM is expected to be stable at 1.50-1.55%. Credit costs are expected to be 22-25bp (2021: 29bp). Management estimated that every 100bp increase in local interest rates will lead to NIM expansion of 18bp.
  • Maintain BUY. Our target price of S$15.82 for OCBC is based on 1.24x 2022F P/B, derived from the Gordon Growth Model (ROE: 9.9%, COE: 8.0%, growth: 0.2%). In our view, its 2022 P/B is very inexpensive at 1.0x.
  • Share price catalyst
    • Events: OCBC’s dividend yield improving from 4.8% for 2022 to 5.2% for 2022, and OCBC expected to benefit from NIM expansion in 2H22.
    • Timeline: 6-12 months.
  • Recent report: OCBC Bank 4Q21 - UOB Kay Hian 2022-02-24: Downside Cushioned By Depressed Valuations.
  • See also

Sembcorp Marine (SGX:S51) – BUY (Adrian Loh)

BRC Asia (SGX:BEC) – BUY (Llelleythan Tan/John Cheong)

  • Endemic transition to improve labour supply. With Singapore’s fully vaccinated rate reaching 95%, Singapore’s transition to endemic living would help boost worksite activity as more construction workers return in the absence of lockdown restrictions.
  • Proxy to Singapore's reopening. In spite of the ongoing COVID-19 pandemic, BRC Asia (SGX:BEC) has maintained its monopolistic market share, which has allowed its orderbook to grow steadily to S$1.3b. BRC Asia is set to benefit from the recovery in the construction sector and major upcoming projects including the new Tuas Megaport, Changi Airport Terminal 5, Greater Southern Waterfront, which would help to raise earnings.
  • Government spending to spur demand. Singapore’s government passed an infrastructure bill which allowed the government to borrow S$90b in bonds to fund national infrastructure projects and upgrades. With its dominant market share, BRC Asia would benefit as close to 90% of its total annual revenue is derived from Singapore.
  • Maintain BUY with a target price of S$2.02. We opine that the full reopening of Singapore's international borders to foreign labour would cause a higher re-rating to our share price.
  • Share Price Catalysts
    • Events:
      • Faster-than-expected recovery in construction activities,
      • more public housing projects awarded, and
      • full relaxation of foreign labour restrictions.
    • Timeline: 3-6 months.
  • Recent report: BRC Asia - UOB Kay Hian 2022-02-16: 1QFY22 Excellent Quarter As Demand For Construction Heats Up.
  • See

Civmec (SGX:P9D) – BUY (John Cheong)

  • One of Australia’s leading construction and engineering services provider to three key sectors: defence, resources and energy. Civmec’s notable clients include Chevron, Rio Tinto, Alcoa Australia, BHP, Thyssenkrupp and the Royal Australian Navy.
  • We expect Civmec to deliver record earnings (+18% y-o-y) in FY22 (fiscal year ending June), backed by a robust orderbook of A$1b. This is almost double its orderbook of A$0.6b in FY17. In FY21, Civmec (SGX:P9D) delivered a strong earnings growth of 94% y-o-y. Civmec’s 1QFY22 earnings grew 62% y-o-y, and the company sees a strong pipeline of new projects in the sectors it operates in. It also sees new opportunities in the green energy space.
  • Massive potential in new defence business underappreciated. In Apr 18, the Royal Australian Navy awarded a huge contract to Civmec and Lurssen Shipyard to construct 12 Offshore Patrol Vessels by 2029. The contract is worth around A$3b and is part of the country’s A$89b continuous shipbuilding contract.
  • We have a BUY rating and target price of S$0.98, pegged to 12x FY22F P/E (1 standard deviation below its five-year mean). We think the current valuation of 9x FY22F P/E for Civmec is attractive, given its strong growth profile and orderbook, especially in the defence sector which has a long tenure and high barriers to entry. Peers are trading at 15x FY22F P/E.
  • Share Price Catalysts
    • Events:
      • Earnings surprise due to higher-than-expected contract wins and margin,
      • better-than-expected dividend, and
      • takeover offer by strategic shareholder given the high entry barriers of the defence business.
    • Timeline: 3-6 months.
  • Recent report: Civmec - UOB Kay Hian 2022-03-04: Laggard To Commodity & Defence Peers Despite Having Good Sector Exposure.
  • See also

Ascott Residence Trust (SGX:HMN) – BUY (Jonathan Koh)

  • The sixth consecutive quarter of sequential recovery. RevPAU maintained an upward trajectory and increased 78% y-o-y and 24% q-o-q to S$87 in 4Q21, powered by higher occupancy (which improved from 50% to 60% on a portfolio basis) and higher average daily rate. Countries with large domestic markets, such as the US, the UK and Australia, registered the strongest recovery. France and Japan also registered healthy growth in 2H21.
  • Value creation through asset recycling. Ascott Residence Trust (SGX:HMN) divested six properties at an average exit yield of 2% and total proceeds of S$580m. The capital freed up was reinvested in 11 yield accretive rental housing and student accommodation properties for total consideration of S$780m and an average EBITDA yield of 5%. Ascott Residence Trust’s longer-stay assets currently account for 16% of assets under management (AUM). Occupancy for its student accommodation properties was close to 100%.
  • Setting sights on a higher goal. Management plans to raise the asset allocation target in longer-stay assets by 10ppt from 15-20% to 25-30% in the medium term.
  • Re-iterate BUY. Our target price of S$1.29 is based on DDM (cost of equity: 6.5% and terminal growth of 1.8%).
  • Share Price Catalysts
    • Events: Easing of travel restrictions and re-opening of borders globally, and yield-accretive acquisitions in the student accommodation and rental-housing space.
    • Timeline: 6-12 months.
  • See

SingTel (SGX:Z74) – BUY (Chong Lee Len & Chloe Tan)

  • Monetisation of Optus tower asset for A$1.9b. Optus’ sale of a 70% stake in Australia Tower Network (ATN – a wholly-owned subsidiary that houses Optus’ towers) to AustralianSuper for A$1.9b values ATN at 38x FY21 EV/EBITDA, or EV/sites of around A$1m/tower. This is a premium vs Telstra’s recent tower sales and appealing vs traditional telco multiples of 8-12x EV/EBITDA, with the premium being reflective of the loss of control by Optus (which will retain only a 30% minority stake post divestment).
  • The endgame: A regional digital infra player. Beyond unlocking value, the long-term goals for SingTel (SGX:Z74) are to:
    1. drive organic growth through strong management,
    2. partner with capital providers to expand regionally, and
    3. focus on smart capital management to potentially explore JVs.
  • This will allow them to set a regional digital infrastructure platform across multiple asset classes.
  • Positive monetisation exercise by Singtel. We are positive on the monetisation exercise to drive future data centre portfolio worth S$7b-8b. To recap, SingTel will continue to execute its strategic reset targets, following the repositioning of Amobee and Trustwave in May 21 and its digital infrastructure strategy. The focus will include:
    1. capitalising the digital/IT growth trend via strategic partnerships,
    2. leveraging its infrastructure assets (data centres, towers and fibre) to unlock value,
    3. sweating its key assets, and
    4. investing in 5G for network superiority and future monetisation.
  • This is expected to help SingTel bridge the current market valuation gap as a conglomerate.
  • Maintain BUY with a DCF-based target price of S$2.75 (discount rate: 7%, growth rate: 1.5%). At our target price, SingTel will trade at 13x FY22F EV/EBITDA (5-year mean EV/EBITDA). The stock currently trades at 1 standard deviation below its five-year mean EV/EBITDA of 13x.
  • Share Price Catalysts
    • Events: Successful monetisation of 5G, and faster-than-expected recovery in Optus’ consumer and enterprise businesses.
    • Timeline: 6-12 months.
  • Recent report: SingTel - UOB Kay Hian 2022-02-16: 3QFY22 Earnings In Line; Expect Stronger Footing.
  • See

Genting Singapore (SGX:G13) – BUY (Vincent Khoo, Jack Goh)

  • Market will eventually price in 2022-2023 recovery. Genting Singapore (SGX:G13) is a major direct beneficiary of Singapore’s COVID-19 national vaccination programme and reopening of the economy. We believe that valuations will partially factor in Genting Singapore’s return to pre-pandemic earnings dynamics. We have a BUY rating on Genting Singapore with a target price of S$1.08 which implies a 2022E EV/EBITDA of 8.8x, or -0.5 standard deviation to its historical mean.
  • Relaxation of SOPs and VTL initiations a symbolic step towards normalcy restoration. While Singapore has transitioned to its COVID-19 Resilience Phase since Nov 21, the nation has further relaxed some of its cumbersome standard operating procedures (SOP) and RWS has been allowed to operate with higher gaming capacity since Dec 21. Singapore has also piloted quarantine-free vaccinated travel lanes (VTL) with > 20 countries, thus we expect more inbound travel in 1H22 which will eventually benefit GENS as international patronage rebounds.
  • Significantly better capital management moving forward. With Genting Singapore finally dropping its decade-long pursuit of clinching a pricey Japan integrated resort (IR) concession, and with no new compelling projects to consider, management is targeting to enhance capital management and to develop a dividend policy. Theoretically, the scope of Genting Singapore’s capital management can be significant, considering its net cash of S$3.3b (S$0.27/share) and that post-pandemic EBITDA is largely sufficient to fund its S$4.5b RWS 2.0 expansion.
  • Lush prospective yields. We expect Genting Singapore’s dividend yield to normalise to 4.7% in 2023, assuming revenue and cash flows recover back to pre-pandemic levels, and that Genting Singapore restores its 2019 dividend payout level of 4.0 cents.
  • Share Price Catalysts
    • Events:
      • Wide dispensation of COVID-19 vaccines which will allow herd immunity,
      • initiation of more Vaccinated Travel Lanes between Singapore and neighbouring countries, and
      • appealing 2023 yield of > 4%.
    • Timeline: 3-6 months.
  • Recent report: Genting Singapore - UOB Kay Hian 2022-02-18: 4Q21 Better Capital Management In Sight.
  • See

Frasers Logistics & Commercial Trust (SGX:BUOU) – BUY (Jonathan Koh)

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

  • Yangzijiang (YZJ) reported higher-than-expected results for 2021 with PATMI of RMB3.7b (+47% y-o-y) that was helped by forex hedging gains, reversals of impairments and higher interest income. The company declared an in-line dividend of S$0.05 which was slightly higher than the $0.045 in the year-ago period.
  • Shipbuilding margins appear to have troughed. Yangzijiang delivered 50 vessels during the course of 2021 (2020: 45 vessels) with 27 of these in 2H21. As expected, the company's shipbuilding margins fell h-o-h in 2H21 to 10.8% (1H21: 13.5%) due to progressive construction of ships with lower margins, exacerbated by higher steel prices and a stronger RMB vs US$. As these ships are completed and delivered over the course of 2022, we expect shipbuilding margins to expand towards the 13-15% region. Yangzijiang is targeting delivery of 60 ships in 2022 which should well underpin its earnings growth.
  • Spin off of YZJ Financial Holdings (YZJFH). Yangzijiang has applied for listing via introduction on the SGX Main Board and is targeting a valuation of RMB20b, ie book value of its investments business as at end-21. Once approved, Yangzijiang will then seek shareholders' approval for the distribution in specie (likely by end 1H22) wherein Yangzijiang shareholders will receive one YZJFH share for every Yangzijiang share it holds.
  • On the results call, Yangzijiang stated that it plans to transfer 25% of its assets, or RMB5b, out of China to Singapore and acquire a Capital Markets Services license for wealth and investment management with the ultimate aim of managing its own as well as third-party funds. Although 80% of its investments are currently in debt and private equity, Yangzijiang plans to reposition the portfolio go up the risk curve into private debt, credit and equities, as well as public credit and equities with around 40% of its investments outside China (vs 100% within China at present).
  • We believe that Yangzijiang remains compelling as its valuations remain undemanding, with 2021 EV/EBITDA and P/B multiples of 2.5x and 0.6x respectively, a 2022 PEG ratio of 0.65 and net cash of S$0.43/share. Maintain BUY. Target price: S$1.95.
  • Share Price Catalysts
    • Events: New order wins, shipbuilding margin expansion from 1H22 onwards, and clarity regarding the metrics on the divestment of its debt investments arm.
    • Timeline: 2-4 months.
  • Recent report: Yangzijiang Shipbuilding - UOB Kay Hian 2022-03-01: 2021 Better Than Expected Due To Non-Operating Items.
  • See

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-03
SGX Stock Analyst Report BUY MAINTAIN BUY 1.950 SAME 1.950
SGX Stock Analyst Report BUY MAINTAIN BUY 0.850 SAME 0.850