(Oct 9: $3.12)
BUY. Ascendas REIT (AREIT) reportedly acquired its 4th suburban office asset in 254 Wellington Road, Mulgrave, Melbourne, Australia for A$110.9 million. AREIT will enter into an agreement with the Vendor ESR FPA (Wellington Road) for the purchase of the freehold land and subsequent development of the suburban office building on the site which will achieve practical completion by 2Q2020. The property will be 65% pre-committed to Nissan for 10 years, upon completion. We believe that there are merits in the acquisition. This forward purchase opportunity offers attractive returns in an otherwise tight market. While AREIT has moved up the risk curve in its search for higher returns, and it appears tighter at 5.8%, we remain comfortable given the property’s location and long lease tenure. The acquisition will be funded by debt and is estimated to be marginally accretive to the REIT. Price target of $3.40. — DBS Group Research (Oct 4)
Centurion Corp
(Oct 9: 40.5 cents)
MAINTAIN NEUTRAL. We recently visited Centurion Corp’s Purpose Built Workers Accommodation (PBWA), Westlite Tampoi (Johor Bahru) and Westlite Senai II (Johor) in Malaysia where several large manufacturers are based, as well as ASPRI-Westlite Papan in Singapore. PBWA assets provide a safe and secured environment with a range of amenities under one roof such as sick bay, gym, and supermarket/minimart for the convenience of the foreign workers. The increasing awareness of the need for improved living conditions of foreign workers has led to the rising demand for quality workers accommodation. Westlite Tampoi and Westlite Senai II (together with four other assets in Malaysia) have an average occupancy rate of 90.2% in 1H19. Revenue derived from these two properties sum up to approximately RM14.5 million ($4.8 million) pa, c.4% of FY2018 revenue. DCF-backed price target of 43 cents, 8% upside. — RHB Research (Oct 7)
Keppel DC Reit
(Oct 9: $1.98)
MAINTAIN BUY. Given robust accretion from recent acquisitions, we believe Keppel DC REIT (KDC REIT) can maintain its meteoric rise on the back of a virtuous acquisition cycle strategy where its cost of capital remains well below its investment return. After an active year of acquisitions coupled with inclusion into the EPRA Nareit Developed Asia Index, we believe the REIT will continue to outperform market expectations to keep valuations at a premium. KDC REIT is projected to deliver a robust 2-year DPU CAGR of 8.0% in FY2019-2021. Our price target of $2.20 is the highest on the street. Our numbers were raised further to incorporate recent acquisitions of two data centers in Singapore. Fuelled by a still visible acquisition pipeline from the Sponsor and the manager scouting the globe for opportunities, we have assumed debt-funded acquisitions of $75 million in our estimates to be completed by 2H20. Our discount rate reflects recent and assumed acquisitions. — DBS Group Research (Oct 8)
Mm2 Asia
(Oct 9: 23 cents)
MAINTAIN ADD. Our recent conversation with management reaffirmed our view that earnings growth will resume from 2Q20F after a lacklustre 1Q20 (PATMI -4.1% y-o-y), on a stronger pipeline by Unusual and post-production work. These, coupled with enhanced profitability of the cinema operations and more moderated growth in production budget, underpin our FY2020-2022F topline and PATMI CAGR of 7.8% and 15.0%, respectively. While mm2’s aggressive pursuit of acquisitions in the past has led to its high net gearing (0.85x as of end-1Q20), we see no repayment issue with its net debt/EBITDA still within debt covenant ratios. Possible stake monetisation could lower net gearing and finance expenses by $1.2 million-6.0 million, which could boost our FY2020F earnings by $1.0 million-4.6 million (exclude one-off gains) and bring net gearing in the range of 0.4-0.7x. We lower our FY2020-2022F EPS by 4.9-9.6%. SOP-based price target of 32 cents. — CGS-CIMB (Oct 8)
NetLink NBN Trust
(Oct 9: 90.5 cents)
MAINTAIN BUY. As Singapore races towards commercialisation of 5G, we see NetLink NBN Trust as a clear beneficiary and prefer NetLink over telcos (as the onus of rolling out 5G network lies on the telcos/spectrum holder). NetLink stands to benefit from higher connections and higher installation related revenue as telcos allocate budget to roll out 5G network. A 1% change in residential connections will affect FY22 net profit by 1.25%. 80% of NetLink’s earnings are regulated and recurring in nature. Three-year earnings CAGR (FY2019-2022) of 7%. DCF-based price target of $1.01, or 17x EV/EBITDA. At 17x EV/EBITDA, the stock will trade slightly higher than its 3-year mean EV/EBITDA of 15.5x. The stock has outperformed the STI by 18% year-to-date and we expect further outperformance as investors seek shelter in high dividend-yielding stocks amid trade war tensions and a weak economy. We forecast DPU of 5 cents for FY2020 and FY2021, with distribution yields of 5.6% respectively. — UOB Kay Hian (Oct 7)
Singapore Exchange
(Oct 9: $8.37)
MAINTAIN NEUTRAL. We believe the strength in the China A50 Index futures trading could partly offset weakness from the soft securities average daily value (SADV). We expect a slight y-o-y decline for FY2020F net profit. July-August 2019 derivatives volume rose 19% y-o-y. 1QFY20 SADV was down 1% y-o-y to $1.04 billion. Singapore Exchange (SGX) declared FY2019 DPS of 30 cents, representing a payout ratio of 82%. This is lower than FY2018’s 88%. We forecast FY2020 DPS of 31 cents, based on an 85% payout ratio – this translates to a FY2020F dividend yield of 3.6%, which is higher than the Singapore sovereign 10-year yield of 1.69%. SGX remains in a net cash position, with a monopoly over trading of Singapore-listed equities. Our price target of $8.10 is pegged to 23x FY20F EPS, ie its 4-year mean. Hypothetically, if FY2020F SADV was 20% lower than our base case at $0.86 billion, SGX’s fair value would be $7.24. Given SGX’s 18% YTD share price rise, we believe the positives are largely priced in. — RHB Research (Oct 8)
Singapore Technologies Engineering
(Oct 9: $3.97)
UPGRADE TO BUY. We met with Singapore Technology Engineering (STE) for an update. Its various strategic and growth initiatives appear to be on track, which would suggest the 8% share price decline the past quarter is unwarranted. STE has seen a sharp rise in gearing in the past few quarters post the recent sizeable investments. The company indicated it was comfortable with maintaining gearing at current levels (net debt/equity at c55% as of end 2Q19) as management are keen to improve balance sheet efficiency. This is a much higher gearing level than our earlier assumption of a long term net debt/equity structure of 25%. Our post-meeting PATMI forecasts are unchanged. But STE’s stated objective on sweating its balance sheet harder had us revisit our earlier DCF assumptions to factor in higher net gearing levels. The resultant c30bps lower WACC drives our 5% price target increase to $4.50 from $4.30, with 17% upside and 15% return potential. — Maybank Kim Eng (Oct 8)
Starhill Global Reit
(Oct 9: 74 cents)
MAINTAIN HOLD. Starhill Global Reit (SG REIT) is planning to unlock the unutilised 100k sf GFA between Ngee Ann City (NAC) and Wisma Atria (WA). We understand the space could be used to connect to the upcoming Orchard MRT station on the Thomson-East Coast Line by constructing a covered walkway above- and/or under-ground. This would enhance traffic flow to the malls and generate added rental income as more commercial space is built. While we see signs of stabilisation for SG REIT’s Singapore retail performance given improving overall tenant sales and occupancy in the past 3-4 quarters, we are concerned that occupancy rate of its offices will be affected by the weaker economic outlook. While the above potential investments could drive growth in the longer term, near-term growth is muted due to the weak economy. Our FY2020-2022F DPU forecasts are reduced by 3-4%, factoring in (i) lower rental income from Singapore office and (ii) a weaker AU$ vs. S$. Price target of 75 cents. — CGS-CIMB (Oct 4)
United Overseas Bank
(Oct 9: $25.36)
MAINTAIN OUTPERFORM. Management shared that the group's strategy is to capture crossborder flows rather than build significant market share in each country. The group's sector specialists and FDI advisory unit also provide tailored solutions to customers setting up regional operations. Investors expressed near-term concerns about US rate cuts and slower GDP growth affecting earnings. Management said that it expects credit cost to rise to 20-25 bp (13 bp in 1H19, 16 bp in 2018), but is yet to see a pick-up in delinquencies. Management expressed confidence in paying out at least $1.20 of dividends for 2019 and maintaining its 50% payout ratio. United Overseas Bank (UOB) is our top pick in the sector. We like its ability to capture the long-term growth in ASEAN, while we believe it has the most defensive earnings profile to navigate near-term risks. Dividend yield of 4.8% is 1.5 SD above historical average, while market-implied ROE is 10.3% (vs 11.2-11.6% expected for 2019E/2020E). Price target of $27.50. — Credit Suisse (Oct 7)
FOREIGN
Airasia Group
(Oct 9: RM1.70)
OUTPERFORM (initiating coverage). Despite operating in a cyclical environment, the leading ASEAN-based low cost carrier has consistently grown its market share in ASEAN in a profitable manner since its inception. We expect AirAsia’s outlook to improve driven by: (1) limited capacity growth within ASEAN and (2) turnaround of AirAsia’s operations in the Philippines, Thailand and India. As such, AirAsia’s ROIC will likely surpass its WACC by 2021. More importantly, we believe the market still doesn't fully appreciate AirAsia’s ambition to morph into an online travel company. Leveraging on our coverage of the global airline industry and internet industry, we estimate that AirAsia’s technology ventures could be equivalent in value to its current market capitalisation. While awaiting the realisation of value of its tech ventures, investors will also be paid via dividends (5-8% yield in FY20-21E). Price target of RM2.32 per share implies a 37% upside. The stock currently trades at FY20E P/E of 7.7x or EV/EBITDAR of 4.3x, although the P/E multiple should decline to ~5x by 2021E. — Credit Suisse (Oct 3)
Axis Bank
(Oct 9: INR686.30)
BUY (initiating coverage). In the last five quarters, Axis Bank (AXSB) have refocused lending from stressed infrastructure sectors to lower risk retail and SME, incremental corporate loans to better-rated corporates, which have all helped to reduce NPLs. We forecast 85% y-o-y EPS growth for FY2020E (1Q EPS +95% y-o-y) and 47% y-o-y for FY2021E. This could potentially double its ROE to 15.2% by FY2021E. AXSB is poised to expand its market share, tighten its asset quality and cost structure under its new CEO, Amitabh Chaudhary. Since joining AXSB in January 2019, his priorities have been: (a) retail banking; (b) operating efficiencies & credit-cost control; and (c) achieving 18% ROE sustainably. GGM-based price target of INR867. At our price target, AXSB P/B is 2.5x FY21E vs its 5-year average of 2.2x and private banking peers’ 2.9x. AXSB would be back to generating 15-16% ROE which it generated from FY06-16 along with low NPLs which would support its rerating and narrow the gap with peer valuation. — Maybank Kim Eng (Oct 4)
Bank Tabungan Negara
(Oct 9: IDR1,795)
MAINTAIN HOLD. Near-term earnings could come under pressure from IFRS9 implementation as its 2020E rights-issue plan is off the table. The bigger impact from delays in Bank Tabungan Negara’s (BBTN) rights is a higher cost of credit (CoC). It now needs to set aside IDR4.2 trillion provisions, implying a 1.7% CoC, just to reach 80% LLC by YE19 from 38% in 1H19. This could lower its FY2019 net profit to IDR1.2 trillion, down 58% y-o-y. Upon IFRS9 implementation in 2020E, CoC could increase further to 1.8%, leaving only 10% y-o-y profit growth to IDR1.3 trillion. Moreover, we estimate that IDR5 trillion of equity would have to be used for additional provisions to comply with the new accounting policy. As we cut 2019-2021E EPS by 55%, average ROE drops to 5.8% from 10.7%. Accordingly, our price target declines 20% to IDR2,000 from IDR2,500. We would turn more positive upon liquidity and capital-buffer improvements to support strong demand for mid-to-low-end mortgages. — Maybank Kim Eng (Oct 4)
Egis Technology Inc
(Oct 9: TWD275.50)
MAINTAIN OUTPERFORM. September sales of TWD$850 million were up 18% m-o-m, concluding 3Q sales at +9% q-o-q, ahead of its guidance of mild q-o-q growth, on stronger pull-in from Samsung, as well as initial ramp of optical fingerprint sensor to Huawei, in our view. We expect GM to improve ~5 pp q-o-q to 43% on better mix and no one-off write-down. Egis started small volume of shipment to Huawei in Sept, and we expect the volume to further improve in 4Q19 with take off from 1Q20, one quarter ahead of our prior estimates. We believe faster 5G builds could trigger more adoption of OLED panel, which will support the adoption of optical fingerprint. Moreover, Egis is also working on new solutions for 5G, including larger area optical sensing with JDI for premium 5G. We raise 2019-2021E EPS by 5-6% on better shipment for optical fingerprint and better margins. We lift our price target to TWD330 (from TWD285) using 13x 2020E P/E (vs prior 12x), midcycle multiple. — Credit Suisse (Oct 7)
GDS Holdings
(Oct 9: US$39.15)
MAINTAIN OUTPERFORM. In contrast to the China telcos, which have been suffering service revenue declines, data centre revenues are primarily driven by data volumes, which are still expanding healthily. We forecast that GDS will grow service revenue by 55.9% y-o-y in FY2019, beating consensus by 5.2%, and exceeding the top end of guidance by 6.1%. A key positive surprise has been the extent of operational gearing, and we believe that higher margins will prove sustainable. We revise up our FY2019 adjusted EBITDA by 3.3% to RMB1,871 million – 7.5% above consensus, and 3.9% above the top end of GDS’s guidance. The increase in our adjusted EBITDA projections leads us to revise up our DCF-based price target by 12.2% to US$50.50, and our forecast net loss for FY2019 declines by 10.4%. GDS remains in investment phase. Helpfully, financial conditions remain very ‘easy’ but GDS is, in theory, at risk should the current ‘trade war’ escalate to disruption to capital flows from the US. — Credit Suisse (Oct 2)
Gudang Garam
(Oct 9: IDR49.450)
MAINTAIN BUY. The proposed 23% excise tax increase caused Gudang Garam’s (GGRM) share price to decline 41% year-to-date. The business franchise remains intact and the average net income for 2019-2020 is likely to be IDR8.4 trillion (2018: IDR7.9 trillion). Net income to grow 23.1% y-o-y in 2019 but fall 24.6% in 2020, but 2019-2020 average net income still higher than in 2018. Factoring in new assumptions, we cut our 2020 net income forecast by 35.9%, which is 22.9% lower than the street’s. With share price declining 40.8% year-to-date, our calculation indicates the market is assuming a 33.3% y-o-y decline in 2020F ASP. Consensus is implying the price increase is 130bp above the highest price increase enacted in 2013. Our price target of IDR56,800 is based on the 5-year historical average of 16.5x on 2020F PE, and deducting IDR10 trillion for the construction of the Kediri airport. With still 14.7% upside from current price levels. — UOB Kay Hian (Oct 7)
HSS Engineers
(Oct 9: 87 sen)
BUY (initiating coverage). HSS Engineers (HSS) will continue to benefit from government spending on infrastructure and mega projects given its proven track record. Despite the slowdown in construction activities, we believe there are still pockets of opportunities for HSS, especially mega projects that are under review, such as the Kuala Lumpur-Singapore High Speed Rail, Mass Rapid Transit 3 and Johor Bahru, Singapore Rapid Transit System. Its current orderbook of RM505 million as at Jun 19 represents 2.7x 2018 orderbook cover which will keep HSS busy for the next 2-3 years. HSS is eyeing over RM300 million worth of projects from various sectors to boost its current orderbook. Price target of RM1.00, pegged to 25x 2020F PE and at a 10% discount to our SOTP valuation. The 25x PE is based on HSS’ 2016-2017 average PE. We think HSS deserves to trade at a PE premium (vs international peers), given its potential two-year net profit CAGR of 7.7% for 2020-2021. HSS is trading at 18.7x 2020F PE. — UOB Kay Hian (Oct 4)
Shenzhen Mindray Bio-Medical Electronics Co
(Oct 9: RMB175.30)
BUY (initiating coverage). Shenzhen Mindray Bio-Medical Electronics’ (Mindray) superior product quality and branding are highly recognised in the global market. Through its strong sales and service network, its products were sold to over 190 countries and regions. With 28 years’ dedicated service to the medical device market, Mindray has grown from supplying a few low-end products to offering multiple high-end product lines. In the global market, it is ranked third in patient monitors and anaesthesia machines, fifth in defibrillators and sixth in ultrasound systems. Mindray has a proven track record with revenue and net earnings attributable to shareholders growing at a CAGR of 25.4% and 26.9% in 2003-18. We believe the company will further improve margins and generate strong earnings CAGR of 24.5% for 2019-21. Its superior growth potential and well-established global market position justify a valuation comparable to its global peers’. Target price of RMB235 is based on 50x 2020F PE, or 2.0x PEG. — UOB Kay Hian (Oct 3)
Thai Oil
(Oct 9: THB69.50)
MAINTAIN BUY. We expect Thai Oil (TOP) to post THB519 million net profit in 3Q19, down 8.5% q-o-q and 88.6% y-o-y. The softer q-o-q and y-o-y earnings would be due to: (a) impact from the major planned maintenance shutdown in its refinery and aromatic units, leading to lower utilisation rates of around 100% and 60% respectively; and (b) a 29% q-o-q and 64% y-o-y drop in paraxylene (PX) spread. Although we cut our net profit estimates by 32% and 20% for 2019-2020 respectively due to higher-than-expected impact from the maintenance shutdown in 2019 and lower-than-expected PX spreads in 2019-2020, TOP is still one of our top picks in the oil and gas sector. It is one of the key beneficiaries of IMO2020. Price target of THB81.00 as we roll valuation to 2020. Our target price is based on the regional refinery sector’s 5-year PE mean of 13x. The stock is trading at an undemanding 11.2x 2020F PE vs the regional mean of 13x. — UOB Kay Hian (Oct 7)
