(Oct 16: $1.25)
OUTPERFORM (initiating coverage). Latest 2019F revenue guidance from management in September is at $285–305 million, representing a minimum 8.5% y-o-y increase. AEM’s key customer, while currently facing stiff competition in its primary markets, is still likely to continue spending to stay on top. AEM’s diversification efforts and recurring sales of test handler accessories can support the potential slowdown of its test handler sales. We anticipate a dip in revenue and profits in 2020, but expect a rebound in 2021 as its major client migrates on to the next technology node. We expect 2019/2020/2021F core earnings to move 12.3/-11.0/15.0% y-o-y to $37.3/33.2/38.1 million. Our estimates are on the conservative side as we have currently not included the potential upside from AEM’s new businesses. Price target of $1.34 based on 11x 2020F EPS, an upside of 15.5%. Global semiconductor test equipment manufacturers are trading at 18x 2020F EPS. Our peg thus represents a 39% discount, which we believe lends enough margin of safety to our valuations. — KGI Securities (Oct 11)
ComfortDelGro Corp
(Oct 16: $2.44)
MAINTAIN BUY. The Public Transport Council (PTC) has granted a fare adjustment of a maximum allowable 7% increment following its annual fare review. Public transport fare hikes are a positive for SBS Transit’s rail operations, which is currently operating at a loss. The overall fare adjustment of 7% translates to a net increase of about $17 million in annual revenue for the rail operations. While the taxi fleet’s decline is a headwind, management noted some bright spots, such as a recent decrease in driver incentives for Grab. ComfortDelgro Corp (CD) noted a preference for operator-based transport businesses when on the lookout for potential acquisition. We have elected to maintain our earnings forecasts given potentially higher maintenance costs of the NEL, which is currently in its mid-life cycle. Price target unchanged at $2.95, pegged to 19.5x 2020F PE, or 1SD above its forward mean PE. We think CD’s longer-term growth prospects will be well sustained through public transport initiatives. — UOB Kay Hian (Oct 14)
Golden Agri-Resources
(Oct 16: 21 cents)
MAINTAIN SELL. Key takeaways from the conference were largely in line with guidance given during the 2Q19 results briefing, ie expecting a better 2H19 on higher h-o-h FFB production in 2H19 (1H19: -3.1% y-o-y), flat y-o-y production in 2019 and better ASP. However, our concern is that production in 2H19 may not be able to increase y-o-y due to an older age profile and the recent dry weather. Golden Agri-Resources’ (GGR) debt remains elevated with a net gearing ratio at 0.65x. Management’s wish to lower the debt has been hampered by weak CPO prices. With Indonesia’s central bank cutting its key interest rate, we opine that management might take this opportunity to refinance its debt. GGR had invested US$220 million in Golden Veroluem, which invested in an oil palm plantation in Liberia in 2012. We maintain our net profit forecasts at US$56 million, US$118 million and US$155 million for 2019-2021 respectively. Price target of 16 cents, pegged at 13x 2020F PE, or -1SD of the stock’s five-year mean. — UOB Kay Hian (Oct 15)
Hi-P International
(Oct 16: $1.37)
UPGRADE TO HOLD. Hi-P Int’l (Hi-P) is buying Singapore-based SEAMCO for US$31 million, valuing the high precision plastics manufacturer at 4x FY18 P/E. This deal would have been FY18 EPS accretive by 9.7%, and is fully cash funded. SEAMCO’s capabilities and production footprint appear to complement Customer D’s product plans over a longer horizon – including for the EV project. Customer D is expected to complete an EV factory in Singapore in 2020 and launch its EV in 2021. Despite the challenging outlook, we see a possibility that 3Q19 net profit guidance to be similar y-o-y (3Q18: $33.8 million) may be revised upwards, if Hi-P’s yield during production ramp up of the key wireless customer’s new smartphones were decent. This is due to signs of favourable reception of the smartphones so far. Pending further clarity, we conservatively raise FY2020-2021E EPS by 8% to factor in this acquisition. ROE-g/COE-g price target rises to $1.21 from $1.15, on unchanged 1.5x FY19 P/B. — Maybank Kim Eng (Oct 10)
Keppel Infrastructure Trust
(Oct 16: 54.5 cents)
MAINTAIN BUY. Keppel Infrastructure Trust (KIT) declared a DPU of 0.93 cents for 3Q19, in line with previous quarters. Group revenue was down 3% q-o-q to $407.5 million, as a result of a revenue shortfall at Basslink. Distributable cash flows was up 22% q-o-q to $55.7 million, leaving a significant buffer over and above the quarterly distribution payout of $46.4 million. KIT had announced the proposed divestment of KIT’s 51% stake in associate DC One to Keppel DC REIT for a consideration of $102.9 million. The estimated net proceeds to be received by KIT is around $51 million and expected to be redeployed into future acquisitions. We believe the Ixom acquisition has been a step in the right direction by KIT’s management as it diversifies the asset base, stabilises NAV decline, lengthens the effective life of the Trust, and creates organic growth potential which was largely missing till now. With an enhanced asset base and stronger balance sheet, we look forward to further acquisitions ahead. Price target of 58 cents; stock still offers around 15% total return including 7% yield. — DBS Group Research (Oct 15)
Lendlease Global Commercial Reit
(Oct 16: 95 cents)
OUTPERFORM (initiating coverage). Lendlease Global Commercial REIT (LREIT) is a 2-asset REIT consisting of the $1 billion 313 @ somerset mall on Orchard Road, Singapore, and the EUR265 million ($400 million) Sky Complex grade-A office complex in Milano Santa Giulia, Milan, Italy. The Lendlease Group, with global funds under management (FUM) of A$35 billion, is the sponsor. Aside from the uniqueness of the 2 IPO assets, we think the most noteworthy feature of LREIT is the Lendlease pipeline in Singapore of 2 newly built best-in-class mixed developments (Jem and Paya Lebar Quarter [PLQ]) worth a combined $4.7 billion, based on our conservative estimates, which would dwarf LREIT’s post-IPO assets under management (AUM) of $1.4 billion. Potential positive catalysts include further yield compression in the S-REIT sector and greater clarity on the timing of possible acquisitions. LREIT’s 12-month forward DPU yield of 5.6% is higher than the S-REIT sector average of 5.1%. SOTP-based price target of $1.01. — Daiwa Capital Markets (Oct 14)
Mapletree Commercial Trust
(Oct 15: $2.34)
MAINTAIN HOLD. Mapletree Commercial Trust (MCT) reported an in-line set of results, with 2QFY20 DPU up 2.2% y-o-y to 2.32 cents. Operationally, MCT achieved overall portfolio rental reversions of +5.0%. This was driven largely by the retail segment, which registered a rental uplift of 6.8%. Rental reversions for the Office/Business Park segment were +0.7%. Overall portfolio physical occupancy was 96.1%, as actual occupancy of Mapletree Anson fell sharply from 92.7% (end-1QFY20) to 75.1%. Management has managed to bring committed occupancy for the property back up to 99.0%, with three major leases to commence in November and December this year, and January 2020. The new tenants include WeWork, one shipping company and one media company. MCT has unsurprisingly obtained approval from its unitholders at an EGM with regards to the proposed acquisition of Mapletree Business City (Phase 2) (MBC II). We have already factored in this acquisition in our forecasts. Fair value estimate of $2.28. — OCBC Investment Research (Oct 16)
Manulife US Real Estate Investment Trust
(Oct 16: 91.5 US cents)
BUY. Manulife US Real Estate Investment Trust (MUST) delivered two acquisitions in 2019, ahead of investors’ expectations (in line with ours) as it continues to look to grow inorganically, providing investors with improved diversity in earnings, exposure and a stronger growth profile. The latest acquisition of 400 Capitol, while accretive, presents upside to cash flows its rents are up to 11.5% below asking levels. We project the property to mark-to-market in the coming years as leases are rolled over. With tax concerns largely allayed in our view, we believe that investors will look towards a consistent delivery of a 2.0% DPU CAGR over FY2019-2021F. We believe that MUST is on the cusp of being considered for inclusion into the FTSE EPRA Nareit Developed Asia Index post recent fund-raising. Price target of US$1.10 with 12% upside. — DBS Group Research (Oct 11)
SPH Reit
(Oct 16: $1.16)
HOLD. SPH REIT reported 4QFY19 results which were in-line with our expectations. Gross revenue grew by $5.4 million, or 10.2% y-o-y to $58.4 million and net property income (NPI) increased by $4.8, or 11.8% y-o-y to $45.8 million, making up 101% of our full-year estimates. Gross revenue for FY2019 was $228.6 million, an increase of $16.8 million, or 7.9% y-o-y from FY2018. NPI reported a growth of $13.8 million, or 8.3% y-o-y to $179.8 million in FY2019. The increase in gross revenue and NPI was mainly contributed by the acquisitions of The Rail Mall and Figtree Grove Shopping Centre which were acquired in 2018. FY2019 DPU reported record a growth of 1.1% y-o-y to 5.60 cents. Gearing ratio improved from 30.1% in 3QFY19 to 27.5%, on the back of recent issuance of the $300 million perpetual securities at a fixed coupon rate of 4.1% p.a. SPH REIT offers investors exposure to the prime Orchard Road shopping belt and suburban retail market via its interests in Paragon and The Clementi Mall, respectively. Fair value of $1.10. — OCBC Investment Research (Oct 14)
FOREIGN
Centuria Metropolitan Reit
(Oct 16: A$2.94)
NEUTRAL. Centuria Metropolitan Reit (CMA) is soon to be the only 100% Australian invested pure-play office REIT in the ASX300, following the proposed takeover of Australian Unity Office Fund (AOF). On Sept 18, CMA announced the acquisition of interests in two office assets for A$380.5 million, partly funded by a A$273 million fully underwritten equity raising. Assuming approval is received, CMA’s portfolio will comprise 22 assets with a value of ~A$1.8 billion. With occupancy at 98.7% and a weighted average lease expiry of 4.8 years, CMA’s earnings have a high degree of predictability. Key Risks.(1) Increases/declines in market rent, noting that ~38% of its net lettable area expires over FY2020-2022; (2) rising/falling office asset valuations and the ability to source acquisitions at attractive pricing; and (3) the sustainability of its distribution given it is >100% of Australian Funds from Operation (AFFO). — Credit Suisse (Oct 10)
China Gas Holdings
(Oct 16: HK$31.95)
MAINTAIN BUY. The Chinese government has capped investment return on effective assets (ROA) for gas distribution at 7%. China Gas generated 2.9% and 3.0% in FY2018 and FY2019 respectively. China Gas is maintaining its guidance of 25% organic growth in gas sales for FY2020, and expects the gas sales volume expansion to continue to be driven by the environmental policy and coal-to-gas conversion. Its value-added business has enjoyed high double-digit growth for years. The company also said it would take 5-7 years to reach the 7% regulated ROA. China Gas’ value-added business achieved 36.4% gross margin and 29.3% operating margin in FY2019 (FY2018: 34.0% and 26.3% respectively). The segment’s revenue and operating profit expanded 10.9x and 7.9x respectively from FY2016 to FY2019, driven by a rapidly expanding customer base (29.7 million residential households as of end-FY2019), in which China Gas can cross-sell its products and services, such as the insurance and water purifiers. China Gas remains our top pick as it is the largest beneficiary of the upcoming Russian gas imports as well as its dominance in northeast China. Price target of HK$36.39. — UOB Kay Hian (Oct 16)
Genting Malaysia
(Oct 16: RM3.06)
MAINTAIN HOLD. Empire Resorts’ (Empire) management provided two financial forecasts. Both imply narrower LBITDA/higher EBITDA than we initially forecasted. Positively, Empire’s management expects it to turn EBITDA breakeven next year. To this end, Empire will rationalise US$20 million-US$21 million in costs p.a. We tweak our Genting Malaysia’s (GENM) FY2020/FY2021 EPS estimates by +7%/+4% as its soon-to-be 49%-owned Empire Resorts provided better than expected forecasts. Without further equity injection, we still expect Empire’s shareholders’ equity to fall to nil over the next three years. We also still expect GENM to inject more equity into Empire in the near future. Even under our ‘blue sky’ scenario, Empire’s outlook will not improve greatly. Thus, we cut our FY2019E/FY2020E/FY2021E DPS estimates from 19.0sen p.a. to 15.0sen/12.0sen/15.0sen. We cut our DPS estimates and this tweaks our SOP-based price target up to RM3.27 from RM3.24. — Maybank IB Research (Oct 15)
iQIYI Inc
(Oct 16: US$16.16)
MAINTAIN NEUTRAL. The unfavourable regulatory environment and lack of quality content in 3Q19 has prompted us to revise down the number of subscribers in 2019E to 19 million y-o-y growth (was 28 million), or 2 million/4 million in 3Q/4Q. The lack of quality content also hurt the advertising revenue, and we now expect 13% y-o-y drop in ad revenue in 3Q19 from -9% earlier. Total revenue in 3Q is likely to reach RMB7.2 billion, roughly at the low-end of the previous guidance. iQIYI Inc (IQ) has announced the first big title "Hot Blooded Youth after the National Holiday to be aired on Oct 22, one week later than expectation. Other shows in the pipeline are still waiting for approval to be aired, which could negatively impact revenue in 4Q. We revised down our 2019-2021E net income by 3-5% and lowered our DCF-based price target to US$17.5 (from US$18.3). We believe the turning point of the stock lies on the timing of premium content delivery, which is still of low visibility. — Credit Suisse (Oct 10)
Link Reit
(Oct 16: HK$84.35)
UPGRADE TO OUTPERFORM. Link registered 3.1% y-o-y growth in retail sales during 2Q19, outperforming -3.4% y-o-y for the overall market. Management guided that retail sales for 3Q19 have remained largely stable, while the overall market registered 11%/23% y-o-y declines in July/August. With stable retail sales performance, management commented that it is not necessary to offer rent cuts for its general tenants. However, Link will offer assistance to certain tenants, in particular, to valuable goods retailers which account for 0.9% of Link's trade mix. We believe valuation has turned more attractive with a 10% NAV discount (vs the mean of 4% premium). We believe Link's nondiscretionary tenant profile, low reliance on tourists and low turnover rent ratio should offer high resilience. Sizeable share buyback of 60 million units in FY2020 (13 million units to date) should offer protection on the downside. We cut our FY2020/2021/2022E earnings by 1%/2%/3% to reflect lower rental growth assumptions and thus cut our price target to HK$99.2 (HK$101.5). — Credit Suisse (Oct 14)
NetEase
(Oct 16: US$294.77)
DOWNGRADE TO HOLD. NetEase announced the completion of the sale of Kaola, its cross-border ecommerce platform, to Alibaba for US$2 billion, on Sept 6. Alibaba will continue to operate Kaola under its existing brand and the manager of Tmall global will be the new CEO of Kaola. Youdao NetEase’s education business submitted the F-1 on Oct 1. We believe the boosted margin from the deconsolidation of ecommerce and upside of Youdao’s IPO have been priced in. We cut our 2019 and 2020 revenue forecasts by 16% and 28% respectively to factor in the deconsolidation of Kaola and slower growth in PC game revenue. We raise our EPS forecasts by 9% and 14% for 2019 and 2020 respectively as e-commerce margins see improvement. We estimate online game/advertising/ Yanxuan ecommerce/other initiatives to account for 78%/4%/8%/11% for NetEase total revenue by 2020. Price target cut to US$269.52. The company is trading at 20x 12-month forward PE, 0.3x SD higher its 10-year’s average of 19x. — UOB Kay Hian (Oct 14)
Taiwan Semiconductor Manufacturing
(Oct 16: TWD296.50)
MAINTAIN OUTPERFORM. We raise estimates for Taiwan Semiconductor Manufacturing (TSMC) to reflect rebounding revenues in 2H19 and solidifying drivers for a continued recovery in 2020 from mobile and HPC, supplemented by TSMC’s share and content gains in 2020. We project TSMC’s smartphone sales accelerating to +13%/+5% y-o-y in 2020/2021 on share gains, return to unit growth and higher content from 5G ramp. We project TSMC’s HPC sales recovering to +20% YoY growth in 2020 due to share gains in AMD, growth in network processors and FPGAs, rebound in AI accelerators and new channel emerging longer-term for networking and servers from China seeking to diversify from US suppliers. We lift 2020/2021 EPS to TWD16/TWD17.25 and price target to TWD325 (18x cash adjusted 2020 EPS). TSMC can maintain its re-rating on: 1) broadening growth drivers, 2) more manageable competition, 3) catalyst from a re-accelerating mobile cycle, and 4) rising cash payouts and balance sheet cash. — Credit Suisse (Oct 14)
Tata Consultancy Services
(Oct 16: INR2,046.40)
MAINTAIN HOLD. 2QFY20 EPS was 6% below ours and 3% below consensus estimates. Despite strong growth in value of contracts secured, slow conversion of orders into revenue is impacting revenue and EBIT margin. We cut FY2020-2022E EPS by 6-7% to factor 2-3% lower USD revenue and 60-120bps cut in EBIT margin. We forecast EBIT margin of 24.6–26.1% for FY2020-2022 vs 25.8 – 26.7% previously. We believe Tata Consultancy Services (TCS) will lag large cap peers on USD revenue growth in the near term. We believe TCS will exceed its stated payout policy of 80-100% of FCF through a mix of dividend and share buyback. We assume special dividend in FY2020E (INR40 per share already announced) and FY2022E and a share buyback in FY2021E. At the current price, the yield will be 3.7–4.2% for FY2020-2022E; limiting downside on the stock. 11% price target of INR2,030, at 20x FY21E EPS (vs 21x earlier), in line with its 5-year average P/E to factor the earnings cut. — Maybank Kim Eng (Oct 11)
TISCO Financial Group
(Oct 16: THB98.75)
MAINTAIN BUY. TISCO Financial Group (TISCO) reported 3Q19 net profit of THB1.87 billion, up 3% y-o-y, within our and consensus expectations. Loan growth was muted in 3Q19, down 0.2% q-o-q and was flat y-o-y after TISCO sold its retail loans to Citibank. NIM, however, improved 27bp y-o-y on better loan yield as loan growth was skewed toward high-yield auto-cash loans (+7% ytd) and motorcycle HP (+16% ytd). Non-Interest income (non-II) fell 20% y-o-y on lower investment gains (- 98% y-o-y). However, net fee income showed signs of a recovery, up 1% y-o-y, supported by bancassurance and capital market fees. NPL ratio fell to 2.8% in 3Q9 (2Q19: 3.2%) due to lower NPLs from auto-cash loans and the easing impact from loan reclassification. Thanks to sufficient loan loss reserves (220% of required reserves), the company’s credit cost fell sharply to 21bp in 3Q19 (2Q19: 131bp). As a result, provisions dived 84% y-o-y, which underpinned earnings in 3Q19. Price target of THB111.00, based on 2.1x FY20F P/B. — UOB Kay Hian (Oct 16)
