KGI Securities is upgrading ComfortDelGro Corp to “outperform” after recent share price weakness that has seen the counter plunge from its recent peak in July. The counter closed at $2.35 on Nov 20, 17% lower than its closing price of $2.84 on July 9.
“Risk-to-reward dynamics have now become favourable,” says KGI Securities analyst Joel Ng in a Nov 19 report. “We now believe it’s time to grab a piece of this steady cash flow business.”
Despite the upgrade, it is still expected to be a bumpy ride for ComfortDelGro. Frasers Property Price targets:
The public transport operator missed estimates as it saw its earnings slide 10.8% y-o-y to $70 million in 3QFY2019 ended September, even as revenue edged up slightly by 1.1% to $979 million.
The earnings decline was driven by higher staff, depreciation, and repair and maintenance costs, which contributed to a 1.8% rise in operating costs to $870.1 million during the quarter. Operating profit retreated 4% to $108.9 million, on the back of higher losses in the rail business and keen competition in the taxi business.
Ng is cutting his earnings forecasts for FY2019FFY2021F by between 6% and 7%. As a result, he is lowering his price target for ComfortDelGro to $2.61, from $2.77 previously.
For now, Ng believes that the group’s key downside risks — including a depreciating Australian dollar and uncertainty in the UK — have already been priced into the current share price.
The analyst says the 7% hike in public transport fare, which is scheduled to kick in on Dec 28, will help to ease some of the cost pressure on ComfortDelGro, as well as lead to an improvement in its rail operations.
Meanwhile, he notes that the group’s balance sheet “remains in a strong position to take on more EPS-accretive acquisitions”. As at end-September, the group’s cash and cash equivalents stood at $518.5 million.
“We like ComfortDelGro’s healthy cash flow business and aggressive use of its strong balance sheet to expand via acquisitions,” Ng says. He adds that the counter offers a “sustainable” FY2019-FY2021F dividend yield of 4.6%.
Frasers Property
Price targets:
$2.05 BUY (DBS Group Research)
$2.08 ADD (CGS-CIMB Research)
$2.00 DOWNGRADE NEUTRAL (Credit Suisse Research)
$1.85 NEUTRAL (JP Morgan Research)
Market watchers remain bullish on Frasers Property (FPL) despite its dismal performance in FY2019.
FPL reported a 25.3% y-o-y drop in full-year earnings to $560.3 million, as revenue fell 12.2% to $3.79 billion. The group’s strategic business units in Singapore and Australia registered declines of 49% and 5% respectively.
In a Nov 18 report, CGS-CIMB Research analyst Lock Mun Yee says FPL’s Australian market is expected to improve slightly but still register a modest showing. “The Australian residential market appears to be bottoming out and the group has continued restocking its residential and industrial landbank with the addition of 3,791 residential units in FY2019,” she adds.
While Lock highlights how the group’s hospitality, Europe and rest of Asia segments outperformed with y-o-y improvements in profit, she expects the firm’s Singapore contributions to “remain subdued” in the near term.
Meanwhile, DBS Group Research lead analyst Rachel Tan opines that FPL is poised to thrive on the rewards from its efforts to grow its recurring income base over the past few years.
Tan says the group’s recurring income has increased to 75%, from 59% in FY2018, adding that FPL has made new investments after its strategy of active asset recycling into its REITs. These include the acquisition of PGIM ARF and the landbank acquisition of a mixed-used development project in Xuhui, China.
In particular, the group’s stake in PGIM ARF brings with it “potential synergies and efficiencies that could be derived from collaboration in managing the assets within the fund”, Tan adds. “Frasers Property’s managed REITs are actively looking to grow their AUMs (assets under management) and trading at yields conducive for potential asset monetisation opportunities at an appropriate time.”
OUE Commercial Trust
Price targets:
60 cents BUY (DBS Group Research)
53.5 cents HOLD (OCBC Investment Research)
57 cents HOLD (CGS-CIMB Research)
OUE Commercial Trust (OUECT) seems poised to thrive on its recent merger with OUE Hospitality Trust, which appears to have ticked all the boxes for the REIT.
OUECT saw total income available for distribution surge 85.9% y-o-y to $29.5 million for 3QFY2019 ended September, on the back of gains from the merger.
Net property income jumped 54.8% to $50.1 million, owing to the inclusion of income from OUE Downtown Office and Mandarin Gallery, while the trust also benefited from a fair-value adjustment of $16.8 million in relation to the merger.
Market watchers are quick to highlight that the merger could bring about opportunities for the REIT to tap.
For a start, OCBC Investment Research analyst Chu Peng notes that OUECT’s total assets have increased to about $6.8 billion in value following the merger.
The analyst also highlights that OUECT’s commercial portfolio boasts a healthy occupancy rate, while its office properties recorded positive rental reversions during the quarter.
Agreeing that the REIT’s commercial segment has allowed it to leverage on the still-positive reversion cycle, CGS-CIMB Research analyst Lock Mun Yee hones in on OUECT’s hospitality sector, which delivered a 3.3% y-o-y revenue per available room (RevPAR) growth.
The RevPAR growth was led by Crowne Plaza Changi Airport, which benefited from increased passenger traffic and additional attractions at Changi Airport. “We expect the outlook for the hospitality division to be boosted by the limited new room supply and biennial events in 2020,” says Lock.
Delfi
Price targets:
$1.68 BUY (RHB Group Research)
$1.51 BUY (DBS Group Research)
Analysts believe chocolate confectionery company Delfi is a sweet buy following its positive 3QFY2019 results.
The group recorded a 47.5% y-o-y increase in its 3QFY2019 earnings to US$5.9 million ($8 million), with revenue increasing 9.2% to US$112.2 million.
“We continue to like the stock for its ability to generate steady growth, driven by higher sales and margins from its product premiumisation strategy,” says RHB Group Research analyst Juliana Cai in a Nov 13 report.
Delfi’s main driver of earnings seems to be the growth of its own brand sales in Indonesia, according to Cai. The analyst is optimistic on the group’s outlook and expects this momentum to continue to FY2020, on the back of stronger domestic consumption in the group’s key markets.
However, despite delivering strong earnings performance, Cai notes that Delfi’s share price has underperformed in the past few months as a result of a lack of liquidity.
Meanwhile, DBS Group Research lead analyst Alfie Yeo is positive on Delfi’s initiatives with the Van Houten brand, whose exclusive and perpetual licence and associated rights Delfi acquired in April 2018.
“SilverQueen, Delfi Premium and Van Houten grew in excess of 20% y-o-y, as Delfi continues to push ahead with its premiumisation strategy,” Yeo says.
Singapore Telecommunications
Price targets:
$3.30 NEUTRAL (JP Morgan Research)
$3.77 OUTPERFORM (Macquarie Research)
$3.60 ADD (CGS-CIMB Research)
$3.53 BUY (OCBC Investment Research)
$3.50 NEUTRAL (Goldman Sachs Research)
$3.31 ACCUMULATE (Philip Securities Research)
$3.12 HOLD (DBS Group Research)
Analysts are divided in their views on Singapore Telecommunications (Singtel), after the telco sank to its first-ever quarterly loss.
For 2QFY2020 ended Sept 30, Singtel posted a loss of $668 million, on the back of its share of Bharti Airtel’s provision for licence and spectrum fees. However, analysts noted that Singtel’s underlying profit excluding the provision was up 3.1% y-o-y.
While Airtel continues to make representations to the Indian government for relief, Singtel’s management remains confident of the Indian telco’s financial positions and funding options. OCBC Investment Research notes that despite the provision, the underlying profit of $737 million was broadly within their expectations.
OCBC also saw upside to the massive licence and spectrum fees Indian telcos might have to pay. “From another angle, should a deal with the authorities fail to materialise, we believe this could benefit Airtel if Vodafone Idea’s competitive position becomes compromised,” says OCBC’s research team in a Nov 18 report.
Similarly, Alvin Chia, an analyst at Phillip Capital, is optimistic on the counter. He says Singtel’s regional associates are now rebounding back to growth, with Globe Telecom, Advanced Info Service and Telkomsel contributing to the first y-o-y growth in three years.
However, Sachin Mittal, an analyst at DBS Group Research, failed to see any bright spots in Singtel’s recent results.
Mittal says Singtel’s results were positively impacted by the adoption of new accounting standards, but adds that the group’s underlying profit was, below estimates, owing to the enterprise business dragging earnings.
APAC Realty
Price targets:
60 cents BUY (RHB Group Research)
66 cents ADD (CGS-CIMB Research)
46 cents HOLD (DBS Group Research)
55 cents DOWNGRADE ACCUMULATE (Phillip Securities Research)
Analysts see a glimmer of light at the end of the tunnel for APAC Realty despite a disappointing 3Q for the real estate agency on the back of a slower-than-expected recovery in the residential property market.
APAC Realty, which operates the ERA brand, saw its earnings nearly halved to $3.5 million for 3QFY2019 ended September, from $6.5 million a year ago, as total revenue shrank 14.1% to $98.6 million during the quarter. The decline was largely attributed to the impact of property cooling measures introduced in Singapore in July last year, as well as a volatile global economic landscape that has shaken market sentiment and buyer interest.
Shares in APAC Realty have fallen by close to 25% since its recent peak at 67 cents in May. The counter closed at 50.5 cents on Nov 20.
“3QFY2019 and 9MFY2019 earnings were below expectations, dragged by private resale volumes and higher marketing expenses. While overall market transaction activities are showing signs of a healthy 3Q pickup, private resale activity remains slow,” says Vijay Natarajan, an analyst at RHB Group Research, in a Nov 14 report.
Natarajan is keeping his “buy” call on APAC Realty, on the back of prospects of a rebound in market sentiment as well as an expected dividend yield of close to 5% in FY2019F.
However, he has cut FY2019-FY2021F net profit forecasts by 13% to 14% to reflect lower market share assumptions and higher marketing expenses.
In particular, Natarajan says is “slightly concerned” over ERA’s decline in market share. He notes that ERA’s market share by transaction value dipped to 31.9% in 3QFY2019 and 31.7% in 9MFY2019, compared with 36.4% in FY2018.
However, CGS-CIMB Research says APAC Realty’s pipeline of project marketing appointments continues to be healthy. In a note on Nov 13, lead analyst Ervin Seow says the URA reported a 40% q-o-q jump in sales volume from new launches.
“[This] leads us to maintain our expectations of a stronger 2H2019F extending into FY2020F, depending on when options are exercised, as sales are gradually recognised over the next one to two quarters,” he says. “We think key catalysts for the stock could be a stronger recovery in transaction volumes and a higher proportion of potential buyers exercising their options to purchase.”
Sasseur REIT
Price targets:
$1.00 BUY (Maybank Kim Eng Research)
97 cents BUY (UOB Kay Hian Research)
97 cents BUY (DBS Group Research)
94 cents ADD (CGS-CIMB Research)
Analysts are unanimously bullish on Sasseur Real Estate Investment Trust (Sasseur REIT), as the China-focused retail outlet mall manager continues to shine.
For 3QFY2019 ended September, Sasseur REIT posted a 6.4% y-o-y increase in DPU to 1.640 cents. This was also 3.7% higher than the REIT’s IPO projection.
Distributable income rose 7.6% y-o-y to $19.6 million, as Entrusted Management Agreements rental income excluding straight-line accounting adjustment climbed 5.2% y-o-y to $30.6 million.
Sasseur REIT’s four retail outlet malls generated combined sales of RMB1.2 billion ($232 million) for 3QFY2019, 9.4% higher than the corresponding quarter a year ago. This was driven by double-digit sales growth at its Bishan, Hefei and Kunming outlets.
As at end-September, Sasseur REIT was one of the top-performing REITs on the Singapore Exchange, recording total returns of 33.6% for the first nine months of the year. And analysts expect the counter to continue to climb.
“Looking ahead, sales growth will gain further traction into the seasonally-strong 4Q,” says Maybank Kim Eng Research analyst Chua Su Tye in a Nov 18 report. With Sasseur REIT’s 9MFY2019 DPU already making up 78% of Maybank’s full-year estimates, Chua is raising DPU forecasts for FY2019 and FY2020 by 5% a year. The analyst is also raising Sasseur REIT’s price target by 5% to $1.00.
Meanwhile, DBS Group Research lead analyst Derek Tan notes that during the quarter, the REIT had completed all refinancing due in 2019, leaving only $8 million to be refinanced in 2020. Sasseur REIT’s gearing improved 0.7% q-o-q, with aggregate leverage at a healthy 29% as at end-September.
Further, CGS-CIMB Research lead analyst Lock Mun Yee points out that the trust intends to hedge a substantial portion of its distribution income. The analyst believes this should provide Sasseur REIT with greater income certainty.
“With a lower cost of capital, following the recent share price uptick, the trust can also potentially explore inorganic growth opportunities,” Lock adds. “Sasseur REIT offers investors an FY2019 DPU yield of 7.85% and exposure to the fastest-growing part of the retail value chain.”
