CapitaLand Investment
Price target:
DBS Group Research ‘buy’ $3.85
DBS Group Research has kept its “buy” call and $3.85 on CapitaLand Investment (CLI) after it announced the A$200 million ($173 million) acquisition of Wingate Group’s property and credit investment business in Australia.
The acquisition, with the addition of A$2.5 billion in funds under management (FUM), will help CLI grow its FUM in Australia by 30% to $8.3 billion.
This deal, part of CLI’s overall bid to reach its FUM target of $200 billion come 2028, will help bring its FUM to $115 billion upon completion, or 7% of the total.
Wingate is described as an established private credit manager with an extensive track record of over 350 transactions, representing more than A$20 billion in real estate value over the past 20 years.
See also: DBS remains ‘neutral’ on Singapore stocks with 2025 STI target of 3,950 points
DBS, in its Dec 16 note, points out that CLI has recently indicated its commitment to invest some A$1 billion in Australia as it seeks to diversify from other key markets now, such as Singapore and China.
DBS notes that CLI has been moving “swiftly” to bulk up its FUM base with a series of “strategic acquisitions” of fund management platforms.
Prior to Wingate, CLI announced the acquisition of SC Capital in November, taking an initial 40% stake for $280 million.
The addition of SC Capital helps beef up CLI’s presence in Japan. DBS reckons that the Price/FUM paid by CLI for Wingate is at around 8%. When Regal Group acquired private credit fund manager Merricks Capital back in June, it paid around 8.9% EV/FUM, or six times on normalised FY2023 ebitda.
“We remain positive on CLI’s intent to continue growing its presence in Asia Pacific inorganically, which we believe will provide them with on-ground localised knowledge and leadership and growth strategies,” says DBS. — The Edge Singapore
DBS Group Holdings
Price target:
OCBC Investment Research ‘hold’ $45.20
Share buyback and dividend yield support
DBS Group Holdings has guided for a “slight decline” in net interest income, but Carmen Lee of OCBC Investment Research has kept her “hold” call on the stock as she expects the bank’s $3 billion share buyback plan, which started on Nov 28, to support the share price.
Furthermore, with a more attractive dividend of around 5% relative to other investments, DBS shares will continue to be favoured, says Lee in her Dec 16 note, as she raised her fair value to $45.20 from $43.60.
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Since DBS began its share buyback programme, it has bought back 4.05 million shares at an average price of $43.56, ranging from as low as $41.84 to as high as $44.95.
With the buybacks, Lee notes that DBS shares have appreciated by 4.5% from $41.85 as of Nov 27 close to $43.74 as of Dec 13 close.
Lee calculates that the $3 billion committed by DBS can buy up to 68.2 million shares, assuming an average price of $44 per share.
However, the total number of shares that can be bought under the current mandate is capped at 51.58 million shares, which works out to as high as $59 per share for the remaining 47.5 million shares, given how 4.05 million shares have been bought back.
Lee also points out that the bank’s quarterly dividend payout of 54 cents per share, or $2.16, works out to an annual yield of 4.9% based on the Dec 13 closing price of $43.74.
In contrast, the most recent six-month T-bill on Dec 5 closed with a cut-off yield of 3%, down from as high as 3.8% on March 27.
Lee notes that an average of $14.7 billion went into each six-month T-bill auction, with a total issue size of some $6.66 billion.
“The excess fund is likely to look for better returns with lower yields from T-bills,” says Lee. With Donald Trump’s win, policies might change and tariffs might be imposed, hurting global trade and sustaining inflation. This would result in higher market volatility in the months ahead, leading to defensive and good dividend-yielding stocks gaining more favour.
“We believe Asia is likely to remain fairly resilient and the Singapore market will continue to offer healthy dividend returns,” says Lee.
With “good price support and healthy dividend yield”, she has raised her fair value from $43.60 to $45.20, based on an “undemanding” P/B ratio of 1.8 times and a decent dividend yield of 4.8%. — The Edge Singapore
Sembcorp Industries
Price target:
Maybank Securities ‘buy’ $6.20
Higher target after energy import deal
Maybank Securities is keeping its “buy” recommendation on Sembcorp Industries with a higher target price of $6.20 from $6.00 previously.
The recommendation follows Sembcorp’s agreement to import 50MW of renewable energy from Tenaga, Malaysia, to Singapore. The two-year agreement starts this month. Pricing and settlement details were not disclosed.
While there is no immediate material impact on the group’s earnings and net tangible assets, analyst Krishna Guha sees this as a positive step towards Asean power integration and supports both countries’ energy transition plans.
The deal is part of Malaysia’s inaugural pilot supply of green electricity for cross-border energy trading via the Energy Exchange Malaysia platform.
It will also be the first-ever renewable energy import with Renewable Energy Certificates (REC) into Singapore. The certificates provide proof of origin of renewable energy generation, ensuring that the energy is sustainably sourced.
The total interconnection capacity between Peninsular Malaysia and Singapore stands at 1GW, with 300MW allocated for cross-border energy sales for renewable energy between the two countries.
In November, the uniform Singapore energy price (USEP) averaged $129.4/MWh, while Malaysia’s system marginal price (SMP) averaged system marginal price (SMP) RM178.9/MWh ($54.23/MWh).
Currently, for RE/Scope-2 offsets, companies in Malaysia purchase unbundled RECs, sign separate power purchase agreements, or pay additional green electricity tariffs, while companies in Singapore rely on RECs.
The development of a credible cross-border REC framework is a work in progress.
Meanwhile, in the past month, Sembcorp has signed contracts to secure gas supply and expand its renewable footprint. The group won a 300MW renewable energy tender in India. Currently, it has 16GW of renewable power capacity. It secured a second long-term power purchase agreement (PPA) with Equinix to start in 2029.
Further, Chevron will supply 0.6 million tonnes of liquified natural gas (LNG) per annum from 2028 for a period of 10 years. “These deals will secure SCI’s earnings in the medium term,” says Guha.
Taking these updates into consideration, Guha has raised FY2025/FY2026 estimates, factoring in higher gas sales and renewable revenue and rolling forward the research house’s valuation model to FY2025.
“While valuations are fair after the recent rally, earnings will be supported by contract gas sales in the near term and sale of renewable energy in the medium term,” says Guha.
While Sembcorp’s share price is on the uptrend now and trading at a 10-year high, the stock has yet to cross the $6 mark since 2007. — Samantha Chiew
Hong Leong Asia
Price target:
UOB Kay Hian ‘buy’ $1.11
Two key engines revving
UOB Kay Hian maintains its positive view on Hong Leong Asia , given how it is set for “strong earnings growth” between FY2024 and FY2026.
First, with its significant market share in Singapore and Malaysia, its building materials segment, which sells cement, is seen as a “strong proxy” for the sustained recovery of the construction industry.
On the other hand, Hong Leong Asia’s China-based engine-making subsidiary is also on the verge of an earnings upcycle due to favourable regulatory tailwinds.
“In our view, Hong Leong Asia remains undervalued given the positive outlook for its businesses,” state analysts Llelleythan Tan and John Cheong in their Dec 13 report, where they’ve maintained their “buy” call along with a sum-of-the-parts based target price of $1.11.
Citing official estimates, the analysts note that total construction demand is expected to reach between $31 billion and $38 billion this year, with demand largely from public sector infrastructure projects such as the airport’s Terminal 5, further phases of the mega container port at Tuas, MRT lines and the ramp-up in new HDB projects.
The multi-billion expansion of the two integrated resorts will also be a major source of demand going forward.
Malaysia, where Hong Leong Asia is too significantly active, is seeing its share of infrastructure projects such as the Penang LRT, Pan Borneo Sabah Phase 1, large-scale flood mitigation projects and the Sabah-Sarawak Link Road.
Hong Leong Asia is seen to have another leg to grow via its 48%-held separately listed unit, China Yuchai International. The China-based but New York-listed company is one of the top diesel engine manufacturers in China.
In recent years, it has invested significantly to introduce new models that can meet new emission standards and also keep up with the structural growth in demand for so-called new energy vehicles.
Tan and Cheong note that in a bid to boost domestic consumption and spur economic recovery, China’s National Development and Reform Commission in July announced an RMB300 billion ($55.6 billion) stimulus programme in which vehicle owners are offered subsidies of up to RMB80,000 to scrap old ones for newer versions.
In the current FY2024, Tan and Cheong figure that Hong Leong Asia could grow its earnings by 46.5% to reach $95 million and a further 14.9% y-o-y in the coming FY2025 to reach $109.2 million.
Using a multiple of four times 2025 EV/Ebitda, Tan and Cheong estimate Hong Leong Asia’s building materials businesses to be worth some $607 million; applying a multiple of six times 2025 EV/Ebitda on the diesel engine business will add another $896 million.
In contrast, Hong Leong Asia has a current market value of just some $620 million. —The Edge Singapore
First Resources
Price target:
DBS Group Research ‘buy’ $2
Firmer prices and better margins
William Simadiputra of DBS Group Research has kept his “buy” call on First Resources , along with a target price of $2.
In his Dec 10 note, the analyst believes the Indonesia-based palm oil player is enjoying a “positive” earnings momentum outlook, thanks to higher crude palm oil prices and also refining margins.
Favourable Indonesia expert tax structures and growing downstream demand, especially from key market China, are positive attributes too, says Simadiputra, who figures crude palm oil prices to average US$950 ($1,281.6) per metric tonne in 2025, up 3% y-o-y.
He estimates First Resources, coming off an already strong FY2024, could grow its earnings by 9.1% y-o-y in the coming FY2025 to US$206 million. “The strong CPO price momentum should provide strong support to 1H2025 earnings, thanks to its forward sales scheme.”
Furthermore, First Resources enjoys a “favourable” age profile for its trees. According to Simadiputra, 58% of the company’s trees are within the so-called “prime age” cycle, which suggests higher yields compared to some of the competition.
“First Resources has room to keep its organic growth strong via replanting and channelling more crude palm oil to its refining facilities if downstream margins improve,” the analyst adds.
While he has maintained his upward earnings forecast to FY2026, the analyst expects lower free cash flow to the firm (FCFF) in the new terminal year in line with the ageing pattern of trees, thereby maintaining his target price at $2.
“We believe First Resources can deliver steady earnings with its integrated business platform, while its trees productivity is more stable and steadier versus its peers in general,” he says.
For him, key risks include lower-than-expected crude palm oil selling prices. Also, if there are any changes in the levy structure or domestic pricing regulations, or if prices drop below forecasts, First Resources may miss his earnings estimates, thus hindering any prospects of a valuation re-rating. —The Edge Singapore
