OCBC Investment Research (OIR) has maintained its “hold” call on Sheng Siong Group, given the defensive nature of this stock amid rising inflation and slower economic growth.
The trade war, which has hurt other industries such as manufacturing, is also seen to have a limited impact on Sheng Siong, besides some changes in shipping routes. Sheng Siong sources most of its goods from within Asia, notes OIR.
Having considered revised growth and margins estimates, OIR, in its June 23 note, has raised its fair value for this stock to $1.99 from $1.89.
Total retail sales for April were up 0.3% m-o-m, while retail sales in supermarkets and hypermarkets grew 1.7% y-o-y, reflecting stable demand for essential goods.
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‘’Demand for groceries could be supported by a shift in consumption patterns towards a focus on value-for-money due to inflationary pressures and a higher cost of living,’’ says OIR.
“Moreover, grocery sales could be supported by Singapore Budget 2025’s announcement on inflation offset measures such as the CDC vouchers,” says OIR.
OIR notes that Sheng Siong’s share price has gained 15% year to date, outperforming the 3% gain of the Straits Times Index.
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Sheng Siong in 1QFY2025 opened two new stores and has secured six more, of which four were previously run by other supermarket chains that are scaling down. The company is bidding for another four stores.
The new stores are expected to commence operations from May through 3QFY2025, which puts it on track to open at least eight new stores this year alone. “We believe Sheng Siong is expanding its market share amid the ongoing industry trend of store rationalisation,” says OIR.
Also, in a softer macroeconomic environment, OIR expects an accelerated shift in consumption patterns towards a focus on value-for-money, which will favour Sheng Siong. — The Edge Singapore
Singapore Technologies Engineering
Price target:
RHB Bank Singapore ‘buy’ $8.90
Lagging regional peers
Shekhar Jaiswal of RHB Bank Singapore, citing how the share price gain of Singapore Technologies Engineering (ST Engineering) since the start of the year has lagged regional peers, has maintained his “buy” call on the counter.
“Given its growing potential for international defence contract wins, diversified orderbook, and increasing capabilities in conventional and digital defence”, the company should benefit from the global surge in defence spending.
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As such, Jaiswal is applying a higher valuation multiple on this counter, leading to a higher target price of $8.90 from $8.30.
On May 7, the company announced it won a contract from Singapore’s Navy to deliver a suite of mine countermeasure (MCM) unmanned systems.
The MCM suite will include a fleet of unmanned surface vessels, autonomous underwater vehicles, and a command & control (C2) centre. On the same day, ST Engineering announced the progression of the European Protected Waveform (EPW) project to its second phase.
The project aims to enhance secure satellite communications for military operations and critical government functions across Europe.
Additionally, Saab Australia and ST Engineering signed an agreement to deliver deployable health solutions for combat field hospitals in the Asia-Pacific.
Jaiswal points out that relative to regional peers, its year-to-date gain of around 70% has lagged. For example, Austal is up 106%; Hanwha Aerospace is up 170%; Korea
Aerospace is up 77%, and Hyundai Rotem is up 281%.
Excluding India and China defence names, these regional peers trade at around 30 times 2FY P/E and 17.5 times 2FY EV/Ebitda — both above ST Engineering’s current forward multiples, even though it matches their ebitda and net margins and is better in its return on equity and dividend yield. — The Edge Singapore
Centurion Corp
Price target:
UOB Kay Hian ‘buy’ $1.70
‘Relatively insulated’ from geopolitical risk
Adrian Loh of UOB Kay Hian has raised his target price for dorm operator Centurion Corp from $1.55 to $1.70, with multiple positive factors going for the dorm operator, including its ability to charge higher rentals. “With tailwinds from government megaprojects and robust rental growth, sustained earnings should be expected in our view,” states Loh in his June 24 report, where he kept his “buy” call.
“A potential REIT spin-off and the MAS’s $5 billion equity market injection just around the corner reinforce our investment case,” he adds.
According to Loh, Centurion remains one of his top picks in Singapore’s property-related sector due to its “material” exposure to the construction industry with its portfolio of workers’ dorms.
In its 1QFY2025 business update, 71% of its total revenue came from Singapore and 77% of its revenue came from workers’ dorms. The company also operates student dorms in markets such as Australia.
Loh points out that construction activity in Singapore is seen to remain “elevated” in the coming two to three years, thanks to a few mega projects such as the airport’s Terminal 5, as well as the expansion of the two integrated resorts.
The way Loh sees it, another key thing going in Centurion’s way is the upcoming $5 billion funding from the government to help boost the local stock market by allocating this money to fund managers to invest in non-Straits Times Index stocks. Centurion “should be one of the main beneficiaries” given how it has “built a strong reputation as a highly competent accommodation manager, has strong historical and forecast earnings growth”.
Loh says the company is also operating in a sector “relatively insulated” from geopolitical risk that has risen markedly in the past few days. Loh expects the company to generate higher-than-expected rental reversions while keeping occupancy levels high.
Besides Singapore, the company is bullish and has room to grow with the Johor-Singapore Special Economic Zone. “We should expect potential acquisition announcements in the near to medium term,” says Loh.
In addition, Centurion is poised to spin off a portfolio of its assets as a REIT for its own listing and according to Loh, this will take place in 3QFY2025. “Management has guided that the proposed REIT will be of a ‘reasonable size’, reflecting the company’s significant asset growth since its initial exploration for a REIT listing in 2015,” says Loh.
He deems the stock, trading at just 12.6 times FY2025 earnings and 1.1 times P/B, as “inexpensive”. He has raised his FY2025 earnings estimates by 2% and FY2027’s by 5%. In addition, Loh has applied a higher valuation multiple of 13.3 times, which is one standard deviation above the long-term average P/E of 8.1 times, deriving his new target price of $1.70. — The Edge Singapore
Oversea-Chinese Banking Corp
Price target:
RHB Bank Singapore ‘neutral’ $17.50
No major surprises; $2.5 bil capital return plan intact
While some uncertainties remain around loan drawdowns and non-interest income at Oversea-Chinese Banking Corporation (OCBC), options to manage its net interest margin and asset quality “appear to be holding up” for the bank, say RHB Bank Singapore analysts in a June 18 note.
“We project FY2025 ordinary and capital return dividend per share to provide investors with an attractive yield of 6%, which should help provide downside support for the stock,” writes RHB.
Following a meeting with OCBC’s management, RHB sees “no major surprises” ahead. The bank’s two-year, $2.5 billion capital return plan “is intact”, says RHB, and should help tide investors through this uncertain period.
That said, the bank has noticed “some cautiousness” among wealth management customers in 2Q2025 so far, says RHB. “But, on the flipside, this means OCBC’s clients are not highly leveraged.”
Around 60% of wealth management assets under management are deployed in investment products. Amid the “steep fall” in interest rates year to date, management believes there could be improved wealth management opportunities ahead, especially if market sentiment picks up, according to RHB’s analysts.
RHB is sticking to its “neutral” call on OCBC with an unchanged $17.50 target price, or roughly 9% above its traded price, inclusive of a 6% projected FY2025 yield. RHB’s target price includes a 2% environmental, social and governance premium based on RHB’s proprietary methodology.
OCBC says 67% of its loan book is to clients that are more reliant on domestic demand, which are “more resilient”.
The bulk of OCBC’s Hong Kong dollar-denominated loan exposure is on floating rates. Hence, the Hong Kong Interbank Offered Rate’s (Hibor) recent sharp decline could lead to some asset yield pressure, notes RHB.
That said, there are several mitigating factors. Its Hong Kong dollar mix is just 10% of loans and with the build-up of high-quality assets “largely done”, OCBC can “ease up” on deposit gathering, especially for costlier wholesale deposits, says RHB.
OCBC says it has not seen any particular areas coming under stress. RHB believes the drop in Hibor should be positive, “at the margin”, for OCBC’s Hong Kong commercial real estate exposure and supportive of asset quality.
Also, OCBC has a “liquid” balance sheet, with a 1Q2025 loan-to-deposit ratio at 79%, notes RHB. “We see room for the LDR to rise.”
Finally, the relief from deposit rate cuts should start being felt, says RHB. OCBC’s net interest income (NII) sensitivity guidance is for $5 million per basis point (bp) of change in policy/benchmark rate.
According to RHB, OCBC thinks its 2025 credit cost guidance of 20 to 25 bps is intact and its general provisions over-performing loans level of 0.9% is “adequate for now”.
On June 6, OCBC announced it would support Great Eastern Holdings’ (GEH) proposal to delist with a $900 million conditional exit offer at $30.15 per share for the 6.28% GEH shares it does not own.
RHB does not expect this to have a material impact on OCBC. “Assuming the privatisation route goes through, the impact on return on equity and earnings is not expected to be material,” add the analysts, at less than a 1% increase to patmi.
While OCBC’s common equity tier-1 ratio could be reduced by some 40 bps, this should not derail its capital return plan, adds RHB.
Conversely, if GEH stays listed, OCBC will retain its economic interest in the firm despite holding Class C shares, says RHB. “There is no change to the bank’s share of the insurer’s profits it can recognise.” — Jovi Ho
CNMC Goldmine Holdings
Price target:
PhillipCapital ‘buy’ 54.4 cents
Leveraged play on rising gold prices
Liu Miaomiao of PhillipCapital has kept her “buy” call along with a higher target price of 54.4 cents for CNMC Goldmine Holdings from 49 cents. She reasons that CNMC is a “leveraged play” on rising gold prices, which has been supported by heightened tensions in the Middle East and active accumulation by central banks.
In her June 20 note, Liu raised her average selling price assumptions for the company from US$2,900 ($3,716) to US$3,100 per oz. Also, the company is set to increase its production this year with additional capacity in place.
Besides gold, Liu believes CNMC will also increase the production of non-gold metals, such as zinc, silver and lead, by at least 50% y-o-y. “We believe FY025 will be an exceptional year for CNMC, driven by broad-based tailwinds, including record-high gold prices and the long-awaited ramp-up in production.
Liu has increased her FY2025 patmi forecast by 27% to US$22.7 million, suggesting that more dividends are installed. “We anticipate enhanced shareholder returns through a special dividend or an increase in the dividend payout ratio,” says Liu, noting that the company has a dividend policy of a minimum 30% payout ratio and a solid track record of increasing payouts during periods of strong financial performance. — The Edge Singapore
