Singapore Telecommunications
Price target:
Maybank Securities ‘buy’ $3.65
Further share buybacks
Although the potential for telco consolidation in Singapore remains, it is unlikely to ease competition among incumbents due to Simba’s strong growth, says Maybank Securities analyst Hussaini Saifee in his Jan 6 note.
Simba has captured 5% of Singapore telcos revenue market share within four years of its launch and is expected to gain further traction. This is due to its competitively priced mobile and fixed broadband plans, which are 30% to 50% cheaper than the incumbents’ lower-speed options. While Simba’s network is comparatively weaker, the end-user experience shows only a modest lag of 6% to 10%. These dynamics are likely to intensify competition in the industry.
“We think the desired results of industry consolidation, if it happens at all in 2025, may not percolate to the incumbents,” says Hussaini.
Nonetheless, Hussaini has maintained his “buy” call on Singapore Telecommunications (Singtel) with a target price of $3.65.
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Singtel’s management earlier flagged $6 billion in potential capital recycling as part of its Singtel28 strategy. Hussaini highlights two medium-term potential capital-recycling targets: equalisation of Singtel’s stake in Bharti with the Mittal family and divestment of its stake in Thailand’s Gulf Energy.
Singtel has already made progress on its capital recycling efforts, raising $2 billion from 2024 to 2025. Additionally, its 22%-owned associate, Singapore Post , has announced plans to divest its Australia business at an enterprise value of A$1 billion ($851 million), potentially contributing $79 million in special dividends to Singtel.
Hussaini projects that Singtel will generate $4.9 billion in free cash flow (FCF) from FY2025 to FY2027, with an additional $8 billion buffer from capital recycling.
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If SingPost monetises more Singapore-based assets, $300 million in special dividends could be added, yielding a $13.2 billion cash flow and asset recycling buffer for dividends for FY2025 to FY2027.
Singtel’s estimated dividends from FY2025 to FY2027 total $8.9 billion, suggesting excess capital of $4.3 billion that could be partly used for share buybacks, says Hussaini. — Nurdianah Md Nur
Yangzijiang Shipbuilding
Price target:
CGS International ‘add’ $3.62
‘Superior’ ROE, stronger order book
Lim Siew Khee and Meghana Kande of CGS International have maintained their “add” call on Yangzijiang Shipbuilding. By raising their earnings estimates to take into account higher revenue and margins, they have derived a higher target price of $3.62 from $3.20.
In a Jan 7 note, the analysts expect Yangzijiang Shipbuilding to report 2HFH2024 earnings of RMB3.2 billion ($600 million) on Feb 27, up 33% y-o-y, thanks to stronger deliveries and margins.
According to Clarksons, the company in FY2024 delivered 64 vessels. These are mainly higher-margin containerships, slightly beating its target of 63 ships. In FY2023, it had delivered 57 vessels.
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Lim and Kande figure that Yangzijiang Shipbuilding is benefitting from a weakening renminbi, which has depreciated by 4% versus the US dollar since last October. The China-based company books most of its costs in renminbi but generates revenue in US dollars.
The analysts are eyeing FY2025 order win targets by the company as a possible catalyst.
“The containership ordering upcycle remained strong in 2024 as liners continued their fleet rejuvenation programmes,” state Lim and Kande.
They recall that in its 3Q2024 business update briefing, the company has guided for a higher FY2025 order win target of more than US$4.5 billion ($6.2 billion) on expanded capacity from its new yard at Xinqiao Park, which will be ready in FY2026.
For now, the CGSI analysts are keeping their FY2025 and FY2026 order win forecasts at US$5.5 billion per year.
They are maintaining their bullish stance on this counter, noting the company’s “superior” ROE of 27% versus its peers in China, which could only fetch 4%.
Along with raised earnings estimates pegged to 12 times FY2026 earnings, they have derived a higher target price of $3.62. — The Edge Singapore
Grand Venture Technology
Price target:
DBS Group Research ‘buy’ $1.04
Capturing more semicon opportunities
Amanda Tan and Ling Lee Keng of DBS Group Research have raised their target price for Grand Venture Technology (GVT) from 70 cents to $1.04 as they see the manufacturer with heavy exposure to the semiconductor space riding on a strong and growing blue-chip customer base. The analysts have also retained their “buy” call on the counter.
In a Jan 6 note, Tan and Ling say GVT has delivered strong revenue and earnings growth with CAGRs of 29% and 16%, respectively, over the past five years, serving top blue-chip players.
They observe that GVT’s customers tend to be stickier, as its products are made to specific specifications. Notwithstanding near-term volatility, the semiconductor industry is well poised for growth, thanks to the digitalisation push, they add.
“McKinsey projects that the semiconductor industry will become a trillion-dollar market by 2030. The long-term semiconductor outlook looks bright, which should benefit GVT, as more than half of its revenue comes from the segment.”
While contributions from new front-end customers in FY2024 are expected to remain small, the analysts see meaningful growth in FY2025, with FY2026 contributions expected to be more significant.
Furthermore, the group was recently selected to supply parts and components for so-called next-generation thermal compression bonding (TCB) equipment to a leading global semiconductor assembly and packaging equipment manufacturer.
Noting that GVT’s share price has surged by some 47% since December, Tan and Liang remain “positive” over the long term with valuations at 14.6 times FY2026 earnings or below one standard deviation (s.d.) of GVT’s historical mean.
Their new target price of $1.04 is based on a P/E of 21 times FY2026 earnings to account for more meaningful volume production for new front-end customers. While there have been no changes to their FY2024 estimates, Tan and Ling have revised their FY2025 top line by 4.6% to account for a higher wallet share of existing backend customers while initiating their FY2026 estimates.
“Despite raising the top line, we retain our FY2025 earnings estimates, given our lower margin assumptions, attributable to continued investment in capabilities and dual-listing expenses.”
Key risks noted by the pair include a delay in GVT’s front-end expansion, a prolonged chip glut, and macro weaknesses. — Douglas Toh
CSE Global
Price target:
Maybank Securities ‘buy’ 64 cents
Bigger space a sign of better prospects
Maybank Securities has maintained its “buy” call on CSE Global . With “stars aligned” for its prospects, analyst Jarick Seet has also raised his target price to 64 cents from 60 cents.
On Jan 3, CSE Global announced plans to sell and lease back a facility used for manufacturing in Texas for US$29.25 million ($39.94 million) and channel the estimated net gain of US$8.6 million into acquiring a bigger property in the US. From Seet’s perspective, having a bigger space is a sign of the management’s “strong confidence” in its prospects.
“We believe this is due to the substantial growth opportunities available for the electrification of US data and utilities centres. We believe it will also explore new states with better and friendlier tax incentives which add more positives for CSE Global,” says Seet in his Jan 6 note.
He expects the company to undertake share buybacks as it generates better margins from its operations. Seet has raised his FY2024 and FY2025 earnings estimates by 29.8% and 5% respectively. Based on a valuation multiple held steady at 13 times FY2025 earnings, this implies a higher target price of 64 cents from 60 cents. — The Edge Singapore
Mapletree Logistics Trust
Price target:
UOB Kay Hian ‘hold’ $1.41
Vacancy in China at a historical high
UOB Kay Hian’s Jonathan Koh has trimmed his target price for Mapletree Logistics Trust (MLT) from $1.45 to $1.41.
“We remain concerned about MLT’s exposure to China as a high vacancy rate of 21.5% continues to exert downward pressure on rents. Demand could further weaken if the US-China trade conflict resurfaces and intensifies,” says Koh in his Jan 3 note.
On the bright side, weakness in China is offset by positive rental reversion in Singapore and Australia, adds Koh, who has kept his “hold” call.
Due to a downturn in the property market and tepid wage growth, consumer confidence and retail sales in China are still held down. Demand from domestic e-commerce and express delivery operators remains weak and large integrated e-commerce platforms are reverting to their self-built warehouses amid a consolidation.
“Rents are under pressure as landlords adjusted rents lower to attract tenants and shore up occupancies,” he says.
Citing data from CBRE, Koh says rent for logistics space across China was down 3% q-o-q and down by 6.4% in 3Q2024 since the start of the year.
In 3Q2024, vacancies in China are at a historical high of 21.5%. Only southern China is showing “pockets of strength” but for MLT, this has limited impact as its assets there, such as in Guangdong province, accounted for just 5% of its total floor space in its China portfolio.
Koh says that MLT suffered from negative rental reversions, down 3.5% for its assets in Tier 1 cities and down 13% in the Tier 2 cities, leading to an overall drop of 12.2% in its 2QFY2025 ended September 2024.
A likely escalation of the trade war with the US could hit demand for logistics space too. “Management expects the negative double-digit rental reversion to persist for another two quarters and moderate to negative single digit thereafter,” says Koh.
In Singapore, Koh expects rents to pause for a “breather” after a “stellar rise”. Given a foreseen increase in supply, landlords are now focusing on maintaining occupancy and have “toned down” expectations of further rental hikes.
Again, citing CBRE, prime logistics rents in Singapore in 3Q2024 were flat q-o-q but up 3.3% y-o-y. “Tenants are resisting further increase as rents have already risen 42.7% since the trough in 1Q2020. Third-party logistics (3PL) and e-commerce players are in consolidation mode,” says Koh.
Koh says MLT expects positive rental reversion to moderate to high single-digit in FY2026 ending March 31, 2026, easing from the 12.5% gain in 2QFY2025.
Koh observes that MLT is now focused on acquiring modern high-specification logistics properties in growth markets, such as India, Malaysia and Vietnam, which benefit from supply chain repositioning, e-commerce growth and the limited supply of modern logistics properties.
In 1QFY2025, MLT acquired from its sponsor a modern Grade A-logistics property in Malaysia’s Shah Alam and one each in Ho Chi Minh City and Hanoi for $227 million. MLT is also keen to expand in Japan, which is a matured market, due to the attractive yield spread, says Koh.
Given its relatively high leverage of 40.2% as of September 2024, MLT is funding the acquisitions by using proceeds from the divestment of properties with older specifications and limited redevelopment potential. The manager has identified some $1 billion worth of assets to be sold over the next three years, with those in Hong Kong and China accounting for half.
Meanwhile, MLT is bracing for cost of debt to increase from 2.7% for 2QFY2025 to 3% as at the end of FY2026, as loans are refinanced and interest rate swaps are rolled over at higher interest rates in 2HFY2025 and FY2026.
Koh, taking into account these factors, has trimmed his distribution per unit projections by 3% for FY2025 and FY2026.
His new target price of $1.41 is based on the dividend discount model with cost of equity at 7% and terminal growth at 1.5%. — The Edge Singapore
Oiltek International
Price target:
CGS International ‘add’ $1.32
Banking on an asset-light model
CGS International analyst William Tng has initiated coverage on Oiltek International with an “add” call as he sees several upsides to the integrated process technology and renewable energy solutions provider including a strong order book and its asset-light business.
In his Jan 3 report, Tng notes that FY2024 was a good year for orders for the company with a cumulative win of nearly RM200 million ($60.9 million) year-to-date (ytd) as of Oct 29, 2024. The company’s outstanding order book to be completed over the next 18 to 24 months is at RM401 million.
Looking ahead, the analyst sees possible order win drivers such as higher biodiesel blending requirements for Malaysia, which ranges from 10% to 20% in FY2026. Oiltek is also likely to benefit from the increased use of sustainable aviation fuel, which will result in more demand for refining plants.
“According to the International Air Transport Association (IATA), sustainable aviation fuel only accounted for 0.3% of global jet fuel production in 2023, which leaves a long runway for increased share of global jet fuel from sustainable aviation fuel, resulting in higher demand for refining plants,” Tng writes.
Oiltek, which outsources the fabrication of its parts and modules to third parties, has just 81 employees as at April 4, 2024. The company’s asset-light business means it gets to enjoy a negative working capital cycle as it does not carry much inventory and is usually able to repay suppliers over a longer period.
In Tng’s view, Oiltek’s key competitive advantage is its success and expertise in the design and assembly of refining plants. He adds that the company also creates entry barriers with patented process technologies.
Tng has given Oiltek a target price of $1.32, which represents an upside of 28.16% over the stock’s last-traded price of $1.03. His target price is also based on an FY2025 P/E of 18.8 times, or a 10% discount to the sector average given the company’s smaller market capitalisation.
To him, further order wins and accretive M&As are key catalysts for any upside in Oiltek’s share price, while order cancellations, delays, and unfavourable foreign rate movements are downside risks. Other risks include sudden increases in raw material prices and unanticipated disruptions in raw material supplies.
“Given the illiquidity of its shares (at March 15, 2024, the top 20 shareholders held 95.6% of Oiltek), any negative news on the stock or major shareholder disposal could see a sharp decline in Oiltek’s share price,” Tng adds. — Felicia Tan
Seatrium
Price target:
UOB Kay Hian ‘buy’ $2.80
Stronger offshore and marine dynamics
UOB Kay Hian’s Adrian Loh has maintained his “buy” call and $2.80 target price on Seatrium, as he notes that the key Singapore-listed offshore and marine play has ended 2024 with a notable contract win plus other potentially positive developments.
In addition, the likely completion of a joint probe by the Monetary Authority of Singapore and Commercial Affairs Department under the Securities and Futures Act will be a key re-rating catalyst in the near term.
“We continue to like Seatrium as we believe that the company will benefit from stronger offshore marine dynamics in 2025 as well as demand for offshore vessels and structures related to the renewables industry,” says Loh in his Jan 3 note.
On Dec 24, Seatrium announced it won a contract from BP to build an offshore platform for use in the Gulf of Mexico. Loh figures that the contract, whose value was not disclosed by Seatrium, is worth between $500 million and $600 million.
Using Seatrium’s order book of $24.4 billion at the end of 3QFY2024 as the base, this BP contract likely brings Seatrium’s order book to some $25 billion.
Loh believes Seatrium is a strong contender for two more follow-on projects in the Gulf of Mexico under BP. “The building of a series of such assets will enable Seatrium to capture higher profit margins given economies of scale,” he reasons.
Also, Loh expects Seatrium to have completed by the end of 2024 its slew of so-called legacy contracts that have weighed down on its gross margins and have caused an overhang on the share price.
In mid-November, Seatrium delivered its fifth newbuild jack-up rig to Borr Drilling, which was nearly a year ahead of schedule and within budget. From Loh’s perspective, this bodes well for Seatrium’s sequential ebitda trend in 2HFY2024 since the completion of projects will see final payments paid to Seatrium.
Coupled with an earlier rig already delivered in August 2024, Loh estimates Seatrium will receive at least between $400 million and 420 million in final payments for both rigs.
Seatrium has also taken what Loh calls a “small step” into the “busy” Indian market, with a tie-up with Cochin Shipyard of Kerala to jointly design and supply equipment for jack-up rigs for India.
According to Loh, India is increasing domestic production to reduce import reliance. “India’s pursuit of self-sufficiency in energy could be an interesting theme for Seatrium to ride on.”
Seatrium has thus far spent around $43 million to buy back 25.2 million shares at about $1.72 each, equal to less than 44% of earmarked for this purpose.
Loh expects Seatrium to further support its share price in the lead-up to its 2024 results, scheduled for late February. Since its 3QFY2024 business update on Nov 11, Seatrium has repurchased over 7 million shares worth nearly $14 million.
While noting that near-term risks include weaker oil prices, Loh is keeping his forecasts for the company for now.
His $2.80 target price is based on 1.4 times price-to-book, one standard deviation above Seatrium’s five-year average.
Loh reasons that this P/B multiple “appears reasonable” given Seatrium’s “strong” competitive position globally, as many of its peers have shuttered over the past decade. — The Edge Singapore
Digital Core REIT
Price target:
DBS Group Research ‘buy’ 75 US cents
Departing tenant will leave a ‘blank sheet of opportunities’
DBS Group Research has kept its “buy” call and target price of US$0.75 ($1.02) on Digital Core REIT (DCREIT) even after one of its tenants said they will not renew their lease upon expiry in June.
The tenant for the property at 8217 Linton Hall Road now accounts for 11% of the REIT’s revenue but is paying rent at around 10% to 20% below market rates.
Given the market vacancy of less than 1% now in Northern Virginia, the region where this data centre is located, the REIT could sign up a new tenant at a higher rate within six months, says DBS.
“The lease expiry provides a blank sheet of opportunities to capture higher value for the site,” says DBS in a Jan 3 note.
“While a full redevelopment of the property is a possibility, this is likely to entail a divestment to its sponsor or third parties.
Under the base case scenario put forth by DBS, DCREIT will hold on to this asset, put up with the near-term “pain” but work towards longer-term upside potential.
While the Northern Virginia data centre is vacant and not generating income, DCREIT will see additional contribution this year from its Frankfurt data centre after it raised its stake last year.
As such, earnings cut from the loss of this tenant in Northern Virginia will be much lower than anticipated, says DBS.
DBS estimates the REIT will see a drop of 8% in its DPU for the current FY2025 to 3.37 US cents, followed by a 3% increase in FY2026 to 3.75 US cents. — The Edge Singapore
Wee Hur Holdings
Price target:
PhillipCapital ‘buy’ 62 cents
Key growth seen from dormitory business
PhillipCapital analyst Yik Ban Chong has initiated a “buy” call on Wee Hur Holdings with a target price of 62 cents.
The company, listed in 2008, generated the most revenue, or 41% of the total, in its 1HFY2024 ended June 30, 2024, from construction. Its workers’ dormitory business was a close second with 39%. The company also deals with property development and fund management.
To Yik, Wee Hur’s worker’s dormitory segment remains a “key growth driver”, with higher rental rates in FY2024 and a higher bed capacity expected to materialise by the end of FY2025. The group’s second purpose-built dormitory (PBD), Pioneer Lodge, is its second one with 10,500 beds. It is expected to be partly operational by 1Q2025 and fully operational by the end of this year.
“We expect revenue and patmi for the workers’ dormitory segment to increase by [around] 40% CAGR from FY2023 to FY2025,” says Yik. “There is upside to our target price if the remaining two-year lease of the 15,744-bed Tuas View Dormitory is extended.”
Wee Hur, which recently secured an A$1.6 billion ($1.36 billion) exit from its Purpose Built Student Accommodation (PBSA) portfolio, could net $320 million in proceeds and a one-off gain from the sale of $36 million, Yik notes.
The move could also improve the group’s financial position, bringing it to net cash of $259.3 million from its current net debt of $60.6 million.
“Given the group’s track record of declaring special dividends during strong financial performance, we believe there is a strong likelihood that special dividends may be announced,” he writes.
“Notably, in FY2012, the group reported around $90 million gain from sale from the completion of the Harvest@Woodlands industrial development project and subsequently distributed $15.9 million in special dividends.”
Following the sale of its PBSA portfolio, Wee Hur will see a 10.6% increase in its revised net tangible assets (NTA) to 73 cents from 66 cents. “Based on the average 0.9 times P/B of the group’s comparables, this represents a 56% upside in valuations based on current stock prices,” says Yik.
“Given the successful agreement to realise value from its PBSA portfolio, we believe the group is well-positioned to leverage its expertise and experience to maximise the potential of its remaining tangible assets,” he adds.
At the closing price of 42 cent as at Yik’s report dated Jan 3, the stock is trading around 36% below its book value. — Felicia Tan
