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Broker's Digest: Guocoland, Yangzijiang Shipbuilding, Keppel Corp, HRNetGroup, Hyphens Pharma International

·10-min read

Broker's Digest: Guocoland, Yangzijiang Shipbuilding, Keppel Corp, HRNetGroup, Hyphens Pharma International


Price target:

DBS Group Research “buy” $2.30

Multi-bagger potential

DBS Group Research has started GuocoLand with a “buy” recommendation as it sees the counter as a “multi-bagger play on value-unlocking”.

Analysts Derek Tan and Rachel Tan have also given the property developer a target price of $2.30, which is based on a “conservative” 60% discount to its revised net asset value (RNAV) of $5.70.

In their report dated April 5, the analysts see GuocoLand as being a play into future-ready living.

The property developer has development projects that are located in Singapore, Malaysia and China, which are built to accommodate the rising expectations of comfort and convenience.

The properties are also located in strategic urban areas, which could appeal to homebuyers who are riding on the flight to quality trend, note the analysts.

“As flexible working arrangements such as the new hybrid workfrom-home (WFH) trend becomes the normal in a post-Covid-19 world, we think that buyers would be more inclined towards quality residential developments that exhibit an efficient use of space with supporting amenities that offer a work-live-play lifestyle,” they write.

“GuocoLand’s development properties are built around the future lifestyles of people and accommodate their rising expectations of comfort and convenience. Further, as borders reopen, we also anticipate foreign demand to return for private residential properties in Singapore, especially in prime locations,” they add.

Further to this, the analysts see GuocoLand’s positive sales momentum to continue as it caters to both local and foreign demand. “[This is likely to drive] revenue CAGR of 19% from FY2021–2023 for this segment that contributed 84% to FY2021 revenue,” they say.

In addition, GuocoLand is likely to benefit from the upcoming office upcycle.

“We believe that the flight to quality trend will lead the office market recovery in Singapore. GuocoLand is well-positioned to capitalise on this trend, given that Guoco Midtown is the only source of new supply of CBD Grade A office space in Singapore in 2022–2023,” the analysts note.

“This is on top of positive rental reversionary trends expected for Guoco Tower in a tight supply market. There is a potential upside to our earnings from the revaluation of Guoco Midtown that we have yet to factor in,” they add.

At its current share price, GuocoLand is trading at an attractive P/NAV of 0.4x and offers decent FY2022 and FY2023 yields of 3.9% p.a., note the analysts.

One way to crystallise value would be the potential securitisation of GuocoLand’s income-producing portfolio or conversion into a “stapled security”. The move, say the analysts, could be a “significant share price catalyst” with potential upside ranging from 50% to 100%.

On the other hand, potential key risks include a slowdown in the economy, weak sentiment, a faster than expected increase in interest rates, as well as regulatory risks. —Felicia Tan

Yangzijiang Shipbuilding

Price target:

CGS-CIMB “add” $2.41

Wait for spinoff is over CGS-CIMB Research analysts Lim Siew Khee and Isabella Tan have kept “add” on Yangzijiang Shipbuilding Holdings (YZJ) with a higher target price of $2.41 from $1.78 previously as the wait for the listing of YZJ’s spin-off group is over.

The EGM for the approval of the spin-off, named YZJ Financial Holdings (YZJFH), will be held at 4pm on April 18.

In their report dated April 5, Lim and Tan say they expect the spin-off to be listed by the end of April.

“Our sum of the parts (SOP) valuations are based on pro-forma 9x P/E FY2023 shipbuilding/shipping profit, based on 1 standard deviation of core shipbuilding historical valuations, assuming order momentum tapers relative to 2021,” the analysts write in their April 5 report.

“For YZJFH, we peg it at 8x P/E of FY2023 profit, discounted to larger fund management peers,” they add.

Catalysts to YZJ’s share price include the successful listing of YZJFH, as well as the successful negotiations for the six fund management projects. However, investors should be wary of any potential tightened regulations in China and Singapore, which could pose as a key risk to the counter’s share price performance.

On April 1, YZJ’s directors have implied that they are in favour of the proposed spin-off of the Mainboard-listed group’s investment segment.

The proposed move is deemed to be in the company’s best interests, said the shipbuilder in a regulatory filing on April 1. — Felicia Tan

Keppel Corp

Price target:

PhillipCapital “buy” $7.07

Of progress, and delays

PhillipCapital analyst Terence Chua has kept a “buy” rating on Keppel Corp with an unchanged target price of $7.07, following a series of updates from the company on multiple fronts.

Earlier on March 31, Keppel Corp and Sembcorp Marine (SembMarine) said they have made “significant progress” on advancing the proposed combination of Keppel Offshore & Marine (Keppel O&M) unit with SembMarine.

However, the two companies said more time and deliberation will be required to complete the due diligence to reach a mutual agreement and will update again a month later.

Despite the delay of the proposed combination, Chua continues to stay positive on Keppel, and believes that a definitive agreement will emerge very soon. However, there are likely risks if the deal takes too long to sew up and the world economy worsens.

On the same day, Keppel announced the sale of its loss-making logistics business to Geodis International for $80 million, which values Keppel Logistics at an enterprise value of $150 million on a cash free and debt free basis.

The sale is part of a series of divestments Keppel is making, including “sub-scale” businesses, to help reach its return on equity target of 15%.

Chua believes that Keppel T&T, the unit that holds the logistics business, will now re-channel its capital to focus more on data centres and subsea cable systems.

Chua also notes that Keppel has made significant progress advancing the sale of its legacy rigs and associated receivables. This is in light of how Keppel had previously announced that it will be transferring its legacy completed and uncompleted rigs and associated receivables to a separate company (asset company) that would be majority owned by external investors.

The asset company transaction and the proposed combination between Keppel O&M and SembMarine will be inter-conditional and are being pursued concurrently.

“Should the proposed transaction be successfully completed, external investors will provide capital for completing these uncompleted rigs, which would reduce Keppel’s capital requirement,” explains Chua.

Keppel’s economic exposure in asset company is therefore also expected to be reduced over time, as the rigs or asset company are sold or securitised when conditions in the rig chartering market improve.

On the whole, Chua is positive on Keppel as the outlook of the industry is also improving, underpinned by firmer oil prices. “With the overhang removed, along with the divestment of its logistics unit, we believe Keppel will be re-rated,” he adds. — Chloe Lim


Price target:

RHB Group Research "buy” $1.01

Continued outperformance expected in FY2022

RHB Group Research’s Jarick Seet has kept his “buy” call and $1.01 target price for professional and flexible staffing firm HRnetgroup. The revised target price is pegged to 14x FY2022 earnings, according to Seet in his April 5 note.

His move follows the announcement that the group’s subsidiary RecruitFirst has extended its contract with the Ministry of Education (MOE) for another four years till 2025, to run the Focus Language Assistance in Reading (FLAiR) programme. “We expect [the programme] to be worth several millions in SGD,” says Seet.

The FLAiR programme provides language assistance to children in the kindergarten 2 grade in around 400 pre-school centres in Singapore. Some 4,000 children been benefitting from this programme annually since its inception in 2018.

Aside from this, Seet reckons that HRnetgroup is likely to have “continued outperformance” in FY2022 ending December. This follows its strong performance in FY2021, where revenue came in at $590.5 million (up 36.4% y-o-y) and profit after tax minus interest was up by 39.7% to $65.5 million.

Seet’s expectations of a positive FY2022 performance comes as the “management remains bullish that both its recruitment segments across all geographies will continue to see strong demand for their services”.

“As a result, we remain bullish that such strong performance will continue and the continue will benefit from higher margins as well,” he explains.

Seet adds that HRnetgroup has been an “efficiently run company” compared that its peers around the world, many of whom have been running at a loss.

The counter has also been trading at 10.6x FY2022 P/E, which is lower than the average multiple of its global peers and remains as a “decent proxy to the global economic recovery and should enjoy a great FY2022”. —Amala Balakrishner

Hyphens Pharma International

Price target:

KGI Group Research “outperform” 48 cents

SAC Capital “buy” 40 cents

Novem acquisition to boost growth

Analysts are positive on Hyphens Pharma International given its good set of FY2021 earnings ended December 2021, its latest Novem acquisition, as well as the company obtaining Singapore’s first HSA-registered e-pharmacy licence.

The company reported earnings of $6.8 million for FY2021, up 11.1% y-o-y. Revenue in the same period was up 4.1% y-o-y to $125.9 million, with part of the growth from Novem, a distribution business acquired in December 2021 for $16.3 million.

SAC Capital analyst Lam Wang Kwan is upbeat on the stock as he has kept a “buy” rating with an unchanged target price of 40 cents.

Lam is impressed with its FY2021 results. For FY2022, Lam expects Novem to contribute about $13 million in sales and approximately $1.5 million to the bottom line for FY2022. “The amortisation of goodwill is expected to kick in from FY2023 onwards, offsetting the gain by approximately $1.2 million annually over the next 10 years,” writes Lam.

Elsewhere, in January, the company launched its e-pharmacy business WellAway, which opens up new business opportunities. Most recently, Hyphen Pharma’s subsidiary Docmed announced a partnership with SATA CommHealth to deliver a new primary healthcare system for migrant workers from April onwards. Under this partnership, WellAway will be providing its e-pharmacy services and medication delivery to the migrant worker patients following teleconsultation done by SATA CommHealth.

According to KGI Group Research analyst Megan Choo, Docmed’s collaboration with WellAway eliminates the need to manage a large inventory of medications and e-prescriptions are conveniently delivered to the masses.

Additionally, pharmaceutical group Servier Singapore, is working closely with WellAway to explore possibilities of healthcare digitalisation. “With this golden ticket of being Singapore’s first HSA-registered e-pharmacy, more collaboration and deals are expected to occur moving forward,” says Choo, who has an outperform call and 38 cents target price.

On the whole, Lam of SAC Capital expects Hyphens Pharma as a whole to grow its earnings for FY2022 by 24.4% on the back of revenue growth of 18.3% and 8% for FY2022 and FY2023 respectively. The return of elective surgeries as restrictions eased could further lift business sales, adds Lam. — Chloe Lim

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