China

InnoTek Limited ($0.475)

Innotek recorded improved performance in the Group’s Automotive and Office Automation (“OA”) business segments, boosting the top line for the six months ended 31 December 2022 (2H’22) to S$102.3 million, 14.6% higher than S$89.3 million in 2H’21.

The OA segment recovered strongly as supply chain disruptions eased, resulting in higher sales from key customers in China and Thailand. Revenue for the segment’s parts assembly business also increased, reflecting the success of the Group’s efforts to move up the value chain.

Meanwhile, the Auto business benefited from stimulus policies implemented in China and higher orders from customers making up for lost production time during COVID-related lockdowns.

Growth was partially mitigated by weaker demand overseas as well as in the Chinese commercial vehicle market.

The top line improvement for 2H’22 and FY’22 was partially offset by lower turnover in the TV and Display segment, mainly due to dampened consumer sentiment amid the Russia-Ukraine conflict, high inflation in Europe and USA, as well as an oversupply in the European TV industry.

The Group also recorded improved performance in the gaming machine and medical device businesses, partially offset by slower-than-expected progress in other businesses such as 5G servers.

Looking ahead, business momentum is largely expected to improve, as the country lifted its “Dynamic Zero” COVID policy in January 2023.

However, the Group is closely monitoring several headwinds such as fluctuating export demand, soft domestic demand, further disruptions to the global supply chain due to the prolonged Russia-Ukraine war, and elevated levels of inflation.

7th consecutive quarter of profit

“InnoTek has closed its seventh consecutive year of profitability, underscoring our resilience in the face of numerous challenges.” -- Lou Yiliang, CEO,  InnoTek

Pent-up demand in China is expected to boost recovery in the Group’s Auto segment; meanwhile, the Group intends to ride the growing adoption of Electric Vehicles (“EVs”) to offer its precision stamping expertise and become a strategic partner for key EV customers.

For the OA segment, the Group expects a near- to medium-term slowdown, amid waning recovery and a shift in market demand from China into Southeast Asia.

In response, the Group is expanding into parts assembly, compared to single-piece manufacturing. For the TV and Display segment, short-term demand is expected to be impacted by softer Europe and American markets.

The Group remains confident its key customers will maintain market share in the high-end TV market and is focusing on improving technical capability, upgrading the Group’s products and implementing cost-control measures to meet long-term demand.

The Group continues using its internal resources to strengthen production capabilities in its manufacturing facilities in Rayong, Thailand, which has steadily increased production of OA and Auto products, as well as Bac Ninh, Vietnam, which has commenced the production of bespoke-design heatsinks for a TV customer and will start the production of TV bezels in the first quarter of 2023.

Meanwhile, the Group will continue its plan to diversify into emerging industries and establish partnerships in the medical devices, 5G servers, and gaming machine sectors.

These partnerships are expected to bear fruit in the coming months and will contribute to financial performance from FY’23.

Cedric Yang contributed this article to NextInsight

So why did the EPS fall? 3 reasons:

1 [CASH ITEM] In FY 2021, there was an one-off cash gain from the sales of property circa $2.2m, which was recognised under "Other operating Income". This cannot be put into consideration when studying the business of the company because property transactions are not part of ISDN' s business operations. 

2 [NON CASH ITEM] In FY 2021, there was an unrealised FX gain of circa $2m. Again this cannot be put into consideration when studying the business of the company because foreign exchanges are not part of ISDN' s business operations.

However, it is an important cashflow parameter of any international company, needing to manage its FX well. I will elaborate on this below.

3 [NON CASH ITEM] In FY 2022, there was an unrealised FX loss of circa $4.8m. One year fluctuation from FX unrealised gain of $2m to unrealised loss of $4.8m should give investors the insights that
1) FX is volatile
2) FY 2022 was an extraordinary year with high interest rates, thereby unusually strong USD and SGD.

In business, the way to manage FX risks is to not be FORCED to realise losses.

Theoretically, the way businesses manage such risks is to have strong international cash reserves (ISDN combined cash reserves stands at circa $56.5m) and good credit so the company could pay off its liabilities (payables, loans etc) via a stronger currency instead of the weaker ones (such as RMB and RUP in this case).

In its press release, ISDN said it has policies to manage its exposure to FX risk.

Although investors are generally short-term minded and the market is filled with emotional traders, long-term investors should take refuge in the prudency of the company and its longer term automation segment's tailwinds in rising China & Southeast Asia.



Additionally, the commercialisation of hydropower project in Indonesia, Lau Biang1, is bringing significant earnings to the table, circa $2.9m (see table below).

Add that to the impending commercialisation of Anggoci and Sisira projects which can bring an estimated $3.5m earnings for the remaining FY 2023, I' m confident of the future prospects of ISDN.

Adapted from ISDN presentation slide. Lau Biang 1 figures based on ISDN estimates (S$m). The electricity is sold to the Indonesian state electricity company PLN, which can be adequate for roughly 12,000 homes.

The unrealised FX loss provides a low base for FY 2023 outperformance. I am confident with China reopening, Southeast Asia (especially Vietnam) being China+1, commercialisation of their nascent hydropower plants, and future hydro construction having unpurchasable know-hows, ISDN' s 2023 will be one to look out for.

Only investors that stick through with the company and understand its business and future deserves to win with the company. 


Cedric Yang's previous articles include: "My Investment Thesis for ISDN and AEM in Tough Times" -- Part 1  

Two Christmases ago in 2017, the HK-listed stock of Leoch International -- China's No.1 supplier of lead-acid batteries to the country's telco industry -- was sitting on a precipice. Then it fell throughout 2018 because of the US tariff war against China, which raised the selling prices of Leoch's exports of batteries to the US. The tariff war had large ripple effects globally: Orders for Leoch's batteries weakened as both domestic and international clients turned cautious about the economic outlook, and delayed their expenditure on new or replacement equipment. After bottoming out in 2019, is the stock poised for an upturn in 2020? As though that wasn't enough to dampen business, China imposed stricter regulations that hit the recycling segment of Leoch's business and other battery recyclers. They had to shut down their plant for a few months to bolster their anti-pollution equipment and measures. And the shortage of recycled lead led to do a jump in PRC prices of lead, the main raw material. That ate into the profit margin of its business of manufacturing batteries. Well, Leoch's 2018 net profit dropped 56% to RMB106.4 million on RMB9.5 billion of sales.

Not surprisingly, the stock price went deep south, from HK$1.40 level in Dec 2017 to around HK$0.60 by end-2018.

Since then, it has bobbed up and down a bit.

This puts the historical PE ratio at around 6 and price-to-book ratio at the very low figure of 0.2.

While Chairman Dong Li has not prioritised investor relations much in the past, he decided a couple of months ago to hire an investor relations director who also wears the hat of head of capital markets.

Pacita Sze, IR director of Leoch, speaking with Singapore investors. Photo by Romil Singh.As part of an international outreach, she travelled from HK to Singapore recently to tell the Leoch story to investors, and that's how we met Pacita Sze. 

It's not only that Leoch trades at cheap valuations.

Business growth has come back, in part because clients had to, finally, proceed with purchases they had held back on.

"Growth momentum for the Telecom and Data Center business has picked up since June thanks to increasing client demands from the PRC and overseas markets," said the company in its 2019 interim report released in Sept.

Telcos and data centres are key clients, accounting for 42.8% of total sales in 1H2019.

And the business is largely in China, where sales accounted for 60% of Leoch's total revenue.

The price of lead in China has normalised and the following investments in 2018 are expected to bear fruit from 2020: 

5G ROLLOUT TO BENEFIT LEOCH

Five of the world's top ten carriers use Leoch batteries to guarantee normal operation of their communication networks.The rollout of 5G in China, where 5G licenses for commercial use were issued by the government in June 2019, will trigger investments by telcos, the company said in its 2019 interim report. This would "definitely bring the Group new growth opportunities in the near to medium term."   The 5G rollout will translate into strong demand for backup power solutions in 5G base stations/small cells and data centres: • 5G requires far more base stations --  it is expected that 4.9 million 5G base stations will be set up, or 1.3 times that of 4G, by 2030. Also, 12 million small cells in China. • Because the power consumption of a 5G base station is 3X that of a 4G station, the backup power solutions market in China and elsewhere will boom.  •The 5G rollout will boost also the demand from a growing number of data centres, which Leoch already provides backup power solutions to in China and globally.

Concerns:

1. Current liability: Leoch had approximately RMB880 million cash and cash equivalents as at end-June 2019.

This looks inadequate relative to its RMB2.4 billion of bank borrowings due within a year and classified under "current liability".

The borrowings rose over the past three years to fund investments in new warehouses and factories in, and outside of, China.

(For example, the new Anhui and Vietnam plants cost RMB1.5 billion and RMB274 m, respectively).

We were given to understand that the borrowings are typically rolled over from year to year.

Liabilities total RMB5.5 billion versus total assets of RMB8.8 billion.

2. Group gross margins:These are thin (about 12%) at the group level, partly reflecting the mature technology that lead-acid batteries are.

But the gross margin figure is a blended figure:  The margin for recycled lead being just above break even.

The margins for the batteries for automotive and motive power are not as great as for network power (ie, selling direct to telcos, which accounts for about half of the total revenue).

Now, that implies the margin for network power batteries is decent at several percentage points higher than the group blended margin.

Excerpts from Phillips Securities report
Analyst: Eric Li

Oriental Watch Holdings Limited (Oriental Watch), founded in 1961, has developed an extensive retail shop network in the Greater China area, and has become one of the largest watch retailers. Company carries around a hundred prestigious brands, in particular, famous Swiss brands such as Rolex, Tudor, Piaget, Vacheron Constantin, IWC, Jaeger-LeCoultre, Girard Perregaux, Longines, Omega, etc.

Company operates a total of 12 shops in HK SAR and Macau SAR, including Oriental Watch Company, La Suisse Watch Company, Rolex and Tudor Boutique and Breitling Boutique. In 2004, company expanded its watch retail business to Mainland China. Since then, company has opened a number of outlets and boutiques covering various cities in Mainland, China. Subsequently, company has further expanded its businesses to Taiwan region. As at 30 September 2022, company operates 44 retail points (including associate retail stores) in the Greater China region, and 1 online store in each of the Mainland China and HK respectively.

Oriental Watch's dividends have high yields (~16%) with payout ratios exceeding 100% in the past 3 years. See table below.


HK operation outperformed the market with revenue increased by 6.1%

In 1HFY2023 (for the six months ended 30 September 2022), company's revenue decreased by 10.0% yoy to HK$1,674 million, which was mainly attributable to the decrease in revenue in the Mainland China market as a result of business interruptions due to such lockdown policy and restrictions.

In line with the decrease in revenue, gross profit decreased by 6.9% to HK$537 million, with gross profit margin increased by 1.1 percentage points to 32.1%, and profit attributable to owners of the company decreased by 9.6% to HK$151 million. Basic EPS were 31.03 HK cents, down 9.2% yoy.

Interim dividend of 7.8 HK cents per share (1HFY2022: 8.6 HK cents per share) and a special dividend of 23.5 HK cents per share (1HFY2022: 25.8 HK cents per share).

During the Period, the company's aggregated expenses related to leases increased slightly by 5.3% to HK$80 million, accounting for 23.1% of the overall operating expenses (1HFY2022: 22.2%). The increase was mainly due to the lease renewal of retail stores which command a relatively higher rental rate.

In Hong Kong, the COVID-19 pandemic situation has been under control since the first quarter of 2022. Yet, clouded by market uncertainty, the market sentiment remained cautious with the value of total retail sales decreased by 1.3% yoy during the first nine months of the year.

However, sales of jewelry, watches and clocks, and valuable gifts recorded a slight increase of 0.2% during the same period. Despite the uncertain retail market sentiment, Hong Kong operation still outperformed the market with revenue increased by 6.1% to HK$504 million for the period, accounting for 30.1% of the overall revenue, segment profit increased by 81.8% to HK$42.75 million.

According to the National Bureau of Statistics, the PRC`s gross domestic product (GDP) has recorded a 0.4% yoy growth and 3.9% yoy growth in the second and third quarter respectively, which grew at a softer pace compared with the same period of last year. The slowdown of economic growth was attributable to the widespread lockdown as well as the weakening market sentiment. Sales of gold, silver and jewelry also recorded a decrease of 0.8% yoy from April to September 2022.

According to the Federation of the Swiss Watch Industry FH, the Swiss watch exports to the PRC during the Period decreased 13.7% yoy to CHF1,267.3 million, showcasing the country`s conservative sentiment on purchasing luxury watches.

Due to the economic condition as well as the temporary business suspension mentioned above, revenue from Mainland China operation decreased by 15.4% to HK$1,101 million, accounting for 65.8% of the overall revenue, segment profit decreased by 23% to HK$189.86 million.

Risk factors
1) Economic recovery momentum is slowing down;
2) Operating costs are higher than expected;
3) Luxury goods consumption is lower than expected.

Excerpt from Q&A at FY22 investor briefing.

Below we excerpt CGS-CIMB report:

Analyst: Ong Khang Chuen, CFA
Another round of bumper dividends

4Q22: Another round of bumper dividends

Riverstone Holdings’ (RSTON) 4Q22 net profit fell to RM42m (-34% qoq, -62% yoy) with further normalisation of ASPs, but continues to outperform larger scale Malaysian-listed peers (Hartalega, Kossan and Supermax all reported net loss in that quarter), given its differentiated focus on cleanroom gloves.

Results were in line with expectations, with FY22 net profit of RM314m (-78% yoy) coming in at 98%/104% of our/Bloomberg consensus’ forecasts. 

Operating landscape remains tough for healthcare gloves
Healthcare glove ASPs remain on a decline due to industry oversupply, with no signs of easing in the near term. RSTON’s healthcare segment GPM was only 5% in 4Q22 (vs. 3Q22: 10%) — mainly supported by higher priced specialty gloves; generic glove products are sold below cost across the industry as players look to cover overheads.

Despite rising cost pressures, glove players are finding it difficult to raise prices to sufficiently cover the impact.

RSTON is actively modifying its production lines to cater for specialty/customised products, which are usually in smaller order volumes and require nimble manufacturing capabilities.

Currently, specialty products make up c.20% of RSTON’s healthcare volumes.

Shifting focus towards cleanroom segment advancement
RSTON continues to see a steady outlook for its cleanroom segment and expects ASPs to remain resilient at c.US$100 (per 1k pieces). Given the weak healthcare glove outlook, management plans to broaden its cleanroom glove offerings (from its niche of higher-end Class 10 and Class 100 gloves) to include more lower-end products, such as Class 1000 gloves.

This would be enabled by its cleanroom processing capacity expansion to 2.5bn gloves p.a., which is expected to come onstream by mid-CY23F. According to RSTON, such gloves can command c.US$70 per carton selling price and c.40% GPM currently.

Reiterate Hold. While we think that fundamentals may remain weak in FY23F given the competitive environment in the glove industry, we believe downside risks can be capped with its strong cash position and plans to distribute excess cash on its balance sheet (end-Dec 22: net cash of RM1.07bn). Ong Khang Chuen, CFAWe lower our FY23-24F EPS by 11-26% to account for lower ASP assumptions. Our TP is lowered to S$0.60 as we roll over our valuation base year, pegged to 14.5x CY24F P/E (1 s.d. below 5-year pre-Covid historical mean). Upside risks include higher dividend payout and continued resilience in cleanroom demand; downside risks include a prolonged weakness in healthcare glove ASPs.

Full report here. 

Excerpts from DBS report

 
Grand Copthorne Waterfront Hotel is part of the CDL Hospitality Trusts. The 574-room hotel is situated on the banks of the historic Singapore River and close to the Central Business District.

Hotel S-REITs have a c.77% exposure to China-positioned travel markets. A recent Chinese travel sentiment survey showed that 84% of respondents intend to travel outside Mainland China within two years of the country’s reopening, with 9 out of the top 10 destinations falling within the APAC region.

Our hotel S-REITs have geographical exposure in 6 out of the top 10 China-destination markets, of which Singapore, Australia, and Japan have the largest exposures at c.56%, 10%, and 7%, respectively.

We expect Chinese outbound tourism to stage a meaningful recovery in most of our S-REIT markets, given a combined exposure of c.77% to the top 10 China-destination markets will see Chinese demand as a key growth driver amongst our S-REITs for 2H23.

Recovery tracking ahead of our base case trajectory with a c.8.1% forward FY24F sector yield on our bull case forecast. We saw that the sector’s RevPAR recovery was already at c.94% of 2019 levels last year, ahead of our base case scenario.

Our bull case scenario could see sector DPUs recovering to c.106% of normalised levels in FY24F, which will more than compensate for higher interest rate risks.

While investor sentiment could be constrained by recessionary risks on the horizon, the impact is less than feared, with a positive correlation of 0.2 to sector operating metrics, while subdued room supply in the market will be key to maintaining sky-high rates in the coming years.

Prefer CLAS (Capitaland Ascott Trust) and CDREIT (CDL Hospital Trusts) within the sector to ride on global recovery and sustenance of high RevPAR.

Full report here. 

THE CONTEXT • Investor interest in SingPost is staying high as the company progresses towards a strategic reshaping of its business. Investors took a shine to its stock after it appointed Merrill Lynch in June 2024 (see chart) as financial advisor to look into options for its Australia business specifically. • In a surprise announcement on 2 Dec 2024, it said it will sell its Australian business to Pacific Equity Partners for an enterprise value of AUD1.02 billion, resulting in a gain on disposal of SGD312.1 million. It will use the proceeds to pay down its AUD-denominated debt and potentially dish out a special dividend. SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion, is likely to be sold. • "In our view, this transaction was a surprise given that we expected a strategic minority stake sale versus a complete sale of the Australian business, given that this segment was the group’s only significant growth driver," says UOB Kay Hian analyst Adrian Loh. The Australian divestment is subject to shareholders’ and regulatory approvals and is expected to be completed by Mar 2025.

 

We compare what three analyst reports from UOB KH, OCBC and Maybank have to say....

Recent stock price: 58 cents

• Valuation and Target Price:
  • OCBC maintains a fair value estimate of SGD 0.58, focusing on the need for further strategic clarity post-divestment.
    
    
  • UOB Kay Hian is more optimistic with a target price of SGD 0.72, reflecting confidence in future growth and asset monetization.
    
    "Despite the recent run-up in share price performance, we reckon that there is still potential upside at current price levels, given that the group has yet to monetise both Famous Holdings and the SingPost Centre which could further unlock shareholder value.
    
    "Also, further clarity on the group’s strategy moving forward would be a re-rating catalyst for the stock, in our view. Our target price implies a 1.0x FY26F PB. "
    
    
  • Maybank is the most optimistic with a target price of SGD 0.77, citing significant potential for shareholder returns through dividends and asset sales.
    
    "We believe that excess cash will be returned to shareholders and we expect more asset sales going forward like Famous Holdings, SingPost centre and its post offices after discussions with local authorities."
    
    Maybank estimates SingPost could unlock value up to SGD 0.86/share. 
    
    

Future Growth Outlook:

• OCBC expresses caution regarding growth drivers post-divestment, highlighting risks such as competition and e-commerce demand slowdown.
  
  "We await further clarity on SingPost's next engine of growth, backed by a stronger balance sheet and greater financial flexibility."
  
  
• UOB Kay Hian expects limited growth without the Australian business but sees potential in future M&A activities.
  
  "The group plans to use cash proceeds to deleverage its balance sheet which would result in significant interest cost savings and turn the group into a net cash position."
  
  
• Maybank is optimistic about future profitability and dividends, expecting continued asset sales to unlock value.
  
  "We believe that majority of the proceeds will likely be returned as dividends to shareholders. With a key risk mitigated, we reduce the holding company discount on our SOTP valuation." 

Full reports: UOB KH, Maybank KE. 

THE CONTEXT • Investor interest in SingPost spiked up in the past week after Aussie news media reported "heavyweight private equity firms vying" for SingPost's A$1 billion portfolio of Australian assets. • SingPost stock, up from 46 cents to as high as 55 cents in the past week,has seen also a strong recovery from its year-low of 38 cents in March. The stock is still "severely undervalued", according to UOB Kay Hian's latest report. It used a sum-of-the-parts valuation method to value it at 61 cents(see graphic below). Does a 20% upside translate into "severe" undervaluation currently?  Solar panels were recently installed on the rooftop of SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion. • In transforming itself into a technology-driven logistics enterprise in recent years, SingPost has addressed an existential threat -- the structural decline in its legacy postal business.  • It has also embarked on a strategic review which is likely to unlock value for shareholders. See excerpts of UOB KH's take below...

 
Excerpts from UOB Kay Hian report
Analysts: Llelleythan Tan Yi Rong

Singapore Post (SPOST SP)

WHAT’S NEW
• Rationalisation of post offices. With 44 remaining post offices, SPOST is now focusing on other customer service touchpoints such as its POPStation network. 

As mentioned in our earlier reports, the rationalisation of the post offices was within our expectations as we expected the group to consolidate its postal branches and multiple sorting centres, lowering overhead costs.

Moving forward, we expect the group to continue consolidating its post offices, albeit at a slower pace which would support segmental margins.

• Strategic review still ongoing. As a recap, SPOST initiated a strategic review of its Australian business to explore options to drive growth and maximise shareholder value.

Some options include near-term partnerships, providing equity to deleverage debt, M&A opportunities and seeking future liquidity options.

In our view, we expect the strategic review to be completed around end-4Q24/early-1Q25 and reckon that the most likely outcome would be a strategic partnership stake sale. 

• Market talk of a potential sale. It was reported that several prominent private equity firms such as Brookfield Corporation, Blackstone Inc and Kohlberg Kravis Roberts (KKR) have shown interest in SPOST’s portfolio of Australian assets with potential bids incoming within the next few weeks.

These assets primarily include CouriersPlease and Freight Management Holdings (FMH) and is in line with the group’s strategy to seek strategic partnerships and M&A opportunities.

In our view, we expect that confirmation of any potential deal would be announced only after the group’s strategic review of the Australian business has been completed.

STOCK IMPACT
• Singapore: To stay profitable in 1HFY25. For 2QFY25, we expect the Singapore business to grow yoy, largely driven by the postal delivery business benefitting from the postal price hike in 3QFY24.

As a recap, the Singapore delivery business recorded a profit in 1QFY25 as e-commerce volumes rose (+2.9% yoy), offset by the secular decline in letter mail and printed paper volumes (-8.1% yoy).

However, similar to 1QFY25, we reckon that the postal office network would remain unprofitable in 2QFY25, dragged by inflationary pressures.

Based on our estimates, we expect 1HFY25 operating profit for the Singapore business (including the postal office network) to be around S$7m.

Moving forward, we expect the rationalisation of the postal office network to continue in 2HFY25, reducing operating costs and improving profitability. Potential downside may come from lower-than-expected letter mail and domestic e-commerce volumes. 

• International: Headwinds persist. We expect a weak macroeconomic environment and a strong Singapore dollar against the Chinese yuan to dampen cross-border postal volumes in 2QFY25.

As a recap, the international business was profitable in 1QFY25 and we do expect 2QFY25 to post a small profit as well, driven by implemented cost-efficiency initiatives and the group’s focus on managing profitability and ensuring a stable operating margin.

We reckon that air conveyance costs would likely continue trending downwards and the highermargin commercial cross-border operations would help support margins.

We opine that earnings from the international business would bottom out in 1HFY25 and grow moving into 3QFY25. Based on our estimates, 1HFY25 operating profit is at S$4m.

• Australia: Inorganic growth to come through. We expect revenue and operating profit to grow in 2QFY25/1HFY25, largely driven by the consolidation of Border Express (BEX).

Excluding BEX, we expect 2QFY25 operating profit from the Australian business to grow yoy, on the back of organic volume growth from its 4PL business but offset by the 3PL business and the strong Singapore dollar against the Australian dollar.

Also, we expect BEX to deliver a strong performance in 2QFY25. Based on our estimates, 1HFY25 operating profit is likely around S$35m with S$15m coming from BEX. Moving forward, we expect BEX to significantly boost segmental annual operating profit in FY25, coupled with organic growth from the Australian business.

• Famous Holdings: Correction underway. In line with falling sea freight rates, we expect 2QFY25 revenue and operating profit to decline but still post a small profit for the quarter.

Based on our estimates, 1HFY25 operating profit is roughly around S$4m. Earmarked as a non-core asset in our view, we reckon that the divestment of Famous Holdings is likely in the short to medium term.

• Property: Expect stable performance. We expect 2QFY25 overall occupancy rates at SingPost Centre to remain stable or improve from the 96.0% overall occupancy rate in 1QFY25. Based on our estimates, 1HFY25 operating profit would be around S$20m.

EARNINGS REVISION/RISK
• We maintain our earnings estimates. For 1HFY25, we expect overall group operating profit of around S$58m (including S$12m in corporate overhead costs) and underlying net profit of around S$30m, implying yoy growth rates of 84.7% and 123.9% respectively.

VALUATION/RECOMMENDATION • Maintain BUY with the same SOTP-based target price of S$0.61. Based on our SOTP valuation, we value the property, logistics and postal segments at S$844m, S$914m and S$245m respectively. Llelleythan Tan, analystGiven that SPOST’s current market cap is around S$1.17b, we think that the market is severely undervaluing SPOST’s businesses. At our target price, SPOST trades at 19x FY25F PE, at -0.5SD to its long-term mean. SHARE PRICE CATALYST • Potential stake sale of its Australian business. • Divestment of non-core businesses.

Full report here. 

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

SingPost
Special dividends incoming

With the election over, we believe SingPost will now hasten efforts to size down its postal network branches to reduce cost and it’s likely to sell some of these properties at the same time. 

SingPost Centre is also another key asset that has been earmarked for sale to unlock value for shareholders.

Its freight-forwarding business, which is in the process of being sold, will also add to the divestment proceed.

Waiting to be sold: SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion.

New business model needs to be forged

Within its mail business, the postal network is expensive to maintain but serves only 20% of total mail volume.

With growing digitalisation of its services, post offices have become less relevant and financially unsustainable.

SingPost is discussing with the government to forge a new business model to address this issue.

As there are new directors coming on the board, a new Group CEO has to be hired if SingPost does decide to invest in a new business.

As for now, we understand the process is ongoing and no group CEO/business have been identified yet.

Full report here. 

See also: SINGPOST: Ignore The Noise, say analysts. Special Dividends Loom as This Company Monetises Non-Core Assets

THE CONTEXT • SingPost stock tumbled 10.7% to 50 cents yesterday after the shocking news that the company had sacked its CEO and CFO. • Is the stock fall justified? For all the drama, the company’s big plans, like selling non-core assets and boosting shareholder returns, are all driven by the board, so likely the investment thesis stays. That's according to Maybank Kim Eng. SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion, is likely to be sold. • Furthermore,  SingPost has already smoothed things over with the customer involved in the whistleblowing case that started the series of events leading to the sacking of the CEO and CFO. SingPost has taken no major financial hit from the case. •Thus, this is looking more of a hiccup than a hurdle as far as stock investors are concerned. Some investors might see it as the perfect chance to scoop up shares. Maybank's actual recommendation is "accumulate on weakness". • OCBC Securities has a more tempered view: "We leave our forecasts intact but nudge our equity risk premium assumption up by 50bps to 5.5% to reflect greater corporate governance risks and uncertainty. Consequently, our FV estimate dips from SGD0.58 to SGD0.54, and we reiterate our HOLD rating." Read more below....

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

Opportunity to accumulate

Three managers with various operational responsibilities in its international business operations allegedly manually performed/approved updates of delivery failure status codes for parcels SingPost had agreed to deliver even though no delivery attempt had been made and which lacked supporting documents to avoid contractual penalties with one of its largest customers.

The 3 managers were terminated earlier in 2024 and a police report has also been made.

A settlement has been agreed and paid to the customer which is not material to SingPost’s current year NTA and EPS.

Board-driven initiative – End-game unchanged

In July 2023, the board initiated a strategic review with a view to enhancing shareholder returns and ensuring that SingPost is appropriately valued.

It has identified a list of assets and businesses that are non-core to its strategy which can be monetised to recycle capital.

We believe that the proceeds from the Australia business will be returned to shareholders after paring down debt.

We also expect more asset sales going forward like Famous Holdings, SingPost centre and its post offices.

We expect potentially up to SGD0.86/sh of dividends in the next 2 years.

Accumulate on weakness Jarick Seet, analystDespite the termination of key management, we believe that the roadmap to return shareholder value remains unchanged as it is board-driven and shareholders could potentially receive up to SGD0.86/share if all its assets are monetised. We think the downside risk is now limited and maintain a conviction BUY on SingPost for its asset monetisation story.

Full report here. 

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

SingPost
Patience to be rewarded

After paring down its Australia debt and coupled with the potential sale of Famous Holdings, we expect around SGD400-450m excess sales proceeds could be distributed as special dividends to shareholders.

As of 30 Sep 2024, SingPost still holds about SGD428m of cash, hence we believe it will not need to keep so much cash from the sales proceeds on its balance sheet.

This works out to be around SGD0.17-0.20/share for potential special dividends.

Even without Famous, we expect the distribution to be around SGD0.12-0.15/share.

Waiting to be sold: SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion.

Singapore business will need more right-sizing

 We believe that the local postage business will likely still experience a drop in volume and more right-sizing of costs and outlets will likely be needed.

We also expect postal rates to be raised down the road amid declines in volumes and users.

Full report here. 

See also: SINGPOST: Ignore The Noise, say analysts. Special Dividends Loom as This Company Monetises Non-Core Assets

THE CONTEXT • It's hard to be anything but congratulatory towards Tiong Woon Corp. It has demonstrated resilience and even consistent growth in an industry as competitive as construction -- even through the Covid pandemic. • But if there's one thing it can work harder on, it's that intangible good connection with investors, especially when construction stocks aren't sexy to begin with. •  Investors have not been attracted to this company (market cap: S$125 million), let alone according it a respectable valuation.  • At least, one gets that vibe from the Securities Investors Association of Singapore's (SIAS) "interrogation", if you will, in a set of questions for Tiong Woon ahead of its FY2024 AGM on 30 Oct.  • Tiong Woon's responses are relatively short and general in nature and... not something you'd wildly congratulate the company over. But SIAS's questions may well serve as a catalyst for an upturn in the company's connection to the stock market. Read all that below....

 
Excerpts of SIAS questions and Tiong Woon's responses, in a filing on the SGX website on 24 Oct: 

Company’s Response:
The Board has carefully deliberated on the payout ratio, balancing the need to reward shareholders while ensuring sufficient capital for future growth and operational requirements.

Each option is assessed with regard to its potential impact on shareholder value, financial stability, and alignment with our longterm strategic goals.

The Board remains committed to ensuring that any decisions made are in the best interests of our shareholders while supporting the Group's ongoing development. 

(ii) Can the board help shareholders recall if the company has carried out any share buybacks? What are the challenges, if any, of the company carrying out share buybacks?

Company’s Response:
The Company has carried out share buybacks from 30 August 2022 to 12 September 2022 amounting to 400,000 shares.

The Board will continue to consider exercising this option when market conditions and other factors are favourable.

(iii) Has the board considered carrying out any off-market purchases, including an equal access offer?

Company’s Response:
The Board has not considered off-market purchases at this time.

However, it remains open to evaluating this option in the future, should market conditions and other factors make it favourable for shareholders.

(v) Apart from acknowledging that there are many external factors influencing the share price, would the board consider disclosing and implementing targeted strategies to narrow the discount gap, thereby creating value for shareholders?

Company’s Response:
The Board recognises that external factors have a significant impact on the share price.

While these factors are beyond the Company's control, the Board continues to focus on strengthening the business fundamentals, improving overall performance, announcing major project awards and engaging with shareholders more actively.

The Board will continue with our efforts in this regard, so as to bolster higher trust and confidence in TWC, align the Group’s strategies with shareholders’ interests and narrow the gap between TWC share price and its intrinsic value.


See also: TIONG WOON -- After 7 years of growing profit, will this stock finally break out?