More upside for ComfortDelGro, SMRT; Pawnbrokers to turn around?

Excerpts from analysts' reports

Deutsche Bank says there is more upside to ComfortDelGro and SMRT

Analyst: Wei-Shi Wu

ComfortDelGro: Target price is $2.85. Chart: Bloomberg.Opportunity to buy CD and SMRT has not closed. These stocks should continue to re-rate, as the market digests the implications of the bus contracting model.

We now push out our cost-plus timing to end 2016 and incorporate an asset-light scenario in our forecasts - this drives our CD/SMRT TPs to S$2.85/S$1.90 respectively.

The successful sale of existing assets could mean further upside. We would, however, highlight that the rate of incremental policy announcements could slow from now. We remain significantly differentiated from the Street on our SMRT call/forecasts.

Should I still Buy CD/SMRT at current levels?

Despite strong share price movements across the sector, we do not think the market has fully priced in the potential upside from the policy reforms – especially the migration to an asset-light model.

Our new assumptions, with lower long-term capex, result in further uplift in target prices for both CD and SMRT.

Furthermore, we have (conservatively) not factored in the potential cash proceeds from the sale of existing bus assets to the government. As highlighted previously, we estimate the NBV of bus assets for CD is S$900m while that for SMRT is S$200-300m.

For SMRT, there is potential further upside from the early migration of rail to an asset-light model, with the NBV of related assets on this company’s balance sheet estimated at up to S$1bn.

OSK-DMG highlights potential turnaround stories of pawnbrokers

Analysts: Jarick Seet and Terence Wong, CFA

maxicash.5.14 Maxi-Cash Financial Services listed on SGX Catalist in June 2012, the first publicly listed pawnbroker in Singapore. Photo: Company.Pawnshops are gaining favour among the younger generation, unperturbed by the stigma such shops were once associated with. In fact, they have also become an important clientele for an industry with an image that is now softer, thanks to endorsements from local celebrities.

Next, with the growing presence of players with outlet chains, the number of pawnshops in Singapore has rose to over 214 currently from 138 in 2009.

The number of pledges received at Singapore pawnshops increased by approximately 46.9% to 4m in 2012 from about 2.7m in 2007. In addition, loans disbursed by Singapore pawnshops soared 343.8% to SGD7.1bn in 2012 from around SGD1.6bn in 2007.

With instant cash approval and lower interest rates than credit card loans, this uptrend will likely continue.

The ideal scenarios for most pawnbrokers are: i) a steady increase in gold prices, or ii) steady movement in gold prices with minimal violent fluctuations.

In addition, the big decline in gold prices has already been reflected via impairments made to their inventories.

valuemax5.14 ValueMax listed on the SGX at 51 cents in Oct 2013.
Chart: Bloomberg.The shares of the three listed pawnbrokers have taken a big hit of late.

The share prices of ValueMax Group (ValueMax) (VMAX SP, BUY, TP SGD0.56), MoneyMax Financial Services (MoneyMax) (MMFS SP, NEUTRAL, TP SGD0.34) and Maxi-Cash Financial Services (Maxi-Cash) (MCFS SP, NEUTRAL, TP SGD0.27) have fallen by 22%, 15% and 20%, respectively, from Oct 2013.

Gold prices have since recovered and remained steady at USD1,100->USD1300. If gold prices continue to remain steady with minimal fluctuations, we may see a turnaround in these companies’ FY14 revenue and profits.

Our preferred pick would be ValueMax Group with a FY14F 1.9x P/BV of SGD0.56 mainly due to i) undervalued compared to its peers in terms of valuation ii) more areas for growth – Malaysia & High End Pawnbroking, ii) fixed dividend policy.

More upside for ComfortDelGro, SMRT; Pawnbrokers to turn around?

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