ANALYSTS SAY: Buy, Sell, Hold (18 Jul)

UOB KAYHIAN

First Resources (FR SP)

2Q23 Preview: Another Weak Quarterly Earnings; This Could Be The Bottom

We are expecting FR’s 2Q23 core net profit at US$25m-28m, lower yoy and qoq due mainly to lower ASP and weak downstream contributions. This could be the worst quarter for 2023 but we are seeing higher earnings as CPO prices recover and downstream margin is relatively better now. Trim 2023 earnings by 17% after lowering production growth and refining margin. We roll over fair value to 2024 at PE of 9x. Dividend yield is still good at 5-6%. Maintain HOLD. Target price: S$1.55.

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Singapore Airlines (SIA SP)

Jun 23 Operation Data: Strong Pax Operation With Record Load Factors

SIA’s Jun 23 operation data came in stronger than expected, with pax load factors hitting a record level at 90.6%. We expect the strong pax operations to continue driving SIA’s near-term earnings performance and more than offset the weaknesses in cargo operations. Despite the likely strong earnings momentum in the near term, SIA’s valuation is very lofty with its FY24F P/B standing at 2.2SD above its long-term historical mean. Maintain SELL. New target price: S$7.28.

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LIM & TAN

Keppel Corporation ($6.84, up 2 cents) announced the commercial launch of Pinnacle, a Multi-Access Edge Computing (MEC) platform designed to help businesses embrace new digital capabilities, such as augmented reality and virtual reality (AR/VR), live video analytics and industrial IoT (Internet of Things)

Powered by M1’s purpose-built 5G SA network and ST Engineering’s AGIL Edge Platform for 5G, Pinnacle can handle real-time data processing and service management to deliver high levels of service performance in a cost-effective and efficient manner. By bringing computation and storage closer to the edge of the network, Pinnacle can deploy and manage mission-critical applications, reducing latency, bandwidth consumption and network congestion.

The rapid adoption of artificial intelligence on a global scale would require faster internet access with 5G as the enabler of this global digital transformation and we see M1 moving in the right direction in this regard. Keppel Corp’s market cap stands at S$12.5bln and currently trades at 13- 14x forward PE and 1.1x PB, with a dividend yield of 4.8%. Consensus target price stands at S$7.56, representing 11% upside from current share price. We maintain an “Accumulate” rating on Keppel Corp.

Xiaomi Corp

Waiting for inflection point

• Recovery of the smartphone market is delayed by weak consumer demand

• Expecting a mild recovery in 2H23

• Xiaomi ranked 5th with a 13% market share in China in 1Q23

Investment thesis The International Data Corporation (IDC) revised their estimates of global shipments of smartphones in 2023 from a decline of 1.1% to 3.2%. The downward revision was largely attributed to weaker economic outlook and continued inflation. Xiaomi’s smartphone shipments fell 21% YoY to 30.4m in 1Q23. The recovery of the smartphone market is delayed by weak consumer demand. We now expect a mild recovery in 2H23 as management guides for a mid-single digit year-on-year (YoY) decline in China’s smartphone market in 2023. On a positive note, inventory pressure is likely to improve in 2H23. Xiaomi’s inventory destocking is on track with inventory balances falling 24% YoY or 15% quarter-onquarter (QoQ) to CNY42.6b in 1Q23. Internet of things (IoT) revenue could be the key growth driver this year.

Further to the announcement released on 11 May 2023 (the “Announcement”) as part of Singapore Post Limited’s / Singpost ($0.49, up 0.01) FY2023 full year results, SingPost wishes to announce that it has appointed Merrill Lynch (Singapore) Pte. Ltd. (“BofA Securities”) as its exclusive financial advisor in connection with the strategic review of the SingPost Group.

As mentioned in the Announcement, the Board has initiated a strategic review of the Group’s portfolio of businesses, with a view to enhancing shareholder returns and ensuring the Group is appropriately valued. The review will focus on transitioning the Group to a logistics business over time. As part of that strategy, the review will identify potential businesses or assets which are non-core or which are not expected to earn a return above their cost of capital. This could lead to possible divestments and capital recycling to support further investments in logistics. 

We see speculative appeal in Singpost’s shares as it could potentially do a replay of the “break-up” of SPH and the eventually as the full “intrinsic value” being realized. Trading at 22x PE and 1x book, we rate Singpost as “Speculative BUY”.

Tianjin Pharmaceutical Da Ren Tang Group

Estimated results for 1H2023
(a) Period of the estimated results 1 January 2023 to 30 June 2023.
(b) Estimated results

Based on a preliminary assessment by the finance department of the Company:

(i) the net profit attributable to the owners of the parent for 1H2023 is estimated to range from approximately RMB703 million to RMB750 million, an increase of between approximately RMB234,214,900 to RMB281,214,900 as compared to that for 1H2022, representing a year-on-year increase of between approximately 50% and 60%. (ii) the net profit attributable to the owners of the parent after deducting non-recurring gain or loss for 1H2023 is estimated to range from approximately RMB697 million to RMB744 million, an increase of between approximately RMB232,753,300 to RMB279,753,300 as compared to that for 1H2022, representing a year-on-year increase of between approximately 50% and 60%.

At US$2.07, Tianjin is capitalized at US$3.9 billion and trades at 11x PE, 7.7% dividend yield and 1.7x price to book ratio. We have a HOLD rating on Tianjin.