buysellhold july.23

OCBC

MAYBANK KIM ENG

Boustead Singapore

Last Close SGD 0.85 Fair Value SGD 1.20 State of Grace

 

• 1HFY24's (financial year ending 31 Mar 2024) financial results exceeded our expectations, with an interim dividend of 1.5 Singapore cents per share declared

• Healthy engineering project order and deferred services backlog, and strong contract win momentum may spell positives for 2HFY24

• Attractive dividend yield amidst undemanding valuations

 

Investment thesis

As one of the oldest continuous businesses in Singapore, Boustead Singapore Limited (Boustead) is a progressive engineering and technology group with operations spanning Energy Engineering, Real Estate, Geospatial Technology, and Healthcare. We look favourably upon Boustead’s growth profile given its deep engineering expertise and exposure to multiple long-term secular trends, such as climate action and sustainability, smart cities and the Internet of Things (IoT), and the silver tsunami in Asia Pacific. Boustead’s healthy balance sheet and strong net cash position also lends potential for the company to deploy cash through further investments and inorganic acquisitions to unlock value for shareholders, beyond the ongoing privatisation of Boustead Projects Limited (BPL). Boustead’s current valuations are undemanding on a forward price-toearnings (P/E) basis, in our view, and may present an attractive entry point for investors to lock in an aboveaverage dividend yield.

 

  

Sea Ltd (SE US)

Riding the tide

 

9M23 PATMI missed; raising competition in the region

9M23 PATMI of USD274.2m was way below our and consensus FY23 forecasts (at 41%/40%) mainly due to increased investments in Shopee (e-commerce) to reaccelerate GMV growth. In our view, Southeast Asia platforms have been disrupted and are gearing up for another phase of intense competition, exemplified by Shopee’s spending on live streaming and consignment model. In the medium term, we think this could spur faster e-commerce penetration in the region, though margins could remain depressed. We cut Shopee's growth outlook and thus reduce our FY23- FY25E net profit forecasts by 31-42%. Our TP is cut to USD62 (from USD80), based on a lower e-commerce multiple. Maintain BUY. We continue to see significant longer term potential for the business given its market leading position, ecosystem of services across eCommerce and financial services coupled with favorable regional dynamics given expectations for both eCommerce and GDP growth in the region. 

 

 

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LIM & TAN

OCBC

The board of directors of LHN Ltd ($0.325, down 0.005) wishes to inform the shareholders and potential investors of the Company that, following the preliminary assessment of the Group’s unaudited financial results for the financial year ended 30 September 2023 (“FY2023”) and based on information currently available, the Group expects to record a lower net profit before tax from continuing operations plus profit from discontinued operations (net of tax) (“Profits”) for FY2023 of no less than approximately S$40 million as compared to the financial year ended 30 September 2022 (“FY2022”) of approximately S$52.5 million.

According to Straits Times, the guidance was voluntary and in keeping with the Hong Kong stock exchange requirements, where LHN has a dual listing. But without vetting the numbers, reading the guidance in its entirety, or doing their sums properly, market players here scrambled for the door, pushing the stock down from around 33 cents yesterday to about 31 cents at its low. The stock closed the day at 32.5 cents. Should investors have panicked? No, and here’s why according to Straits Times.

We agree with Straits Times view and believe the sell-down could present an opportunity to “Accumulate” LHN given its undemanding valuations and attractive div yields. “Accumulate on Weakness”.

  

ComfortDelGro Corporation (CD SP) - Picking up the pace 

 

ComfortDelgro (CD) is a leading global transportation company, with businesses that span bus, rail, taxi, private hire vehicles, car rental and leasing, inspection and testing services, amongst others. In Aug 2023, CD provided an update on its growth strategy going forward, which involves three pillars. First, CD continues to defend and grow its core business, differentiating itself through its commitment to high service quality. Second, CD seeks to expand into new businesses such as electric vehicle (EV) charging and EV-as-a-Service. Third, CD is looking to build future capabilities, such as operating an autonomous vehicle (AV) fleet and incorporating artificial intelligence (AI)/data-driven fleet management into its operations. However, given that CD’s future engines of growth are still in a relatively nascent stage and the absence of concrete targets, we continue to await a more meaningful catalyst for the stock. HOLD.

 

 

PHILLIP SECURITIES  LIM & TAN

ComfortDelGro Corp Ltd – Higher pricing supporting margins

 

  • 3Q23 normalised PATMI jumped 48% YoY to S$48mn and was within our expectations. Revenue was softer than expected. 9M23 revenue and PATMI were 73% and 78% of our FY23e forecast.  
  • Earnings growth was driven by a turnaround in the UK bus operation and growth in Singapore taxi operations. UK benefited from higher pricing through contract indexation and renewal. Singapore taxi margins expanded with platform fees.  
  • We lower our FY23e revenue by 4% and PATMI is maintained. Our BUY recommendation and DCF target price of S$1.57 is unchanged. Earnings momentum will be sustained by higher bus service fees in the UK, taxi platform fees in Singapore and lagged pricing of rail services in Singapore. 

 

The Positive 

+ UK operations turnaround. A major part of earnings growth in 3Q23 was the turnaround in UK operations. From an operating loss of S$2mn, UK swung to a S$6mn profit. Around 70% of the routes have been re-indexed. Another boost to margins will be re-contracting of the bus contract routes that can expire up to 5 years. Recent re-contracting has seen a significant improvement in margins. 

The Negative 

– Rail profitability is still weak. We believe profitability in Singapore rail remains weak despite the jump in passenger traffic. Rail operations are burdened by the higher electricity and a lagged re-pricing of fares. The next round of higher fares will be in December this year. 

Outlook 

We expect earnings growth to sustain into FY24e, supported by re-pricing of bus contracts in the UK, improvement in bus efficiency in Australia as drivers return, platform fees raising taxi margins and higher fares driving up Singapore rail profitability. Taxi operations in Singapore have seen a resurgence in competitive pricing by other platforms but Comfort’s taxi fleet has remained stable with market share rising.  

Maintain BUY with an unchanged TP of S$1.57 

ComfortDelgro pays around 4.6% dividend yield, enjoys a net cash balance sheet of S$500mn and visibility of earnings recovery.  

  

Venture Corp (S$12.88, up 19 cents): On 15-Nov-23, International Data Corporation (IDC) upgraded its Semiconductor Market Outlook by calling a bottom and return to growth that accelerates next year. IDC raised its September 2023 revenue outlook from US$518.8 billion to US$526.5 billion in a new forecast. Revenue expectations for 2024 were also raised from US$625.9 billion to US$632.8 billion as IDC believes the U.S. market will remain resilient from a demand standpoint and China will begin recovering by the second half of 2024 (2H24).

IDC sees better semiconductor growth visibility as the long inventory correction subsides in two of the largest market segments: PCs and smartphones. Automotive and Industrials elevated inventory levels are expected to return to normal levels in 2H24 as electrification continues to drive semiconductor content over the next decade.

At S$12.88, market cap for Venture Corp is S$3736mln, FY22 P/E is 10.6x, current P/B is 1.3x, dividend yield is 5.9% and its present net cash position of S$956.5mln equates to around 25% of current market cap. Given the expected upturn in the overall semiconductor industry which is slated to take place next year, we thus recommend “Accumulate” on Venture Corp in anticipation of its earnings recovery in FY24 while its strong balance sheet and high dividend yield are also positive attributes.

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