Highlights

SGX Stocks and Warrants

Author: kimeng   |   Latest post: Fri, 15 Nov 2019, 2:29 PM

 

Golden Agri-Resources: Weak Results But Some Signs of Improvement

Author: kimeng   |  Publish date: Fri, 15 Nov 2019, 2:29 PM


  • 3QFY19 PATMI turned positive
  • Recovery of CPO prices and production output
  • B30 is a potential catalyst

Weak 3QFY19 But Improved QoQ

Golden-Agri’s (GAR)’s 3QFY19 revenue fell 15% YoY to US$1.6b and EBITDA dropped 19% YoY to US$106.8m, but PATMI turned positive from a loss of US$53.9m in 3QFY18 to US$0.8m this quarter. The latter brings 9MFY19’s PATMI loss to US$45.6m, which is significantly lower than ours and the street’s full year forecasts. The weak performance was attributable to continued lower crude palm oil (CPO) prices (-18% YoY) and lower palm product output (-5% YoY).

On a quarterly comparison, however, we see some improvement in GAR’s performances. GAR’s 3QFY19 revenue increased 1% QoQ, and EBITDA grew 38% QoQ to US$107m, driven by improved palm product output (+25% QoQ) as well as higher CPO price (+2% QoQ).

9MFY19 Performance Was Dragged by CPO Prices

Plantations and palm oil mills’ 9MFY19 revenue fell 16% to US$929.6m, weighed by lower CPO prices but supported by higher sales volume from the selldown of inventory. We noted that Fresh fruit production (FFP) and palm products output declined YoY for 9MFY19 but reported strong seasonal rebound in production/output which rose 22% and 25% QoQ respectively. GAR replanted 6,400 hectares in 9MFY19 vs 3,100 hectares in the same period last year, which we believe is on track to achieve GAR’s target of replanting between 10,000 to 15,000 hectares this year.

Separately, GAR’s downstream business, Palm, laurics and others’ 9MFY19 revenue was down 14.1%, dragged by lower CPO prices and lower sales volume for oilseeds in China. Palm, laurics and others’ 9MFY19 EBITDA, however, increased by 115.7% YoY to US$138.3m, due to improved EBITDA margin on the back of stronger demand for biodiesel in Indonesia and the removal of export levy in Indonesia in the last quarter of 2018. We expect the margin to improve further in 4QFY19, given the recovery of CPO prices.

B30 Program Could Boost Demand

Indonesian president Joko Widodo called for the implementation of B30 program (biodiesel with a 30% bio-content) by January 2020, which could provide a strong boost to palm oil consumption demand. Management cited the significant growth in biodiesel consumption since the implementation of B20 in September 2018 and is positive about B30, which they believe will increase the consumption to over 9 million kiloliters in 2020.

Looking ahead, we expect better 4QFY19 and FY20 due to strong demand and slower production growth of CPO which in turn could drive CPO prices up. After adjustments, our fair value estimate decreases from S$0.27 to S$0.26. HOLD.

Source: OCBC Research - 15 Nov 2019

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Sembcorp Industries: Patience Needed

Author: kimeng   |  Publish date: Fri, 15 Nov 2019, 2:28 PM


  • Energy 9M19 net profit up 5%
  • But insufficient to offset drag from Marine
  • Marine’s FY19 losses to be worse than FY18

Dragged by Marine

Sembcorp Industries (SCI) saw a 19% YoY fall in revenue and a 13% drop in net profit to S$71m in 3Q19, bringing 9M19 net profit to S$262m or just 66% of our full year estimate. This was mainly due to the lower than expected results in Marine, which reported a greater than expected net loss a few days ago. Sembcorp Marine had also warned that full year net loss would be greater than last year’s. With this, we lower our estimates to take into account the poorer than expected performance in the Marine division.

Singapore to See Maintenance Shutdowns in 2H19

In Singapore, completion of the sale of certain utilities facilities to ExxonMobil Asia Pacific is expected by the end of this year. Major maintenance shutdowns for the power generation assets in Singapore will also take place in 2H19.
 

Energy Division’s Net Profit Up 5% in 9M19

In the Energy division, net profit before exceptional items was 17% lower at S$84m in 3Q19, while net profit after exceptional items was 10% lower at S$81m. On a 9M19 basis, net profit was 5% higher at S$258m, demonstrating the relatively steady nature of the business.

Marine drag to continue

As mentioned in our earlier report, though SCI’s Energy and Urban Development segments are operating well, the Marine segment may pose a greater than expected drag on the group. A sustained recovery in new orders will take some time, and competition remains intense with margins compressed. Instead of full year losses projected to be similar in range to last year’s, they are now expected to be even worse than FY18. We update our estimates and our SOTP-based value for SCI drops from S$2.79 to S$2.51. HOLD.

Source: OCBC Research - 15 Nov 2019

Labels: Sembcorp Ind
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Singapore Airlines: Weak Cargo; Strong Passenger Traffic

Author: kimeng   |  Publish date: Thu, 7 Nov 2019, 5:40 PM


  • Record pax load factor
  • Higher non-fuel expenditure
  • Expansion and renewal of aircrafts

2QFY20 Net Profit Rose 67.9% YoY

2QFY20 revenue grew 3.9% YoY to S$4.2b, largely driven by strong pax traffic growth, but dragged by weak cargo revenue. Expenditure rose 4.7% YoY to $4.1b, on the back of higher non-fuel expenditure (+6.0% YoY) due to expansion in operations. Net fuel cost was up 1.7% YoY due to higher volume uplifted on capacity expansion.

As such, operating profit fell 8.6% YoY to S$213.1m. Net profit grew 68% YoY to S$94.5m, as associates and joint ventures’ showed improvement in results (mainly from Virgin Australia) with losses narrowed from S$117.6m to S$39.8m in 2QFY20. The growth was partially offset by higher net finance charges (+1.6% YoY), due to the adoption of IFRS 16 Leases and additional financing for fleet renewal and expansion.

Strong Passenger Growth

Passenger growth was strong in 2QFY20 across all airlines, with record 2Q and 1HFY20 pax load factor (PLF). Operating performances of the airlines were generally helped by higher traffic growth but dragged by higher expenditures (largely from nonfuel costs), which in turn led to operating loss of S$3m (flat YoY) and S$36m (vs S$11m in 2QFY19) for SilkAir and Scoot respectively, as well as lower operating profit (-1.7% YoY ) for SIA parent airline.

SIA parent airline and SilkAir saw improvements in RASK in 1HFY20, showing that the recovery is on track. SilkAir was adversely affected by the transfer of routes to Scoot as well as the 737 Max grounding, yet it managed to drive growth in revenue, boosted by traffic growth of 3.1%. Scoot’s traffic grew more rapidly at 7% as it was able to capture more routes from SilkAir. Management noted the challenges to build the brand name in new routes and the lingering issues with SilkAir’s Rolls-Royce engines but believed that they are transitional issues.

Expect Higher Flown Revenue and KrisShop Contribution

Passenger bookings in the coming months remain healthy and are expected to be stronger YoY, particularly driven by the long-haul flights to US. We expect the flown revenue to remain the key growth driver and higher revenue contribution from KrisShop in 2HFY20. However, cargo revenue remains a concern and rising expenditure may be a short-term drag, given SIA’s strategy to grow in capacity with 159 outstanding aircraft deliveries to support fleet renewal and expansion.

Nonetheless, we believe that this is beneficial to the Group in the long run. The new aircrafts could improve fuel efficiency by 26-30% and also give the Group the capability to operate into new markets such as the long haul market. After adjustments to factor in the weak cargo and higher expenditure, our fair value decreases from S$11.02 to S$10.46.

Source: OCBC Research - 7 Nov 2019

Labels: SIA
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Wing Tai Holdings Ltd: PATMI Jumped 209% YoY

Author: kimeng   |  Publish date: Fri, 25 Oct 2019, 10:50 AM


Wing Tai’s 1QFY20 revenue rose 2% YoY to S$79.3m, largely due to higher contribution from the development properties, on the back of additional units sold in Le Nouvel Ardmore in Singapore.

PATMI grew by 209% from S$2.2m to S$6.8m, mainly attributable to a 20% reduction in the cost of sales and 13% increase in higher contributions from Wing Tai Properties Limited in Hong Kong and Malaren Gardens in Shanghai.

The group acquired a freehold property known as 4 Wesley Court for A$51m in Sep. The property is located within the Tally Ho Business Park, Australia, and is currently leased out as a data centre. This will be the third data centre amongst the group’s portfolio in Australia.

Wing Tai’s share price rose 7.25% YTD and currently trades at a consensus blended forward P/B of 0.48x, which is ~0.4 S.D. below the 10-year mean.

Maintain BUY, with fair value estimate of S$2.27.

Source: OCBC Research - 25 Oct 2019

Labels: Wing Tai
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ESR-REIT: In-line Set of Results

Author: kimeng   |  Publish date: Fri, 25 Oct 2019, 10:49 AM


ESR-REIT’s 3Q19 revenue and net property income increased 91.5% YoY and 101.1% YoY to S$62.0m and S$45.3m respectively, largely due to contribution from the acquisition of 15 Greenwich Drive and last year’s merger with Viva Industrial Trust, rental escalations from the existing property portfolio as well as the leasing of 30 Marsiling Industrial Estate Road 8 following the completion of its AEI in Jan 2019.

3QFY19 DPU fell 0.4% YoY to 1.00 S cents, mainly due to larger unit base following the placement of new units and longer-than expected completion for the acquisition of 49% interest in PTC Logistics Hub against the backdrop of trade war uncertainties. 3QFY19 DPU comes up to 25% of our initial full-year forecast and we consider this to be in-line with our expectations.

Occupancy remained stable at 91% and YTD rental reversion is +0.6% with improved tenant retention rate at 71.2%. Maintain BUY on ESR-REIT with fair value estimate of S$0.58.

Source: OCBC Research - 25 Oct 2019

Labels: ESR-REIT
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ServiceNow Inc (NOW US) : Look Here Now

Author: kimeng   |  Publish date: Fri, 25 Oct 2019, 10:48 AM


  • Best-of-breed SaaS solution for ITSM
  • Marching on towards US$10b
  • Pullback creates opportunity

Taking Pole Position in a Large Market

ServiceNow Inc (NOW) offers a portfolio of products that supports critical aspects of its customers’ digital transformation process. Management believes its Total Addressable Market (TAM) can grow at a 8% CAGR from US$110b in 2018 to US$165b in 2023. We believe that NOW enjoys a dominant market position, especially in the IT Service Management (ITSM) space, and this has helped to construct a robust partner ecosystem, including professional services and integrations.

Land and Expand

While its ITSM offering is widely known to be its flagship product, NOW has expanded its product offering, which has allowed it to grow its existing installed base of customers by cross/up-selling. In 2018, NOW’s dollar-based net expansion rate was slightly higher than 130%, with 81% of its net new Annual Contract Value (ACV) coming from its existing installed based of customers. Its compelling suite of solutions has also resulted in a high replacement hurdle, with a renewal rate of 99% in 3Q19.

Dispelling the Concerns Post Q3

Management highlighted that the demand environment globally remains very strong – including Europe, which had been a particular source of concern for many investors. This corroborates with NOW’s strong Non-GAAP adjusted total Remaining Performance Obligations (RPO), which is up 36% YoY. Separately, we believe NOW’s incoming CEO, Mr. McDermott, brings with him a wealth of enterprise tech experience from SAP, and will be able to help NOW plot its journey to move from a $3b revenue company to a $10b one.

Valuations Undemanding

From its recent high in Jul’19, NOW has pulled back ~21.3% (as of 24 Oct’19 close), similar to its Software-as-a-Service (SaaS) peers. On an EV/FCF basis, NOW is trading at ~36x, which is approximately at the 3-year mean; we do we not deem this to be stretched. Unlike some of its SaaS peers, NOW has a clear and durable ~30% FCF growth opportunity in front of it. Management has kept FY19 operating margin guidance at 21%, with a FCF margin guidance of 28%.

Strong margin trends should help translate into further FCF growth. We base our valuation on a DCF approach, assuming a WACC of 9.5% and a terminal growth rate of 2.25%, thereby deriving a fair value of US$302. Initiate BUY.

Source: OCBC Research - 25 Oct 2019

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