Simons Trading Research

Author: simonsg   |   Latest post: Mon, 13 Jan 2020, 8:29 AM


Food Empire - Sipping Vietnam’s Coffee Culture; Still BUY

Author: simonsg   |  Publish date: Fri, 17 Jan 2020, 8:23 AM

  • Maintain BUY, 18% upside to our target price plus 2% yield.
  • Visiting Food Empire’s second largest market, Vietnam, early this week, we witnessed the high visibility of its Café Pho products vis-à-vis its competitors in Ho Chi Minh City. With an extensive network of sales representatives and a strong marketing team, we believe Café Pho should be able to grow its market share, while revenue and margins could be further improved with the increased penetration of new products.

Success of the Vietnam Market

  • Vietnam is FOOD EMPIRE (SGX:F03)’s second-largest market, contributing 20% to topline. While the group has been in Vietnam since 1993, the business only took off after it introduced Café Pho, a premium 3-in-1 ice coffee mix in 2013. The business turned profitable in 2015.
  • Today, with one single product, Food Empire is among the Top 5 players in Vietnam’s instant coffee mix industry based on volume share. It is also a Top 3 player based on value share.

Extensive Network of Sales Representatives Helps Drive Sales

  • Café Pho is largely sold in sundry shops and markets, as general trade constitutes 80% of the retail market in Vietnam. While the group uses third-party distributors to reach retailers, it employs 540 sales representatives across the country to bridge sales between distributors and retailers. These representatives visit the retailers on a weekly basis to ensure the retailers’ timely restocking. They also help direct the retailers’ shelf placements to ensure maximum visibility of Café Pho products.

High Visibility of Café Pho Increases Its Mind Share

  • During our visit, we noticed that Café Pho is widely available in the general trade. The product could be easily found in sundry shops or market stalls right next to each other (see Figure7 in attached PDF report). In addition, Café Pho is one of the few instant beverage products that focuses on selling in sachets aside from selling in bags and boxes (see Figures 3-4 in attached PDF report).
  • As Café Pho is a premium product with a higher price point, selling in sachets allows consumers with lower disposable income to buy at smaller quantity and lower cash outflows. Food Empire’s sales representatives also encourage retailers to hang strings of Café Pho sachets from a rod across the shop’s ceiling, which again raises the product’s visibility (see Figures 5-6 in attached PDF report).

Rolling Out More Products

  • Following the success of Café Pho, the group has also launched a few new products and product variants – Café Me (hot coffee mix), Café Ket (mass market 3-in-1), Café Pho Nha Lam (even higher price point 3-in-1), and Café Pho Den Da (2-in-1) to increase sales. It is also venturing into the energy drink segment in 2020.
  • While revenue contributions from these products are small, we believe they could capitalise on Food Empire’s existing distribution and sales representatives network and help to improve operating leverage and margins.

Source: RHB Invest Research - 17 Jan 2020

Labels: Food Empire
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Boustead Singapore - Steadfast Global Player With Reliable Prospects

Author: simonsg   |  Publish date: Thu, 16 Jan 2020, 4:56 PM

  • BOUSTEAD SINGAPORE (SGX:F9D) is a global infrastructure-related engineering and technology group. The company offers reliable prospects from its geospatial segment, which rides on sustainable industry tailwinds through the proliferation of location-based data. In addition, its energy engineering segment offers a steady foundation for recovery given its high orderbook.
  • The group is dependable with its low gearing and decent yield.

Company Background

  • Established in 1828, Boustead Singapore is a global infrastructure-related engineering and technology group.
  • Summary of the analysis to be updated. Meanwhile, click on view full report button below for complete analysis on Boustead Singapore.


Source: UOB Kay Hian Research - 16 Jan 2020

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Boustead Projects - Overlooked Assets of a Building Champ

Author: simonsg   |  Publish date: Wed, 15 Jan 2020, 5:25 PM

  • BOUSTEAD PROJECTS (SGX:AVM) is a leading real estate solutions provider with niche expertise in the design and build of business parks and industrial developments, often at the forefront of transformational building technologies.
  • Boustead Project’s portfolio of leasing properties is also sizeable, with the market value of completed assets topping S$800m. Monetising the asset portolio will be a highly anticipated catalyst.
  • Initiate coverage with a BUY with target price based on a 40% discount to RNAV.


  • Valued at target price based on a 40% discount to RNAV (27% upside).

Source: UOB Kay Hian Research - 15 Jan 2020

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Fu Yu Corp - Further Enhancing Capabilities & Capacity

Author: simonsg   |  Publish date: Wed, 15 Jan 2020, 12:06 PM

  • Maintain BUY with higher Target Price implies 6.4% FY19F yield.
  • FU YU CORPORATION (SGX:F13) has obtained approval from regulatory authorities to proceed with the redevelopment project of its Tuas factory, in conjunction with the lease renewal of 7 Tuas Drive 1 for 20 years from 16 Nov 2021.
  • We expect continued revenue and margin expansion on new projects in the auto, consumer and medical spaces as well as further cost savings from the closure of its Shanghai factory.

Redevelopment of Tuas Factory

  • The redevelopment project entails the demolition of the existing building and construction of a larger building to house a factory, warehouse and office space. The new building will have an estimated gross floor area of 9,000 sq m, more than three times the size of the existing building. Management also plans to invest in new manufacturing equipment to expand its production capacity and enhance its capabilities to produce higher precision and better quality products. The layout will also be modified to facilitate a seamless workflow across tooling, moulding and assembly operations.
  • Together with investments in new and advanced production equipment, management expects to benefit from higher productivity and operational efficiency. Total capex will be SGD15.4m, funded through internal funds, and the project is targeted for completion by 4Q20.

Closure of Shanghai Factory to Further Reduce Costs

  • With the lease termination of its Shanghai site, management has decided to liquidate its Shanghai factory and shift production to its loss-making Suzhou site, which has lower operating costs. We believe this will help reduce the longer-term operational cost for the whole group, and help the Suzhou factory turn profitable at a much faster pace despite incurring a SGD5.5m one-off expense in FY19F. As such, we remain confident on the group’s outlook and think that this closure will be beneficial to Fu Yu as a group in the longer term.

Still One of Our Top Picks

  • With the ramp-up in its existing projects to continue in the subsequent quarters, coupled with further new projects in the medical and consumer and automotive fronts, we expect positive growth momentum to continue. In addition, a rising USD should also benefit the company.
  • With its Shanghai factory closure as well as redevelopment of its Singapore factory, we expect margins to continue improving. As a result, we increase our FY20F and FY21F core PATMI by 10% and 7% respectively, resulting in a higher DCF-based Target Price.
  • Fu Yu is also an attractive target for privatisation or acquisition.
  • Key risks to our call: economic slowdown, worsening trade war.

Source: RHB Invest Research - 15 Jan 2020

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SingTel - Cautiously Optimistic as Company Defends Consumer & Enterprise Markets

Author: simonsg   |  Publish date: Wed, 15 Jan 2020, 11:25 AM

  • SINGTEL (SGX:Z74) will focus on:
    1. defending its market share in both Singapore and Australia;
    2. driving the digital businesses; and
    3. keeping a tight lid on costs via digitisation.
  • We came away from a recent meeting more sanguine on the Singapore market but this will likely be offset by weaker Optus enterprise and digital services.
  • Maintain HOLD.

What’s New

Signs of stabilisation in Singapore…

  • We came away from a recent meeting more sanguine on SingTel, given relatively stable operating parameters in Singapore, albeit at early stages. One of the oldest mobile virtual network operators (MVNO) - Zero Mobile (launched in Dec 17) has discontinued mobile offerings in Singapore after a period of intense price competition in the country. As a result, we believe existing MVNOs may attempt to revamp their offerings or potentially exit the market to avoid prolonged cash burn.
  • In addition, TPG has extended its free trial for its 300,000 subscribers by another six months with commercial launch expected by 4Q20. TPG may also face difficulty in gaining market share within the SIM-only segment, given:
    • incumbents’ existing grip on premium customers; and
    • the proliferation of MVNOs in Singapore – to fill the space where TPG is targeting.
  • All these seem to suggest that TPG may have to grapple with higher customer churn once the company starts to charge for mobile services.

….to be offset by challenging enterprise business for Optus.

  • We expect the enterprise business segment to remain weak into 2HFY20 as compliance-related businesses have slowed down substantially for financial institutions in Australia. This is expected to be partly offset by the resumption of public-sector jobs in Singapore as most contract renewals with the government have been renegotiated, albeit at lower margins.
  • SingTel’s digital marketing arm is expected to face near-term headwinds amid more cautious spending by Amobee's clients and a drop in social media and e-mail revenue streams. As such, we expect the group to continue to focus on driving programmatic advertising (57% of digital revenue in 2QFY20) and e-wallet business (SingTel’s Dash).

Synergies in a digital banking with existing businesses.

  • SingTel has teamed up with Grab to apply for a Digital Full Bank (DFB) license. It is estimated that there are currently 2m underbanked Singaporeans (out of 5m total population) and this is an opportunity for future digital banking licensees. The successful bidders will be announced by mid-20 and they are given 12-24 months to meet the requirement of minimum S$1.5b paid-up capital.
  • The digital banks are expected to start business by earliest mid-21.

Stock Impact

2020 outlook: Cautiously optimistic.

  • SingTel will focus on:
    • defending its market share in both Singapore and Australia;
    • drive digital businesses; and
    • keeping a tight lid on costs via digitisation of its traditional operating model.
  • All in all, SingTel guides for stable top-line and EBITDA for FY20 amid competition in the consumer segment and weak enterprise business outlook. Management also expects dividends from regional associates to amount to S$1.2b.
  • We note that operationally, Airtel may successfully narrow its losses in 2HFY20, given concerted efforts to raise mobile tariffs in India.

Mobile tariff hike potentially a turning point for Airtel…

  • SingTel’s Bharti Airtel had unveiled new prepaid mobile plans in Dec 19 with price hikes ranging from 15% to 52%. Based on our sensitivity analysis, the higher turnover arising from Airtel’s tariff hike (we modelled in an average ASP hike of 33% y-o-y) could lift SingTel’s FY20-21 net profits by 2% and 4% respectively.

…although in the near term, Airtel will have to pay up for outstanding gross revenue to the Indian government (due 24 Jan 20).

  • While we view the mobile tariff hike positively, near-term sentiment may be dampened by a recent capital raising exercise of US$3b by Bharti. Of the US$3b, a US$2b equity raising exercise has be carried out to approved shareholders with a floor price of Rs452.09 (S$6.32) each – SingTel is not a party. The balance of US$1b capital will be debt funded. This fund will be channelled towards paying Airtel’s Rs355.9b (~S$6.8b) adjusted gross revenue (AGR) payable to the Indian government by 24 Jan 20.
  • In terms of due installments, it is still uncertain whether the government would allow spreading them over five or ten years. We expect the court to rule on the review petition by the end of this month. To recap, SingTel had made S$1.4b provision for AGR payable to the Indian government in its 2QFY20 earnings.

5G spectrum to be allocated by mid-20, with Singtel a potential beneficiary.

  • The Infocomm Media Development Authority (IMDA) is expected to allocate 5G spectrum by mid-20. There will be two 5G nationwide networks to hold the 3.5 GHz spectrum and mmWave for national coverage, and two 5G localised networks to hold only mmWave to cater for industry use.
  • We expect the two 5G nationwide networks to include SingTel and a consortium of multiple mobile network operators (MNOs) such as StarHub (SGX:CC3), M1 and TPG. The MNOs are expected to submit their bids by 17 Feb 20.

Higher capex as telcos enter the next 5G investment cycle.

  • We expect additional S$1b- 2b capex as the Infocomm Media Development Authority (IMDA) aims for 50% population coverage by end-22 and nationwide coverage by 2025. Assuming a capex budget of S$1b- 2b per 5G network operator, we expect SingTel’s capex intensity to increase to 14-16% for FY20-21 (FY19: 10%; FY18: 13%), and ease to high-single-digit thereafter. Having said that, the rollout of 5G could reduce network cost by 10-15% through network sharing.

Earnings Revision / Risk

  • No change to our earnings forecasts.

Healthy dividend yield of 5.4% for FY20.

  • Barring unforeseen circumstances, we believe management could maintain ordinary dividend at 17.5 S cents for FY20. This translates into a net dividend yield of 5.4%.
  • Management reiterated its stance of: balancing shareholder’s return with a desire to stay within investment grade – for funding cost purposes.

Valuation / Recommendation

  • Maintain HOLD with unchanged DCF-based target price, or 13.9x FY20F EV/EBITDA.
  • At our target price, the stock trades at its mean 5-year EV/EBITDA mean of 14.2x. This reflects fairly stable earnings pace and higher 5G capex intensively in the next three years.
  • Entry price is S$3.00.

Source: UOB Kay Hian Research - 15 Jan 2020

Labels: SingTel
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Fu Yu Corp - Moulding for Growth

Author: simonsg   |  Publish date: Wed, 15 Jan 2020, 8:43 AM

  • Turnaround in manufacturing across all regions.
  • Favourable shift in product mix towards higher profitability and growth potential.
  • Improving margins; high cash level (0.11 Scts/share) and attractive yield at 6.4%.
  • Initiate with BUY.

Turnaround in Manufacturing Across All Regions

  • Manufacturing PMIs in China, Singapore, and Malaysia, where FU YU CORPORATION (SGX:F13)’s manufacturing facilities are located, are indicating an expansion in the manufacturing sector. We believe that this will lead to an uptick in earnings for Fu Yu.

Emphasis on Products With Higher Profitability and Growth Potential

  • Part of Fu Yu’s business strategy is to shift towards producing parts for products in the consumer, medical, and automotive space, which have higher profitability and growth potential, as compared to printing and imaging segment.

Cost Efficiency to Improve Margins

  • Fu Yu is also expanding its margins through cost enhancement initiatives. The redevelopment of its Singapore factory and consolidation of its China operations in Shanghai and Suzhou will further lift normalised net profit margins to 8.2% in FY2020F, from 5.4% in FY2018.

Strong Financial Positioning

  • Fu Yu has a high cash level and no debt. Its cash level is equivalent to 44.1% of its market capitalisation and 37.7% of total assets.
  • It has an attractive dividend yield of 6.4% in FY2019F and TTM EV/EBITDA of 4.4x, vs peers of of 6 to 7x.
  • Summary of analysis to be updated. Meanwhile, click on the view full report button below for complete analysis.

Source: DBS Research - 15 Jan 2020

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