Simons Trading Research

Author: simonsg   |   Latest post: Fri, 15 Nov 2019, 12:20 PM


Yangzijiang Shipbuilding 3Q19 - Slight Miss Despite Very Strong Free Cash Flow Generation

Author: simonsg   |  Publish date: Fri, 15 Nov 2019, 12:20 PM

  • For 3Q19, Yangzijiang Shipbuilding reported a 1% y-o-y increase in revenue to Rmb5.424b but net profit declined 10% y-o-y due to forex and derivatives losses, higher losses from associates and a higher tax rate. See Yangzijiang Announcements.
  • 9M19 revenue and net profit make up 70% and 71% of our full-year estimates respectively.
  • As at end-Oct 19, Yangzijiang Shipbuilding had an outstanding orderbook of US$3.2b for 83 vessels, making it the fifth largest shipyard globally.
  • Maintain BUY. Target price: S$1.46.


Slight miss.

  • YANGZIJIANG SHIPBUILDING (SGX:BS6) reported 3Q19 earnings that slightly missed our estimates but met consensus numbers. On the top of the market’s mind is when Chairman Ren would return to the company, however, management were not able to shed much light on this issue which has been weighing on the company’s share price. Yangzijiang Latest News.

Somewhat downbeat during the analyst call.

  • Management highlighted that the weakness in the Chinese economy may persist into 2020 and thus they have taken the decision not to invest as much capex as in the past. In any case, its shipyards are far better in quality than the majority of the yards in China.
  • Yangzijiang Shipbuilding also highlighted that labour costs are increasing in China due to the lack of skilled and semi-skilled labour, this could contribute to margin pressure for some orders that they currently have.

Stock Impact

Significant new shipbuilding orders yet to materialise despite IMO2020 implementation around the corner.

  • Yangzijiang Shipbuilding believes the impending IMO2020 rule has disrupted shipowners’ new-order plans and thus shipowners are taking their time to evaluate various options, eg whether to build new ships or to install scrubbers. In addition, Yangzijiang Shipbuilding believes the US-China trade tensions and a pessimistic economic outlook has further weigh on shipping demand and sentiment.
  • In the medium to long term however, Yangzijiang Shipbuilding appeared a lot more positive as it expects shipbuilding demand to rise due to increased demolition and faster pace of recycling as well as increased demand for high-efficiency green vessels that are able to use LNG as a dual fuel.

Debt investments have shrunk q-o-q.

  • Specifically, Yangzijiang Shipbuilding lowered its total debt investment q-o-q from Rmb18b as at end-Jun 19 to Rmb14.8b as at end-Sep 19. However, the company did point out that its debt investments are at a similar level to that in 3Q18.
  • As at end-3Q19, Yangzijiang Shipbuilding had net cash of Rmb4.164b or S$808.5m, equating to S$0.21/share. See Yangzijiang Dividend History.
  • Free cash flow generation during the quarter was extremely strong at Rmb5.6b vs only Rmb58,000 in 3Q18. This was mainly attributed to nearly Rmb4b of debt investments that the company redeemed during the quarter.

Earnings Revision / Risk

  • None.

Valuation / Recommendation

Maintain BUY and P/B-based target price of $1.46.

  • We value Yangzijiang Shipbuilding using 0.9x P/B which we believe is a fair reflection of the company’s prospects in the current shipbuilding industry cycle. The company is currently trading at nearly 2SD below its 5-year P/B average of 0.82x which we believe is mostly a reflection of the ‘corporate governance issues’ surrounding the chairman’s current leave of absence. See Yangzijiang Share Price; Yangzijiang Target Price.
  • In our view, these corporate governance issues do not have anything to do with Yangzijiang Shipbuilding itself, however the market has clearly taken a ‘wait-and-see’ approach for now.

Share Price Catalyst

  • New-order flow stemming from the new IMO 2020 regulations on marine fuel standards.
  • Return of the chairman to the company’s board and day-to-day management and operations investigations into his external charitable foundation.

Source: UOB Kay Hian Research - 15 Nov 2019

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SingTel 2QFY20 - Within Expectations, Headline Loss Due to Airtel Impairment

Author: simonsg   |  Publish date: Fri, 15 Nov 2019, 12:19 PM

  • SingTel reported a 2QFY20 headline loss of S$668m due to a S$1.4b one-off provision from Airtel. Excluding this, 2QFY20 core net profit grew 3% y-o-y to S$737m. Key earnings drivers were higher regional associates’ contribution and a positive net finance income.
  • We deemed the results to be within expectations.
  • Management intends to maintain ordinary dividends at 17.5 S cents for FY20. This translates to a net dividend of 5.3%. See SingTel Dividend History.
  • Maintain HOLD and S$3.32 target price. Entry price: S$3.00.

SingTel's 2QFY20 Results

2QFY20 core net profit in line.

  • SINGTEL (SGX:Z74) reported a 2QFY20 headline loss of S$668m due to a one-off provision of S$1.41b arising from Airtel’s adjusted gross revenue (AGR) payable to the Indian government. Excluding this, 2QFY20 core net profit grew to S$737m (+3% y-o-y; +28% q-o-q), supported by higher regional associates contribution and a S$18m net finance income (vs S$94m finance cost in 2QFY19) due to accrual income from pre-IPO investment in Airtel Africa. See SingTel Announcements; SingTel Latest News.
  • 1HFY20 core net profit of S$1.3b (-9% y-o-y) accounts for 51% of our full-year forecast, in line with expectations.
  • SingTel declared an interim net DPS of 6.8 S cent. Management intends to maintain ordinary dividends at 17.5 S cents for FY20. This translates to a 5.3% net dividend yield. See SingTel Dividend History.
One-off provision of S$1.4b due to Airtel India’s provision.
  • To recap, the Indian Supreme Court last month ruled that Vodafone Idea, Bharti Airtel and several other operators, including some that are no longer operational, will have to pay to the government within 90 days a combined US$13b in adjusted gross revenue as spectrum usage charges and license fees.

Singtel’s share price to trade sideways in the near term, we opine.

  • Airtel maintained its view that a grant relief by the Indian government is crucial to address the ongoing concern of telco operations in India. At this juncture, we expect SingTel's Share Price to trade sideways as exposure to the highly competitive India market will overshadow SingTel’s good set of 2QFY20 results.

Stock Impact

Group Consumer: Higher equipment sales, partly offset by a weaker AUD.

  • Singapore (market share: 49.8%) mobile revenue rose 8% y-o-y thanks to higher equipment sales in the quarter (+24% y-o-y). This was partly offset by 5% y-o-y decline in service revenue due to declining voice revenue and pressure in fixed-line segment.
  • Post-paid subscribers increased 30k with GOMO’s SIM-only offering. Post-paid ARPUs fell to S$39/month (1QFY20: S$40/month, 2QFY19: S$43/month) due to entry-level packages.
  • Prepaid subscribers grew 8k. Prepaid ARPU fell to S$17/month (1QFY20: S$17/month, 2QFY19: S$18/month).
  • Optus’ revenue rose 5% y-o-y on the back of higher NBN migration revenues (2QFY20: A$187m vs 2QFY19: A$23m). Higher take-up of premium handset drove post-paid net adds of 29k. Post-paid ARPU fell 7% y-o-y to A$38/month amid intense data price competition and higher mix of SIM-only customers. In all, Optus’ earnings was affected by a 6% y-o-y depreciation of the Australian dollar (AUD).

Group Enterprise: Declining margin amid cautious business environment.

  • Enterprise revenue contracted 5% y-o-y mainly due to the challenging business environment in Australia as the financial industry focuses on compliance spending.
  • Optus recorded lower ICT revenue (-25% y-o-y) due to lower ICT products demand as consumers are shifting to cloud service. This was partially mitigated by higher ICT revenue from Singapore (+6% y-o-y) due to more system integrations projects being taken up in the country.

Group Digital Life: Shrinking advertisement spending.

  • Revenue from digital marketing declined 8% y-o-y due to cautious advertisement spend by major customers and declining managed media and social businesses. Positively, higher revenue from HOOQ (+54% y-o-y) helped cushion the weakness in digital segment.

Regional Associate PBT Surged 34% Yoy

  • Regional associate PBT surged 34% y-o-y underpinned by:
    1. narrowed Airtel core losses as proceeds from Airtel Africa helped reduce finance cost, and
    2. stellar performance in AIS and Globe, with PBT up 31% y-o-y and 18% y-o-y respectively.

Good Cost Control

  • Good cost control lifted group EBITDA to S$1.16b (+3% y-o-y) and EBITDA margin improved to 28%. Cost savings for 1HFY20 amounted to S$263m due to the group’s efforts to keep a tight lid on cost structure via the digitisation initiatives

Earnings Revision / Risk

  • No change to our earnings forecast.

Valuation / Recommendation

  • Maintain HOLD and DCF-based target price of S$3.32 (COE: 5.9%; terminal growth: 1%), or 14.1x EV/EBITDA.
  • At our target price, the stock will trade at its 5-year EV/EBITDA mean of 14.2x. This reflects heightened mobile competition and higher 5G capex intensity. See SingTel Share Price; SingTel Target Price.
  • Having said that, we expect cost efficiency and potential 5G leap to set the group on a stronger footing to capture revenue growth in the medium term (beyond 2021).
  • Entry price is S$3.00.

Source: UOB Kay Hian Research - 15 Nov 2019

Labels: SingTel
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City Developments - Making Steady Progress

Author: simonsg   |  Publish date: Thu, 14 Nov 2019, 11:21 PM

  • Maintain NEUTRAL with new Target Price of SGD10.50 from SGD9.20, 0% upside.
  • CITY DEVELOPMENTS (SGX:C09)'s 3Q19 results (excluding impairments) were in line. Key takeaways are the successful privatisation of M&C hotels and good take-up at Singapore residential launches.
  • A key concern remains on the impact of its UK portfolio from Brexit uncertainty and regulatory risks.
  • While valuations are reasonably attractive at > 40% discount to RNAV, the stock lacks a strong catalyst.

Transformation of M&C – the Key Catalyst to Watch Out for

  • As anticipated City Developments succeeded in its bid to privatise Millennium & Copthorne (M&C) hotels, with the stock delisted from the London Stock Exchange on 11 Oct 2019.
  • The successful transformation of hotel operations will be a key re-rating catalyst for City Developments, where EBITDA contribution has been on a declining trend (YTD 2019: SGD137m, vs 9M18: SGD208m and 9M17: SGD256m) due to weaker operational performance, impairments and closure for asset enhancement.
  • In the near term, we expect City Developments to pump in significant capex ( > SGD100m) to better reposition its ageing hotel assets, which should benefit it in long term. Global RevPAR (constant currency) for its hotels improved 4.3%/1.6% y-o-y in 3Q/9M19 respectively.

Good Take-up at Singapore Residential Launches

  • YTD, six residential projects were launched in Singapore, which saw healthy sales take-up of 15-55% of total units. 9M19, City Developments sold about 1,130 units (+44% y-o-y) and achieved a higher sales value of SGD2.6bn (+66% y-o-y) providing good earnings visibility. Management earlier guided margins for high-end projects to be > 20% and low teens for mass to mid-end developments.
  • The take-up of its China projects has also been fairly steady with 420 units sold – total sales value of CNY1.4bn (SGD269m).
  • Upcoming Singapore residential launch to watch out for is the Sims Drive site (JV with Hong Leong Holdings) in 1Q20.

Fund Management Slowly Gaining Traction

  • City Developments obtained its Capital Markets Services license from the Monetary Authority of Singapore paving the way to set up a private fund and/or REIT and accelerate its fund management plans. City Developments had earlier acquired 50% manager stake in SGX-listed IREIT GLOBAL (SGX:UD1U) – currently it holds 12.6% stake in the REIT.

Asset Enhancements

  • Republic Plaza’s SGD70m AEI was completed in Sep 2019 with committed occupancy of > 90% and rental 10% higher than pre-AEI rental. Other AEI plans include upgrading works at City Industrial Building and Jungceylon retail mall in Phuket.
  • Management expects high single-digit ROI from asset enhancement works.
  • Gearing post recent acquisitions and AEIs still remains comfortable at 43% (FY18: 31%).

Earnings and RNAV Adjustment

  • We revise our FY19F-21F net profit by 6- 12% to factor in the M&C privatisation. Our RNAV is also lifted up by 14% as we now use book value of M&C instead of mark to market value of shares.

Source: RHB Invest Research - 14 Nov 2019

Labels: CityDev
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ComfortDelGro - Weak 3Q19; Higher Costs Expected

Author: simonsg   |  Publish date: Thu, 14 Nov 2019, 12:27 PM

  • Stay NEUTRAL with DCF-based SGD2.38 Target Price from SGD2.55, 0% upside with 4.2% yield.
  • ComfortDelGro’s 9M19 PATMI was below our and consensus forecasts. We lower 2019-2021 estimates 6-10% to account for the incorporation of fixed licence charge payment related to the Downtown MRT Line and higher maintenance cost.
  • While we like the defensive nature of ComfortDelGro’s public transport earnings and its strong FCF generation capability, the slower profit growth outlook and premium valuation support our Neutral rating.
  • A healthy dividend yield should limit material downside to its share price.

3Q19 Results Were Below Expectation

  • COMFORTDELGRO (SGX:C52)'s 9M19 profit of SGD216m accounted for 71% of our and 69% of consensus’ 2019 estimate. Excluding the negative FX impact, new acquisitions accounted for all of the growth in revenue.
  • For existing businesses, public transport and taxi operations in Singapore witnessed a decline in revenue. All growth in operating profit accrued from new acquisitions. Negative EBIT contribution from existing businesses was attributed to a decline in taxi earnings and payment of fixed licence charge.

Public Transport to Witness Elevated Costs

  • While near-term revenue growth will be driven by higher bus and rail revenue from Singapore and contributions from recently completed acquisitions, costs are also expected to remain elevated amidst higher maintenance expenditure accruing from its rail operations.
  • Public transport margins are also expected to remain in check with the introduction of the fixed licence charge. The fixed licence charge of SGD15m for 2019 is expected to increase by SGD5m every year going forward.
  • Despite improving ridership and 7% higher public transport fares, the Downtown Line is not expected to achieve breakeven anytime soon.

Singapore Taxi Business Remains Weak But Operating Metrics Are Stabilising

  • ComfortDelGro remains committed to be the dominant taxi operator in Singapore. While the taxi fleet size has declined YTD, the rate of decline has slowed down. ComfortDelGro is looking to manage its taxi fleet idle rate and has offered strong incentives to its drivers. This has impacted its operating margins. In 3Q19, EBIT for taxi business was down 19% y-o-y to SGD27.4m, and EBIT margin has fallen by 1.6ppt y-o-y to 16.9%.
  • ComfortDelGro noted that competition from Grab has subsided and unless there is renewed competitive intensity from ride-hailing players, its current taxi fleet size of mid-11,000 seems optimal.

Strong Revival in Growth Will Have to Come From Inorganic Growth

  • With muted growth from existing business operations, revival in strong earnings growth will have to come from acquisitions or material improvement in the Singapore taxi business.
  • ComfortDelGro is exploring investment opportunities in public transport businesses overseas. A net gearing of 30% would give ComfortDelGro access to SGD640m of additonal funds to undertake earnings accretive acquisitions.

Source: RHB Invest Research - 14 Nov 2019

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ComfortDelGro - Slightly Off Track

Author: simonsg   |  Publish date: Thu, 14 Nov 2019, 12:26 PM

Reduced Margin Assumptions. Maintain BUY

  • We reduce our 2019E-21E profit forecasts by 2-3% to reflect higher rail fees in 3Q19 that reduced public transport margins. Our DCF-based (WACC 9.0%, LTG 1%) Target Price is consequently reduced by 2% to SGD2.70.
  • An approved 2020 fare hike and improved overseas diversification remain key catalysts behind our BUY.
  • Worse-than-expected taxi business erosion and/or fare hike reversals is the downside risk to our outlook.

Slight Miss on 3Q19, But Impact Exaggerated

  • After the 3Q19 miss, COMFORTDELGRO (SGX:C52)'s 9M19 profit reached only 72%/70% of MKE/consensus FY19E. It’s running slightly behind forecasts due to a 54% q-o-q (SGD12m) increase in other opex in 3Q19 that management primarily attributed to retroactive adjustments for regulatory rail fees. This resulted in 3Q19 profit being down 11% y-o-y and 8% q-o-q.
  • ComfortDelGro's 9M19 revenue at 72%/74% of MKE/consensus was on track as 4Q is seasonally the strongest revenue quarter. We maintain our revenue forecasts but reduced our FY19E-21E EBIT margin forecasts by 20-30bps to account for the higher rail fee impact.

Taxi Under Pressure But Not as Bad as Expected

  • Taxi fleet and market share losses continued in 3Q19 but 9M19 taxi EBIT margin at 17.0% remained higher than our FY19 estimate of 16.8%. With a recent, 3- to 24-month rental rebate programme locking in over 70% of the driver force, taxi margins should fall closer to our FY.
  • We currently assume another 50bps drop in taxi margin in FY20E. Management remains cautious of the competitive environment but noted that the rate of fleet and driver decline is not as severe as in the past.

Growth From Public Transport Services

  • Despite margin pressure, we continue to anticipate EBIT and profit growth to be driven by public transport service (bus and rail) revenues. This will come from a combination of local fare hikes and improvements in existing overseas ventures.

Source: Maybank Kim Eng Research - 14 Nov 2019

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Centurion Corp - 9M19 Results in Line; Stay NEUTRAL

Author: simonsg   |  Publish date: Thu, 14 Nov 2019, 12:18 PM

  • Maintain NEUTRAL, DCF-based Target Price of SGD0.43, 2% upside with 5% FY20F yield.
  • Centurion’s 3Q19 revenue grew 17% y-o-y to SGD33.1m, mainly on newly-added properties – dwell East End Adelaide in Australia and Westlite Juniper in Singapore. It was further boosted by higher occupancy rates from Singapore PBWA and an additional 160 beds for RMIT Village.
  • Gross profit and earnings grew 17% and 19 y-o-y to SGD23.2m and SGD10.2m.

Results in Line

  • CENTURION CORPORATION (SGX:OU8)'s 9M19 revenue and PATMI were at SGD97.3m (+10% y-o-y) an SGD26.9m (+3% y-o-y), in line with our estimates, and at 75% and 79% of ou respective full-year forecasts. See Centurion Corp Announcements. The growth came from new properties – dwell East En Adelaide, dwell Princess Street and Westlite Juniper, as well as improved rental rates in the group’s UK assets.

Improvement in Purpose-built Worker Accommodation (PBWA) Occupancy Rate

  • In Singapore, the demand for PBWAs remains constant – with demand exceeding supply by 120,000-150,000 beds. The stable demand has helped Centurion to achieve an average occupancy rate of 97.4% for 9M19 across its five PBWAs in Singapore, up from 96.9% in 1H19.
  • In Malaysia, the improvement in average occupancy rate (excluding Westlite Bukit Minyak) has been encouraging, growing to 91.2% for 9M19, from 90.2% in 1H19.

Healthy Occupancy Rate for Student Accommodation Assets

  • Despite the uncertainty surrounding Brexit, the performance of its UK purpose-built student accommodation (PBSA) projects remain remarkable, achieving an occupancy rate of 91% for 9M19. According to Knight Frank projections, domestic demand for higher education is expected to rise over the long term in the UK. Demand for education from international students is expected to grow in tandem, as the UK Government recently announced it will issue 2-year post-study visas for international students.
  • dwell East Adelaide, completed earlier this year, achieved an occupancy rate of 93.9% in 3Q19 (+14.4% q-o-q). RMIT Village’s occupancy rate was 89.8%.

Lower Contributions From JV and Associates

  • Centurion recorded a lower contribution from the US Student Housing Fund on the back of lower occupancy rates – as there was a drop in international student numbers in the US. There was also an increase in the supply of student housing.
  • Going forward, the group expects greater challenges, and the manager is actively working with the operator to address issues concerning occupancy rates.


  • We like Centurion as a defensive play, while its recurring income providers a buffer from any earnings downside. However, we think that this counter is fairly priced, in view of its accommodation assets portfolio.
  • See Centurion Corp Share Price; Centurion Corp Target Price.

Source: RHB Invest Research - 14 Nov 2019

Labels: Centurion
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