Simons Trading Research

Author: simonsg   |   Latest post: Tue, 17 Sep 2019, 9:11 AM


UnUsUaL - Shares on Sale Now! While Stocks Last! BUY

Author: simonsg   |  Publish date: Tue, 17 Sep 2019, 9:11 AM

  • Initiate with a BUY.
  • UNUSUAL LIMITED (SGX:1D1) is an Asian concert promotion and event production leader. It has grown since listing into an entity with FY19 earnings of SGD13.2m (CAGR: +53%).
  • Given more entertainment opportunities ahead, this should help grow a conservative FY20F-22F NPAT CAGR of 20%. UnUsUaL's share price has also corrected significantly to a reasonable valuation. Consequently, we initiate coverage on a rare local firm that can still deliver high growth over the next 2-3 years.

UnUsUaL Limited Company Background

  • UNUSUAL LIMITED (SGX:1D1) was founded in 1997 by two brothers, Leslie and Johnny Ong.
  • Prior to its inception, Johnny was already in the business of trading sound, light & video equipment. Most of his customers were recording and broadcasting companies during that time. Leslie subsequently joined the business and the two brothers began their production venture, incorporating UnUsUaL Productions in 1997. As the brothers’ capabilities and technical expertise widened, the business grew from handing small-scale events into managing large-scale concerts and events, such as the National Day of Singapore.
  • The group went on to incorporate UnUsUaL Entertainment in 2003 and started its promotion business. UnUsUaL Development was incorporated in 2005 to offer venue management services, which collaborated with owners and managers to secure venues for the group’s events and concerts in advance.
  • UnUsUaL predominantly operates through two business segments – production and promotion. It specialises in producing and promoting large-scale live events and concerts in Singapore and the region.
  • The group was listed on the SGX Catalist Board on 10 Apr 2017. As part of the restructuring exercise prior to IPO, mm2 Entertainment Pte Ltd (mm2) acquired 51% of UnUsUaL from the two executive directors, Leslie and Johnny. The shares were held under mm2 subsidiary, UnUsUaL Management. After the IPO placement, UnUsUaL Management held 82.18% of the shareholdings. mm2 subsequently sold 5.39% of its shares to Brunei’s Prince Abdul Qawi and Singapore’s Ron Sim’s R3 Asian Gems fund in Apr 2018.
  • As at 19 Jul 2018, UnUsUaL Management holds 76.8% in the firm, while founders Leslie and Johnny hold 12% and 6%.


  • UnUsUaL provides support to an artiste’s team or event organisers in the setting up and installation of the concerts/events under this business segment. It has one of the largest technical equipment inventory in Singapore, providing audio, staging, lighting & video designs, and technical solutions.
  • Additionally, the group also provides creative solutions to event organisers for the production of a concert and/or event. UnUsUaL provides a wholesome range of services – from the conceptualisation and development of creative input to managing and overseeing the entire setting up of a production.
  • Its recent notable projects include the provision of technical solutions for the Sing50 event at the National Stadium and creative input for the 28th SEA Games Carnival at the Singapore Sports Hub in 2015. It is also a partner of the Singapore Grand Prix and annual Chingay Parade.


  • Under the promotion segment, UnUsUaL oversees the planning and managing of concerts and events. It is also vital that the group builds and maintains good working relationships with the artistes and their teams – this allows the group to secure top-notch artistes and the best concerts/events. Services provided under this segment include coordination work – eg coordinating an artiste’s schedule, and the appointment of relevant third-party service providers and suppliers – as well as venue assessment, ticketing management, and the marketing and promoting of a concert/event.


Source: RHB Invest Research - 17 Sep 2019


Labels: UnUsUaL
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Fu Yu Corp - Continued Optimisation of Business

Author: simonsg   |  Publish date: Mon, 16 Sep 2019, 9:19 PM

  • FU YU CORPORATION LTD (SGX:F13) continues to put in efforts to optimise its operations. Three key initiatives which will lead to cost savings and growth include:
    1. liquidation of a loss-making JV in Malaysia;
    2. lease renewal for its Singapore plant; and
    3. closure of its Shanghai factory.
  • Although the one-off expense related to the closure of the Shanghai factory could drag 3Q19 earnings into the red, we believe Fu Yu will still pay a higher dividend for 2019, which could support share price.
  • Maintain BUY and target price of S$0.285.

What’s New

Liquidation of loss-making JV could lead to notable savings.

  • In Jul 19, Fu Yu Corporation (SGX:F13) started voluntary liquidation of 40%-owned Berry Plastics in Malaysia. We expect the process to complete by end-19 and the earnings drag from this JV should drop from an S$0.8m loss in 2018 to S$0.5m loss in 2019 and to zero in 2020.

Renewal of lease; redevelopment of a plant in Singapore.

  • Fu Yu will be renewing its leases for 7 & 9 Tuas Drive 1 for another 20 years from 2021. On the other hand, it will sell 5 Tuas Drive 1 by 2020 to comply with the lease renewal term. Fu Yu also plans to redevelop its plant at 9 Tuas Drive 1 to expand its operations. The estimated capex is S$13m, which can be partially funded by the disposal proceeds from 5 Tuas Drive 1.

Closure of Shanghai factory and shift of factory to Suzhou.

  • In Aug 19, Fu Yu received an early termination of lease for its Shanghai factory to be on 31 Jan 20, from the initial 31 Aug 21. As a result, Fu Yu made a strategic decision to shift operations in Shanghai to its Suzhou factory which has a larger production capacity and is ideally located to serve its customers in Shanghai. The medium-term benefits include lower overheads and better utilisation at its Suzhou factory.
  • We understand that labour cost in Shanghai is 10-20% higher than in Suzhou and the local government in Shanghai does not encourage manufacturing industry to operate in the city due to pollution issue.

Impact of one-off expense on share price should be offset by a higher dividend.

  • Fu Yu estimates the one-time expense for the Shanghai plant closure at S$5.5m and this could drag 3Q19 net profit into a loss. However, we think share price could be supported by a higher dividend of 1.7 S cents for 2019 (2018: 1.6 S cents), which will not be cut due to the one-off expense. See Fu Yu's share price.

Stock Impact

BUY for high and sustainable dividend yield, cheap EV/EBITDA.

  • Fu Yu offers a high and sustainable dividend yield of 7.0% for 2018 and we expect this to increase to 7.4% in 2019 on the back of improving net profit, FCF and strong net cash of S$82.4m (S$0.11/share) as of 2Q19.
  • In 2018, Fu Yu raised its interim dividend for the first time in three years, and we expect further increases ahead. See Fu Yu's dividend history.

Takeover target for its valuation, diversification, capacity and salary savings.

  • Fu Yu could be a takeover target, given its:
    1. attractive valuation at 3.5x 2019F EV/EBITDA currently. Note that peers were privatised at EV/EBITDA of 5.0-25.7x;
    2. geographically diversified plants and customers are highly sought after;
    3. low utilisation rate of only around 50%, which could appeal to acquirers who are in a hurry to increase production capacity; and
    4. low-hanging fruit from the savings of three co-founders’ remuneration, estimated at S$2.3m-3.0m annually, or 21-28% of 2018 net profit.

Earnings Revision / Risk

  • No change to our earnings forecasts.

Valuation / Recommendation

  • Maintain BUY and target price of S$0.285, based on 5.7x 2019F EV/EBITDA, pegged to peers’ average. It implies 2019F dividend yield of 7.4% and ex-cash PE of 7.7x.

Share Price Catalyst

  • Higher-than-expected net profit and dividend.
  • Potential takeover offer.
  • Potential corporate actions to unlock values, such as disposal of properties.

Source: UOB Kay Hian Research - 16 Sep 2019

Labels: Fu Yu
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Keppel DC REIT - SGP4 Comes in With 1-Net Tagging Along

Author: simonsg   |  Publish date: Mon, 16 Sep 2019, 9:10 AM

  • Keppel DC REIT announced the proposed acquisitions of 99% of KDC SGP 4 and 1-Net North DC for a total agreed value of S$585.1m.
  • The transactions will be funded by a mix of equity fund raising (EFR) of S$473.8m, debt and issue of acquisition fee units.
  • We maintain our Hold call with a higher Target Price of S$1.82.

DPU- and NAV-accretive Transactions to Boost AUM by 30.7%

  • KEPPEL DC REIT (SGX:AJBU) announced the acquisitions of a 99% interest in KDC SGP 4 (SGP4) and 1- Net North DC at a total agreed value of S$585.1m. According to Keppel DC REIT management, the transactions are DPU- and NAV- accretive (+9.4% and +9.3% respectively) based on the pro-forma financials, assuming tax transparency is not granted.
  • The transactions will increase Keppel DC REIT’s AUM by 30.7% to S$2.58bn comprising 17 data centres globally. Keppel DC REIT expects both acquisitions to be completed in 4Q19.

Positive on the Transactions From Multiple Angles

  • Apart from the accretion, we think the deal is positive due to the higher exposure to Singapore (63% of AUM post-completion vs. 51% pre-completion). This deal also improves the portfolio’s occupancy rate from 93.2% to 94.1% and portfolio WALE from 7.8 years to 8.9 years. The deal would also lower gearing from 31.9% to 30.3%.

SGP 4 Coming in as Expected; 1-Net Was a Positive Surprise

  • SGP 4 is a colocation facility with a net lettable area (NLA) of 84,544 sq ft and has an occupancy rate of 92.0%. It has a weighted average lease expiry (WALE) of 3.0 years. As part of the SGP 4 deal, the Vendor will provide rental support of up to S$8.8m (for 100% share).
  • 1-Net North DC has 213,815 sq ft of floor area and is 100% committed on a triple-net master lease with 16.8 years left and renewal option for 7.6 years. SGP 4 has a stabilised yield of 7.5% while 1-Net North DC has a 9% yield according to Keppel DC REIT.

Funding Structure

  • The acquisition cost of S$599.5m will be funded by EFR, debt and the issue of acquisition fee units. The equity fund raising to raise gross proceeds of S$473.8m comprises
    1. a private placement of 135m new units to raise S$229.9m-235.4m at an issue price of S$1.703-1.744 per unit, and
    2. a preferential offering to raise S$238.4m- 243.9m at an issue price of S$1.67-1.71, implying a 4.4-6.6% discount to VWAP.
  • The funding structure roughly implies an 80:20 equity-to-debt ratio.

Maintain HOLD With a Higher Target Price of S$1.82

  • Maintain HOLD. We raise our FY20-21 DPU by 8.3-7.5% to incorporate the impact of the deal which lifts our DDM-based Target Price to S$1.82, assuming tax transparency is not granted.
  • With Keppel DC REIT trading at 1.7x FY19F P/BV, highest amongst S-REITs, we think investors should look to participate in the private placement or preferential offering for a better entry price.
  • Downside risks include weaker foreign currencies and potential income uld SGP 4 not stabilise after the 24-month rental support period.

Source: CGS-CIMB Research - 16 Sep 2019

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Mapletree Industrial Trust - High-Tech Transformation Powered by Data Centres; Upgrade to BUY

Author: simonsg   |  Publish date: Fri, 13 Sep 2019, 9:22 PM

  • Mapletree Industrial Trust’s strategy to grow its high-tech buildings segment is transformational. It has expanded exposure to high-tech buildings to 43.3% of portfolio valuation, much larger than flatted factories’ at 33.1%.
  • We view acquisitions to further increase exposure to data centres as a positive catalyst.
  • Mapletree Industrial Trust provides growth from data centres at a reasonable price. Its FY20F distribution yield of 5.5% is higher than 5.2% for Ascendas REIT (SGX:A17U) and 4.5% for Keppel DC REIT (SGX:AJBU).
  • Upgrade to BUY. Target price: S$2.58.

What’s New

Strategy to grow high-tech buildings.

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) has reshaped its portfolio of investment properties. The high-tech buildings segment has expanded to 43.3% of portfolio valuation as of end-FY19, compared to 18.9% five years ago. This was achieved through:

Acquiring and developing high-tech buildings.

  • Mapletree Industrial Trust completed the development of 1 & 1A Depot Close in Jun 17 and 30A Kallang Place in Feb 18. It also completed the acquisition of 18 Tai Seng Street for S$271m in Feb 19.

Data centres accounted for 17.7% of portfolio valuation (Singapore: 8.6%, US: 9.1%).

  • Mapletree Industrial Trust broadened its investment strategy to include data centres on a worldwide basis beyond Singapore. It completed the acquisition of a 40% stake in 14 data centres located in the US in Oct 17. They sit on freehold land with total NLA of 2.3m sf. The portfolio has 15 quality tenants, including AT&T, Vanguard, General Electric, Level 3 Communications and Equinix. The portfolio provides an initial NPI yield of 6.9% and rental escalation of more than 2% annually. Mapletree Industrial Trust has the right of first refusal to acquire the remaining 60% stake from sponsor Mapletree Investments.
  • In Singapore, Mapletree Industrial Trust has developed two built-to-suit (BTS) data centres at 26A Ayer Rajah Crescent and 12 Sunview Drive and has embarked on an upgrading of a high-tech building to a data centre at 7 Tai Seng Drive (to start contributing from 3QFY20).
  • Conversely, exposure to flatted factories was reduced from 48.4% to 33.1%.

Keen to further expand data centre exposure.

  • The global leased data centre market is expected to grow at a CAGR of 6.5% between 2017 and 2023F, driven by:
    1. growth of cloud computing at CAGR of 16.1%,
    2. storage of data and content close to end-users and at multiple geographical locations for resiliency, and
    3. demand for backup data centres for disaster recovery, business continuity and compliance to data sovereignty regulations.
  • According to 451 Research, the US currently represents 32% of the global insourced and outsourced data centre space by operational sf.

Continuing fruitful partnership with sponsor.

  • Mapletree Industrial Trust intends to acquire more data centres located in gateway cities in the US, Europe and Asia. It is likely to partner sponsor Mapletree Investments to pursue larger scale portfolio transactions.
  • For single-asset transactions, Mapletree Industrial Trust would acquire the data centre by itself.

Embarks on largest redevelopment project at Kolam Ayer 2 Cluster.

  • Mapletree Industrial Trust plans to redevelop the Kolam Ayer 2 Flatted Factory Cluster into a high-tech industrial precinct at total cost at S$263m. The redevelopment will increase utilised plot ratio from 1.5 to 2.5 and expand GFA by 71% to 865,600sf. The property is located near Geylang Bahru MRT station (Downtown Line).
  • Mapletree Industrial Trust will build a 7-storey BTS facility with GFA of 211,000sf (24.4% of the enlarged GFA) for a global medical device company headquartered in Germany. The anchor tenant has committed to fully lease the building for 15 years with annual rental escalations. For the second block with GFA of 654,600sf, management targets high value-add and knowledge-based companies from advanced manufacturing and information & communications technology. The redevelopment is scheduled to commence in 2H20 and is expected to complete in 2H22.
  • Kolam Ayer 2 Cluster is a sizeable redevelopment project accounting for 4% of Mapletree Industrial Trust's total NLA. We expect the redevelopment project to have a negative impact in FY21 and FY22. We see DPU recovering by 2.8% to 12.8 S cents in FY23 as Kolam Ayer 2 Cluster starts to contribute.

Stock Impact

High-tech transformation powered by data centres.

  • The repositioning towards high-tech buildings and expanded exposure to data centres will help Mapletree Industrial Trust weather macro uncertainties and escalation in trade conflicts. We view acquisitions to further increase exposure to data centres as a positive catalyst.
  • Mapletree Industrial Trust aims to improve occupancies at the expense of negative rental reversions for the flatted factories segment, which is more affected by weakness for the electronics and precision engineering sectors.

Growth from data centres at a reasonable price.

  • Mapletree Industrial Trust’s 2020F distribution yield of 5.5% is higher than 5.2% for Ascendas REIT (SGX:A17U) and 4.5% for Keppel DC REIT (SGX:AJBU).

Earnings Revision / Risk

  • We forecast DPU of 12.7 S cents for FY20 and 12.6 S cents for FY21.

Valuation / Recommendation

  • Upgrade to BUY. Our target price of S$2.58 is based on DDM (required rate of return: 6.5%, terminal growth: 1.8%).

Share Price Catalyst

  • Growth from data centres located in Singapore and the US.
  • Acquisition of remaining 60% stake in portfolio of 14 data centres in the US.

Source: UOB Kay Hian Research - 13 Sep 2019

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Japfa Ltd - 2H19 More to Do With Oink, Not Cluck

Author: simonsg   |  Publish date: Fri, 13 Sep 2019, 9:21 PM

Receding ASF Impact Is the Key Catalyst to Watch for

  • Indonesian soft poultry prices remains a focus area for some investors but the y-o-y drop from the exceptionally high price environment of 2018 has been tracking our expectations so far. The real wild card for Japfa (SGX:UD2)’s 2H19 performance lies with the near-term unpredictability of ASF on Vietnam hog volumes and prices.
  • Valuations, while attractive, will stay in the back seat for now, but current risk-reward may be interesting for long term investors.
  • Our estimates and SOTP-based Target Price are unchanged. BUY.

The Chickens Are Alright

  • July/Aug PT Japfa farm-gate broiler prices were higher than the seasonal lows of 1H19. While this still appears to be the main concern in the market, the y-o-y monthly price declines are to be expected with the unusually high base of 2018.
  • The YTD average of IDR17.1k has so far been tracking in line with our full-year outlook of cIDR17k and we think there may be some incremental upside to these levels in 2H19 with the government mandated culling in the past couple of months.

It’s Uncertainty in Vietnam African Swine Flu Timeline That Concerns Us

  • African Swine Flu (ASF) spread rapidly across China’s farms for 10-12 months before some provinces saw a deceleration in the number of new monthly outbreaks. In Vietnam there is still limited clarity on this front; ASF broke out in North Vietnam in early-2019.
  • New outbreaks are reportedly slowing there and pork prices inched up m-o-m for July. But South Vietnam, where ASF broke out a few months after the North is not seeing any such slowdown or signs of pork price inflexion yet.
  • Moreover, the heavy rains in the South could possibly fuel its spread across farms in coming months.

2018 Star to YTD 2019 Flop – What’s Next?

  • Japfa was one of the best performing stocks in our coverage in 2018 (+44% abs; +55% rel) but may close 2019 as amongst the worst (YTD -32% abs; -37% rel). Stock price is at the lows seen in 1Q18 in the aftermath of the China pork ban that resulted in a c20% industry oversupply.
  • Japfa’s evaluation of a worst-case ASF scenario patterned on some of China’s worst affected provinces is a c25% stock cull. In a sense, markets appear to have already largely priced in such a worst case.
  • Price catalysts may take time to materialise but forward valuations are attractive and the risk-reward may be interesting for long-term investors.

Vietnam ASF Update

  • ASF has spread rapidly throughout Vietnam since the first reported outbreak in Feb-2019. The country’s Ministry of Agriculture and Rural Development (MARD) reported that the disease had spread to all 63 of its provinces. There is no vaccine treatment for ASF and stringent biosecurity practices are the only way to control its spread at the moment.
  • MARD also reported that around 4.7m hogs had been culled since the outbreak (we estimate this is c16% of its pre-outbreak hog population).
  • While the spread of ASF was initially across backyard and small farms, industrial farming companies, including Japfa, have also been affected in recent months.
  • Japfa management have estimated a couple of impact scenarios based on the Chinese experience where the disease has been widespread for almost two years. Some of China’s worst affected provinces have seen around 25-28% of stocks get culled from pre-outbreak levels.
    • Worst case: Japfa management estimates that if 25% of its commercial stock were to be culled, the negative impact to operating profit could be to the tune of USD30m if pork ASP stays low throughout the year.
    • Moderate case: In a more moderate impact scenario that involved 25% of stock getting culled but an ASP recovery in the 2H19, the estimated operating profit impact would be cUSD15m.
  • There are three potential offsets to these ASF impact scenarios above:
    • Firstly, as an industrialised farming company, the risk to Japfa’s stock is arguably lower due to wide site diversification and higher biosecurity measures than posed to hybrid and backyard operations; we estimate Japfa to be amongst the three largest industrialised farmers in the country. Its hog operations have one Great Grandparent, six Grandparent farms, 22 Parent farms and over 300 company and contract fattening farms diversified geographically across the country.
    • Secondly, pork prices could rise much sharper than assumed and potentially offset the loss of stock, like in China where shortages have resulted in pork prices skyrocketing in some provinces and even at a national level with increases of as much as 30-50% y-o-y in recent months (Aug 2019 prices up 47% y-o-y);
    • Thirdly, Japfa’s poultry operations in Vietnam would possibly benefit from some consumption substitution from pork to poultry.
  • In the medium term, the impact of ASF would be to shift the percentage share of industry production towards industrialised farming from backyard and hybrid farms. The estimated share in hog farming for industrialised farms at end-2018 was estimated at c35%.

Valuation and Risks

  • Our forecasts, Target Price and valuation methodology are unchanged.
  • Japfa is trading at 7.1x FY20 P/E, half the levels of its APAC protein peer average of 20.6x.

Source: Maybank Kim Eng Research - 13 Sep 2019

Labels: Japfa
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Wilmar International - Better 2H Awaits; Maintain BUY

Author: simonsg   |  Publish date: Fri, 13 Sep 2019, 5:12 PM

  • Reiterate BUY with unchanged Target Price of SGD4.50, 17% upside and 3% dividend yield.
  • Wilmar International (SGX:F34) is our plantation sector top pick. We remain upbeat on the stock as we believe the worst is behind us while the outlook for 2H19 looks rosier on the back of an improving soybean crush utilisation and increasing CPO prices.
  • The upcoming China IPO would continue to support the share price in the near term and we expect a further rerating of the Wilmar's share price once the IPO is completed.

Crush Margins in China Set to Improve

  • The disappointing result in 2Q was caused by low crush margins due to reduced pig stocks in China and implicitly a lower demand for soybeans due to the African swine fever.
  • Moving into 3Q, a stronger feed demand from the poultry and aqua sectors should partially offset the reduced demand from the pork sector as consumers substitute pork meat with other sources of proteins.
  • In addition, pork prices in China have soared 47% y-o-y in August due to a shortage in supply. The Government has since introduced subsidies to encourage farmers to raise inventories. With rising prices and subsidies, we expect industrialised farmers to begin growing pig stock to capitalise on the higher margins.
  • In turn, this should spark an increased demand for soybean meal from 4Q onwards. In addition, we believe the widening of Brazilian soybean basis should be beneficial to the group’s hedging strategy, reducing input costs and improving soybean crush margins.

News on Trade War Talks Are Largely Noise for Now

  • We think the additional 5% tariff on US soybeans implemented on 1 Sep 2019 would not have any significant impact on Wilmar as the group has been purchasing Brazilian soybeans since the initial 25% tariff introduced in Jul 2018.
  • A resolution to trade war might also not have a major positive impact as the US soybean prices would likely adjust upwards to offset any reduction in tariffs. However, the ability to access the US soybeans would definitely be beneficial to Wilmar’s operations in the longer term.

Tropical Oil Segment Should Continue to Do Well

  • CPO prices have recovered from the lows of MYR1,865/tonne in July to the current levels of MYR2,100/tonne. Wilmar’s upstream plantation business would stand to benefit from the higher prices. At the same time, we believe downstream margins should remain strong for the next few quarters.
  • Currently, the price differential between gasoil and palm oil at USD81/tonne suggests that biodiesel is still very profitable. Management has also highlighted its expectation for a CPO price recovery which we believe would suggest that the group has positioned itself to capture higher margins in the upstream while keeping low-cost inventories for its downstream business in subsequent quarters.

Source: RHB Invest Research - 13 Sep 2019

Labels: Wilmar Intl
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