PHILLIP SECURITIES

Singapore Technologies Engineering (STE SP)
A Fine Balance Of Defence And Growth

Strategically integrated into the defence and security structure of Singapore and a leading player in several major growth areas (smart city, satcom, commercial aerospace), STE is a fine balance of defence and growth. Its medium-term growth outlook is underpinned by a record orderbook of S$21.3b. Re-initiate coverage with BUY and target price of S$4.60.

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Silverlake Axis Ltd – New cloud driver and recovery in bank spending

• New growth driver from MOBIUS cloud-based banking software. Banking customers can deploy MOBIUS to launch new digital loan and deposit products in a more rapid and targeted manner. Almost RM100mn of orders is expected.
• Silverlake’s recurring maintenance revenue contributed to 72% of FY21 revenue and managed to expand at a CAGR of 4% despite the pandemic.
• Initiate coverage on Silverlake Axis Ltd with a BUY rating and a target price of S$0.38. Our target price is pegged to 20x P/E FY22e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years as key growth drivers for the company. In March 2022, Silverlake initiated an equal access offer at S$0.33 each.

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CGS CIMB

 PHILLIP SECURITIES

ST Engineering
NDR takeaways: Growth and yield

■ We hosted STE’s management on an NDR in Europe. We think STE is in a sweet growth spot, with tailwinds from smart spending and aviation recovery.
■ Reiterate Add. STE is its yield and growth profile by FY23F, harvesting sizeable M&A and investments made during and pre-Covid.
■ FAQs by investors: 1) aerospace recovery, 2) smart city opportunities, 3) defense spending and impact on STE, and 4) supply chain management
■ Catalyst: quicker global reopening. Downside risks: global recession.

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Hyphens Pharma International Ltd – Digital healthcare catalyst emerges

• Raised $6mn for a 10% stake in Hyphens Pharma digital assets – DocMed Technology.
• DocMed Technology owns POM (B2B digital hypermart) and WellAway (Singapore’s first and only HSA registered e-pharmacy).
• We raised FY22e earnings by 40% to S$9.2mn to incorporate earnings from the acquisition of Novem. Our DCF target price is raised from S$0.345 to S$0.43 due to higher earnings. WACC is increased from 7.3% to 9% from raising our risk-free rate assumption. We upgrade our recommendation from ACCUMULATE to BUY. Hyphens underlying growth strategy is to be a leading portfolio of proprietary skin health products and brands across Asia. Digital healthcare is a new growth and stock catalyst. We have not incorporated the new valuation of DocMed into our target price. We view the transaction as a funding event rather than crystallisation or monetization of Hyphens digital assets. The proceeds have the potential to enhance the B2B platform with more doctors, pharmaceutical companies, transactions and new sources of revenue. Such milestones could drive further rounds of financing and higher valuations.

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Capitaland Investment
Can it exceed S$100bn by 2024?

■ Post restructuring, CLI offers investors greater earnings visibility and higher ROEs of c.4.4-5% over FY22-24F vs pre-restructuring c.3-4% over FY17-20.
■ We think reaching S$100bn FUM from current S$86bn by FY24F is doable based on existing pipelines.
■ Exceeding the target is possible, from private equity FUM growth and M&A opportunities. Initiate coverage with an Add rating and TP of S$4.59.

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SKP Resources Bhd
Alleviation of social risks a key positive

■ A social compliance audit conducted on SKP’s operations by a third-party auditor has concluded that SKP adheres to ethical labour practices.
■ The audit findings indicated that SKP fully reimbursed all recruitment fees paid by its foreign workers and addressed issues of working overtime.
■ We view this as a positive development as it should alleviate some of the social risks plaguing the EMS sector in the past few months. 

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