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REITs – Singapore
Europe Almost Overcoming Its Energy Crisis
Europe has almost resolved its energy crisis brought about by the Russia-Ukraine war, judging by the steep fall in electricity prices. The UK has made a policy U-turn and relented on tax cuts for top earners. Recent panic selling has brought valuations for S-REITs to attractive levels and bargains have emerged. Our bottom-up and diversified BUY picks are CLAS (Target: S$1.29), FCT (Target: S$2.56), LREIT (Target:
S$0.91), MINT (Target: S$3.12) and MLT (Target: S$1.94). Maintain OVERWEIGHT.
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Consumer – Indonesia
Raw Material Prices To Decline With Higher Selling Prices; Upgrade To OVERWEIGHT
CPO prices have declined 58.2% from the peak and wheat prices have fallen 34% from the peak. Polyethylene and skim milk prices tumbled 18% and 17.7% from their peaks.
At almost all consumer companies, selling prices have been adjusted by 5-10% ytd. The new and higher selling prices are unlikely to drop even when raw material prices decline. Retailers should continue with their recovery. Upgrade the consumer sector to OVERWEIGHT. Our picks: ICBP, KBLF, ROTI and MAPI.
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Venture (VMS SP)
A beacon of light
One of the last bastions
Venture remains one of the bright spots among Singapore tech stocks amid a challenging environment. Management anticipates demand to remain unabated in 2H22. However, we conservatively expect margins to come under pressure when new orders are negotiated. As a result, we revise down our FY22 & 23E earnings by 3% each and reduce our TP to SGD19.55 from SGD22.90, based on a lower 16x (from 19x) FY22E PE, as tech stocks around the world have been de-rated in recent few months and valuations have come off sharply. We also transfer coverage to Jarick Seet.
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HRnetGroup Ltd (HRNET SP)
Adding an external wing
Acquires majority stake in fintech start-up
HRnetGroup (HRnet) is acquiring a 51% stake in fintech startup Octomate for SGD676.5K from an unrelated third party. The move will facilitate the integration of Octomate’s Instant Payment solution with HRnet’s Ease Works app that allows contractor employees to be paid instantly after approval of their timesheets. While there is no material impact on our EPS
forecasts, we think Octomate is in a sweet spot to extract potential synergies as it enables cross-selling to the group’s new and existing clients. Maintain BUY with TP of SGD1.07, based on 15x FY23E P/E.
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REIT
Catch this travel bug!
■ Latest hospitality data suggests earlier-than-expected recovery by hoteliers.
■ We move up Singapore hotel recovery timeline from FY24F to FY23F.
■ Ride hospitality recovery at attractive 6.4-7.7% FY23F yields.
Sustaining pre-pandemic RevPAR
Singapore welcomed 729k international visitor arrivals (IVA) in Aug 22, at 42% of Aug 19 levels, bringing 8M22 IVA to 3.0m. Indonesia, India, Malaysia, Australia and the Philippines were the top five source markets in Aug 22. At this run rate, we think that the full year IVA numbers for 2022F could come in at the higher range of STB’s 4m-6m forecast. Strong pricing power by hoteliers were evident in May-Aug 22 RevPAR numbers, which have recovered to 93-104% of 2019 levels. At this juncture, RevPAR recovery is ahead of our expectation as we have previously expected a full recovery to materialise in 2024F.
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Telekom Malaysia
Access pricing review may raise concerns
■ MCMC’s PI Paper proposes 41-52% lower access prices for HSBB Layer 3. However, final access prices may be higher, as was the case in 2017.
■ If unifi ARPU and HSBB wholesale revenue are hit by 5%/10%, we estimate TM’s FY23-25F core EPS to be lower by 6-12%/12-23%.
■ Reiterate Add on TM (top Malaysian telco pick); TP unchanged at RM7.30.
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