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01 August 2022: Ascendas REIT (AREIT SP), CNOOC Limited (883 HK)

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Ascendas REIT (AREIT SP): 1H22 results to see positive rental reversions and inorganic growth

  • BUY Entry 2.97 – Target – 3.17 Stop Loss – 2.86
  • Ascendas Reit (AREIT) is Singapore’s first and largest listed Business Space and Industrial Real Estate Investment Trust (REIT). As at 31 March 2022, it owns 221 properties across three key segments, namely, 1) Business Space and Life Science, 2) Logistics and 3) Industrial and Data Centres. Ascendas Reit’s multi-asset portfolio is anchored by well-located quality properties across developed markets. 95 properties are located in Singapore, 36 properties in Australia, 41 properties in the United States and 49 properties in the United Kingdom/Europe. These properties host a customer base of more than 1,600 international and local companies from a wide range of industries and activities, including data centres, information technology, engineering, logistics & supply chain management, biomedical sciences, financial services (backroom office support), electronics, government and other manufacturing and services industries.
  • JTC 2Q22 report implies continued strength in industrial rents. JTC’s 2Q22 market report showed that prices (+1.5% QoQ, +5.2% YoY) and rents (+1.5% QoQ, +3.4% YoY) of Singapore industrial spaces continued to climb for a 7th straight quarter. This was further supported by a creeping up in occupancy rates (+0.2ppt QoQ, -0.2ppt YoY) after dipping in 1Q22. JTC noted that the strong manufacturing performance, particularly in electronics and precision engineering segments, helped to drive demand for factories during the period.
  • Stable rental reversions and acquisitions to mitigate divestments. AREIT’s 1H22 results should be boosted by inorganic growth after it acquired ~S$2.4bn of assets since 2021 (completed acquisition of 2 Australian properties in 1Q22). The completion of S$23m of AEIs during the year should also see an uplift to performance. AREIT had reported positive rental reversions of 4.5% in 2021 and 4.6% in 1Q22 and could see such a trend continue for the rest of the year. Notably, management had guided for positive low single-digit reversion in 2022 during its 1Q22 business update. Nonetheless, growth could be pared by S$248m worth of divestments, which were completed in 2021.
  • Stable growth expected in FY22F financials, likely undervalued. The Street currently has 14/4/0 BUY/HOLD/SELL ratings and an average TP of S$3.23. Based on consensus estimates, FY22F gross revenue/NPI should pick up by 6.1%/5.7% YoY to S$1.3bn/S$973.4m respectively. In line with this, the street is expecting FY22F DPU to expand 4.9%YoY to 16¢ (FY21: 15.3¢) implying a fairly attractive yield of 5.4%. At current prices, AREIT would trade at 1.2x P/B almost 1sd away from its 2-year average of 1.3x. AREIT is due to announce 1H22 results on 2 August after trading closes.

(Source: Bloomberg)

Sembcorp Industries (SCI SP): High power prices to be sticky amidst high inflation environment

  • RE-ITERATE BUY Entry 2.93 – Target – 3.17 Stop Loss – 2.75
  • Headquartered in Singapore, Sembcorp Industries (SCI) leverages its sector expertise and global track record to deliver solutions that support energy transition and sustainable development. By focusing on growing its Renewables and Integrated Urban Solutions businesses, SCI aims to transform its portfolio towards a greener future and be a leading provider of sustainable solutions. SCI has a balanced energy portfolio of 16.5GW, with 7.0GW of gross renewable energy capacity comprising solar, wind and energy storage globally. SCI also has a track record of transforming raw land into sustainable urban developments, with a project portfolio spanning over 13,000 hectares across Asia.
  • Media reports on electricity wholesale price spike. On 18 July, media reported that Singapore’s wholesale electricity price surged for a second time during the week, a sign of further volatility in the market amidst a global power crunch. The cost of 1 megawatt-hour jumped to more than S$4,200, close to the pricing cap of S$4,500. The high price was also sticky for the longest period this year, with the pricing staying for 3 hours. The latest prolonged surge implied a tightness in the market that could not easily be mitigated. High prices would also incentivise power generation companies such as SCI to sell more electricity. Prices staying high thus suggests a fundamental lack of sufficient capacity.
  • Share price erased gains despite positive profit guidance. SCI’s share price has essentially given up all gains that were made during its positive profit guidance. Recall that SCI announced that it was looking at stronger-than-expected 1H22 performance driven by its conventional energy segment as electricity prices in Singapore and India remained high. Recall that SCI’s FY21 performance was already substantially stronger on a YoY basis. FY21 turnover/adjusted net profit jumped 43%/57% YoY to S$7.8bn/S$472m mainly on contributions from conventional energy again. Notably, sustainable solutions also saw turnover improve 17% YoY.
  • Forecasts upbeat with room for further rerating. The Street currently has 9/2/0 BUY/HOLD/SELL ratings and an average TP of S$3.45. Based on consensus estimates, FY22F gross revenue/net profit should pick up by 9.7%/6.6 YoY to S$8.55bn/S$503m respectively. In line with this, the street is expecting FY22F DPU to jump 28% YoY to 6.4¢ (FY21: 5.0¢) or at a 2.2% yield. At current prices, SCI would trade at 11.1 forward P/E roughly at the YTD average of 11x, although this might change if the street starts a round of upgrades in the event of stronger-than-expected SCI results and more bullish guidance. SCI is due to announce 1H22 results on 5 August before trading commences.

(Source: Bloomberg)

CNOOC Limited (883 HK): Oil price corrections have stabilized

  • Buy Entry – 9.8 Target – 11.0 Stop Loss – 9.2
  • CNOOC Limited is a Hong Kong-based investment holding company principally engaged in the exploration, production and trading of oil and gas. Its businesses include conventional oil and gas businesses, shale oil and gas businesses, oil sands businesses and other unconventional oil and gas businesses. The company mainly operates businesses through three segments. The Exploration and Production segment is engaged in the exploration, development and production of crude oil, natural gas and other petroleum products. The Trading segment is engaged in the trading of crude oil, natural gas and other petroleum products. The company mainly operates businesses in China, Canada, the United Kingdom, Nigeria, Indonesia and Brazil, among others.
  • Probably no significant production hike. The news that OPEC+’s meeting this week would likely end with no significant production target increase also bolstered prices to a significant degree. Last Thursday, five OPEC+ sources suggested that OPEC+ was likely to keep its production targets for September steady with August levels. Two OPEC+ sources said that the group could discuss a small output hike. The market is aware, however, that even a hike in production targets is unlikely to result in an actual OPEC+ production boost due to chronic underproduction compared to the group’s current targets. WTI closed at US$98.28/bbl, and Brent closed at US$103.63/bbl last Friday.
  • Positive interim profit guidance. The net profit attributable to equity shareholders of the company for 1H22 is estimated to be between RMB70.5bn and RMB72.5bn, representing an increase between RMB37.2bn and RMB39.2 bn, and representing an increase between approximately 112% and 118% YoY. The higher oil prices mainly drove the surge in profits in 1H22.
  • The updated market consensus of the EPS growth in FY22/23 is 72.5%/-5.2% YoY, respectively, translating to 3.3×/3.5x forward PE. The current PER is 5.4x. FY22F/23F dividend yield is 15.4%/11.4% respective. Bloomberg consensus average 12-month target price is HK$14.61.

(Source: Bloomberg)

Prada S.p.A. (1913 HK): The hedge against inflation realised

  • Buy Entry – 43.5 Target – 49.0 Stop Loss – 41.0
  • Prada SpA is an Italy-based company engaged in the fashion industry. The Company is a parent of the Prada Group. The Company, along with its subsidiaries, is engaged in the design, production and distribution of leather goods, handbags, clothing, eyewear, fragrances, footwear and accessories. Prada SpA manufactures jackets, trousers, skirts, dresses, sweaters, blouses, as well as perfumes and watches, among others. The Company trades its products through several brands, such as Prada, Miu Miu, The Church and The Car Shoe. Prada SpA operates in approximately 70 countries through directly operated stores, franchise operated stores, a network of selected multi-brand stores and department stores. Prada Spa operates through numerous subsidiaries, including Artisans Shoes Srl, Angelo Marchesi Srl, Prada Far East BV, Tannerie Megisserie Hervy SAS and Prada SA, among others.
  • Upbeat 1H22 results. Net revenue grew by 22.5%/22.2% at constant exchange rates of 1H21/1H19 to EUR1.9bn. Net sales of the retail channel grew by 26.4%/37.7% at constant exchange rates of 1H21/1H19. 1H22 GPM was at 77.7% compared to 74.3% in FY21 and 71.7% in FY19. Net profits jumped by 95.5% YoY to EUR189mn. 1H22 net sales in Europe and Americas jumped by 58.4% YoY and 55.6% YoY. Though Asia Pacifc remained the largest net sales contribution, the net sales of which dropped by 3.8% YoY during the period.
  • Resilient luxury goods consumption amidst inflation and recession concerns. The inflation and recession fears haunted average consumers rather than the affluent class. The market leader LVHM also reported better than expected 2Q22 results. Besides a resilient demand from wealthy consumers, luxury brands companies have adjusted their selling prices against inflation. Meanwhile, according to a report by Bain & Company, China luxury goods market will see a rapid recovery in the second half of the year from the short-term impact caused by the epidemic.
  • The updated market consensus of the EPS growth in FY22/23 is 47.3%/23.6% YoY, respectively, translating to 33.5×/27.1x forward PE. The current PER is 37.4x. Bloomberg consensus average 12-month target price is HK$53.47.

(Source: Bloomberg)

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  • Alibaba Group Holding Limited (BABA US) Shares fell 11.12% last Friday as the U.S. Securities and Exchange Commission placed the Chinese e-commerce and Internet leader on a list of companies at risk of being delisted from U.S. stock markets. 


  • Food Empire (FEH SP) surged 11.8% on positive profit guidance in which management reported that it was expecting to see “significantly higher” profit after tax for 1H22. Management attributed the stronger-than-expected performance to better operating profit on the back of higher average selling prices. Additionally, management said that higher FX gain, as well as increased profits from an associate helped to bolster its overall performance. FEH expects to release its results on or around 11 August. 
  • Hongkong Land (HKL SP) gained 6.8% after it reported an 8% YoY increase in 1H22 underlying net profit to US$425m on revenue of US$894m (+0.9% YoY). Notwithstanding the strong bottom line number, HKL reported that rental income dipped to US$455.6m (-3% YoY) on negative rental reversion. Footfall and tenant sales at its Beijing and Macau operations were also negatively affected by pandemic restrictions. Meanwhile, HKL’s Singapore office portfolio saw average office rents increase to S$10.50psf (2H21: S$10.30psf). Notably, management painted a fairly weaker picture for the overall FY22 as pandemic related curbs bite in its China markets. HKL declared DPS of US$0.06/share. 
  • Keppel (KEP SP) traded 1.6% higher on Friday as it reported 1H22 profit that rose 66% YoY to S$498m, aided by higher earnings across most of its main businesses and a rebound at its offshore & marine unit. Notably, KEP’s O&M business, which is currently expected to be merged with Sembcorp Marine, rebounded amid a rise in oil prices. KEP management updated that the offshore division was in advanced discussions with Petrobras for 2 new FPSOs and OSVs, which could add more than S$8bn into its orderbook. KEP’s order book currently stands at S$4.4bn. 
  • ThaiBev (THBEV SP) inched 0.8% higher following an announcement that it may decide not to proceed with the proposed spin-off listing of its brewery unit, BeerCo on the SGX mainboard. THBEV said that there was no certainty or assurance that its plans to spin off BeerCo would proceed at all, or in the form it described back on 5 May. THBEV was responding to media reports that the BeerCo listing would be pushed back to September-October, subject to an improvement in market conditions. 
  • UOB (UOB SP) fell 2.5% as 1H22 PAT was weaker-than-expected due to lower fees and other income. 2Q22 PAT was +11% YoY and +23% QoQ higher while 2Q22 Net Interest Income was +18% YoY stronger driven by a +11bps YoY and +9bps QoQ expansion in NIMs. Wealth management was a large -27% YoY contraction in 2Q22 similar to what is being reported by global banks. There were improvements in loan fees and credit cards, but overall fees to total income fell to 21% (vs. 24% in 1Q). Meanwhile, management reported that NPLs jumped to 1.7% vs. 1.5% a year ago and credit costs were up +2bps YoY to 22bps. Interim dividend was maintained at a lower-than-expected S$0.60/share. The higher NPLs, credit costs, and lower Other Income had a spillover effect on other peers such as DBS (DBS SP) and OCBC (OCBC SP), which declined 1.1%/0.3% respectively.

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  • Pacific Basin Shipping Limited (2343 HK) Shares jumped 9.04% last Friday after it reported record high 1H22 interim results. Revenue jumped by 50.9% YoY to US$1.7bn. EBITDA jumped by 131.8% YoY to US$566.9mn. Net profit attributable to shareholders jumped by 190.5% to US$465.1mn. The company declared an interim basic dividend of 35 HK Cents, representing 50% of the new profit of the period. The minor bulk freight market in 1H22 was driven by broad based global demand for commodities, further supported by low fleet growth and continued fleet inefficiencies.
  • MINISO Group Holding Ltd (9896 HK) Share rose 6.27% last Friday after the company issued a following press in response to allegations made in a report from Blue ORca Capital.
  • New Oriental Education & Techlgy Grp Inc (9901 HK) Shares rose 5.85% and closed at a 52-week high last Friday. Previously, the company announced 4Q22 (YE May) results. Total net revenues decreased by 56.8% YoY to US$524mn. Opearing loss was US$105.6mn. Net loss attributable to the company shareholders was US$189.3mn compared to US$27.9mn during the same period last year. Meanwhile, the company announced US$400 share buyback programm.
  • Xinyi Solar Holdings Ltd (968 HK) Shares rose 5.21% and closed at a one-month high last Friday. There was no company-specific news. The movements could be due to front-running of the interim results as the company will be announcing 1H22 earnings on 1st August Monday. Previously, the China Photovoltaic Industry Association raised 2022 installed capacity by 10GW and expected the full year target to be 85-100 GW.
  • JD Health International Inc (6618 HK) Shares tanked 8.95% last Friday. The technology sector was sold off after a lack of fresh stimulus at the China’s Politburo meeting left markets disappointed.

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Trading Dashboard Update: Add Sembcorp Industries (SCI SP) at S$2.93. Take profit on CapitaLand Integrated Commercial Trust (CICT SP) at S$2.18 and Mapletree Industrial Trust (MINT SP) at S$2.71. Cut loss on Tongcheng Travel (780 HK) at HK$15.0 and Hainan Meilan International Airport (357 HK) at HK$19.2.

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