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Sheng Siong Group Ltd (SSG SP): Value driven

• BUY Entry – 1.52 Target– 1.64 Stop Loss – 1.46
• Sheng Siong Group Ltd is a retailer in Singapore. The Company operates a groceries chain across Singapore. Sheng Siong’s stores provide fresh and chilled produce, seafood, meat and vegetables, processed, packaged and preserved food products as well as general merchandise such as toiletries and essential household items.
• Delivered strong 1H results. Sheng Siong reported a 7% increase in net profit to S$69.9mn for 1H24, up from S$65.4mn the previous year. Revenue grew by 3.4% to S$714.2mn, driven by a longer sales period before Chinese New Year. Profit margins rose slightly to 30.1% due to an improved sales mix and efforts to manage rising staff costs. Earnings per share increased by 6.9% to 4.65 cents. Operating cash flow rose to S$93mn, and the company’s cash position improved to S$349.6mn. An interim dividend of 3.2 Scents per share was declared. Its CEO highlighted the company’s resilience amidst external disruptions and commitment to offering quality products at affordable prices. Sheng Siong plans to continue diversifying its supply chain and improving operational efficiency to address challenges from rising labor and energy costs, and opened new stores, including one in China, bringing its total there to six.
• Value shopping trends and new stores. With Singapore’s core inflation rate holding steady at 3.1% in May for the third consecutive month, consumers are increasingly gravitating towards value grocery shopping, boosting demand for budget-friendly supermarkets and house brand products. The Assurance Package and government efforts to mitigate the GST hike for lower to middle-income groups are expected to bolster consumer spending. Sheng Siong aims to diversify supply sources and enhance operational efficiency to manage rising labor and energy costs, ensuring more affordable quality products for consumers. The group opened two new stores and expanded one in the first half of 2024, with further openings planned, including a new store in China, which will contribute to increased revenue.
• 1H24 results review. Total revenue rose by 3.4% YoY to S$714.2mn in 1H24, compared to S$690.5mn in 1H23. Net profit rose by 6.8% to S$70.0mn in 1H24, compared to S$65.5mn in 1H23. EPS was 4.65 Scents in 1H24, compared to 4.35 Scents in 1H23.
• Market Consensus.

(Source: Bloomberg)

SATS Ltd (SATS SP): Service improvement amidst air travel recovery

• RE-ITERATE BUY Entry – 3.14 Target– 3.40 Stop Loss – 3.01
• SATS Ltd. provides gateway services and food solutions. The Company specializes in airfreight, ramp and baggage handling; passenger services; aviation security services; aircraft cleaning; and cruise centre management. It also provides airline catering; institutional catering; aviation laundry; and food distribution and logistics. SATS has presence across Asia and the Middle East.
• Partnership to expand food solutions business. SATS is partnering with Mitsui & Co to expand its food and retail solutions businesses. They created a subsidiary, Food Solutions Sapphire Holdings, for joint investments. Mitsui will invest S$36.4mn for a 15% stake in this subsidiary, which includes four of SATS’ food solutions entities. The collaboration aims to enhance the food value chain by leveraging Mitsui’s global network and SATS’ expertise. They plan to grow the food solutions business in key Asian markets, focusing on product development, kitchen production, and logistics. The partnership is already showing results, especially in Japan, with plans to supply frozen meals to Muji Japan by early 2025. This collaboration is expected to drive long-term growth for SATS.
• Self-driving buses on trial. Changi Airport will trial a self-driving bus for transporting workers in its restricted area starting in the third quarter of 2024. The agreement on 17 July, involving Changi Airport Group (CAG), Singapore Airlines Engineering Company (SIAEC), and Sats Airport Services, aims to boost manpower productivity through automation. The two-year proof of concept will be in two phases: a nine-month controlled environment test followed by a live operational test. A safety driver will be on board throughout both phases. This trial is part of broader efforts, including previous trials of autonomous baggage vehicles, to improve operational efficiency and reduce congestion at Changi Airport. The project is co-funded by the Civil Aviation Authority of Singapore. Successful implementation could potentially benefit SATS, by reducing manpower for its airside operations.
• Air passenger traffic not slowing. According to the International Air Transport Association, in 2024, the airline industry has recovered from the COVID-19 crisis, with total traffic surpassing 2019 levels in February. Domestic travel returned to pre-COVID levels in spring 2023, while international routes have also recently recovered. Most regions are expected to exceed 2019 levels in 2024, with Asia Pacific leading growth at 17.2% YoY. Over the next 20 years, global passenger journeys are expected to increase by an average of 3.8% annually, resulting in over 4 billion additional journeys by 2043 compared to 2023. This yearly rise in global travel will contribute to SATS revenue growth in the coming years.
• Business restructuring. SATS recently announced the division of its airport ground handling services into separate units for Singapore and the Asia-Pacific region to stimulate company growth. The restructuring of its Gateway Services business resulted in the creation of two new units: the Singapore Hub and Gateway Services Asia-Pacific. The Singapore Hub will focus on enhancing aviation hub competitiveness in Singapore, while Gateway Services Asia-Pacific will aim to expand the group’s market share by managing operations in overseas airports.
• FY24 results review. Total revenue rose by 192.9% YoY to S$5.15bn in FY24, compared to S$1.76bn in FY23. Core PATMI rose by 331.3% to S$78.5mn in FY24, compared to S$18.2mn in FY23. Basic EPS was 3.8 Scents in FY24, compared to -2.2 Scents in FY23.
• Market Consensus.

(Source: Bloomberg)

COSCO Shipping Holdings Co. Ltd. (1919 HK): Improving freight rates

• BUY Entry – 10.90 Target – 11.90 Stop Loss – 10.40
• COSCO SHIPPING Holdings Co. Ltd., formerly China COSCO Holdings Company Limited, is an investment holding company principally engaged in container shipping and related businesses. The Company is engaged in container shipping, dry bulk shipping, the management and operation of container terminals, container leasing and the provision of logistics services. The Company operates its business through two segments. The Container Shipping segment is engaged in the transportation of goods across the Pacific, Asia and Europe, and other international routes. The Terminal Operation and Investment segment is engaged in the operation and management of ports. The Company is also involved in the management and leasing of containers.
• Rallying freight rates. The Freightos Baltic Index has been rising steadily since April 2024, reaching its highest level recently since September 2022. This trend reflects the broader dynamics of the container shipping industry, characterized by robust demand and supply chain disruptions. The increased demand for sea freight is driven by changing consumer behaviours and a growing reliance on e-commerce platforms. Additionally, ocean carriers are rerouting away from the Red Sea and opting to navigate around Africa’s Cape of Good Hope due to ongoing vessel attacks and tensions in the Middle East, further straining the supply chain by extending shipping times. Furthermore, global port congestion has also resulted in shipping, further putting a strain on the shipping industry’s supply chain. This rebound in freight rates is expected to positively impact COSCO Shipping.

Freightos Baltic Index

(Source: Freightos)

• Green Development of shipping industry. Cosco Shipping has announced a green partnership with Fortescue to promote the sustainable development of the shipping industry. This initiative aims to transform the energy structure of the shipping sector, encourage eco-friendly growth, and contribute to a globally interconnected, low-carbon, sustainable shipping ecosystem. The companies will collaborate on developing technologies to reduce emissions and build a green fuel supply chain. This includes the potential use of Cosco Shipping vessels, or jointly-owned vessels, powered by green ammonia to transport iron ore and other mineral products, with the goal of reducing the carbon emissions of the China-Australia Iron Ore Green Shipping Corridor.
• More shipping services. Cosco Shipping recently announced an expansion of its service offerings on the rapidly growing trade route between China and Mexico. The company has launched the Mexico Express service, providing a more efficient shipping connection with Asia as trade with China surges. This service will deploy eight vessels with capacities ranging from 6,000 to 8,000 TEU, primarily calling at the ports of Busan, Dalian, Ningbo, Shanghai, Qingdao, Ensenada, Manzanillo, and Ensenada. The new routes are designed to meet the demand for maritime transport capacity and container space from enterprises in Northeast China targeting markets in Latin America.
• 1Q24 results review. Revenue increased 1.94% YoY to RMB48.3bn in 1Q24, compared with RMB47.4bn in 1Q23. Net profit fell 5.23% to RMB6.76bn in 1Q24, compared to RMB7.13bn in 1Q23. Basic earnings per share was RMB0.42 in 1Q24, compared to RMB0.44 in 1Q23.
• Market consensus.

(Source: Bloomberg)

Prada S.P.A. (1913 HK): Defying a luxury slowdown

• RE-ITERATE BUY Entry – 58.0 Target – 64.0 Stop Loss – 55.0
• Prada SpA is an Italy-based company engaged in 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 a numerous subsidiaries, including Artisans Shoes Srl, Angelo Marchesi Srl, Prada Far East BV, Tannerie Megisserie Hervy SAS and Prada SA, among others.
• Strong Miu Miu sales and a weak Japanese Yen. Sales at Miu Miu, Prada’s brand targeting younger consumers, surged 93% YoY, bucking the trend of a slowdown in the luxury goods market. Prada’s retail sales in Japan also grew by 55%, while sales in the wider Asia-Pacific region, including China but excluding Japan, increased by 12% during the same period. Japan, one of the world’s strongest luxury markets, has seen an influx of tourists attracted by a weaker yen, seeking bargains on luxury goods. The impressive results from Miu Miu and Prada’s robust sales in Japan underscore the company’s strong brand presence in the luxury market.
• Huge new store in Hong Kong. Prada is leasing an 8,000 sq ft store in K11 Musea, a luxury shopping mall by New World Development located on the harborfront. Construction for the two-floor store will begin soon, with an expected opening in early 2025. The rent is likely to be partly based on store sales. The affluent residents of Hong Kong are expected to provide stability for global brands amidst a sales slump in mainland China. As a popular destination for mainland tourists, this shopping hub will likely benefit Prada. This new store will be Prada’s first major new store in Hong Kong in years, after the company closed its flagship store in Causeway Bay back in 2020, ending one of the city’s most expensive retail leases with a monthly rent of HK$9mn.
• Topping Lyst Index. Miu Miu, an Italian high fashion women’s clothing and accessory brand and a fully-owned subsidiary of Prada, alongside Prada continued to top the Lyst Index in 2Q2024, coming in 2^nd and 3^rd place respectively. The Lyst Index is a quarterly ranking of fashion’s hottest brands and products. The formula behind The Lyst Index takes into account Lyst shoppers’ behaviours, including searches on and off the platform, product views, and sales. To track brand and product heat, the formula also incorporates social media mentions, activity, and engagement statistics worldwide, over three months. Miu Miu and Prada also top the Lyst Index in 1Q2024, coming in 1^st and 2^nd place respectively. Having consistently maintained high rankings over the past few quarters, this showcased the strength in Prada’s brand presence within the luxury market.
• 1H24 earnings. Revenue rose by 14.2% YoY at constant exchange rates to €2.55bn in 1H24, compared to €2.23bn in 1H23. Net income rose by 25.7% to €383.5mn in 1H24, compared to €305.2mn in 1H23. EPS rose to €0.150 in 1H24, compared to €0.119 in 1H23.
• Market consensus.

(Source: Bloomberg)

American Electric Power Company Inc (AEP US): A recession-themed stock

• BUY Entry – 100 Target – 110 Stop Loss – 95
• American Electric Power Company, Inc. operates as a public utility holding company. The Company generates, transmits, distributes, and sells electricity to residential and commercial customers. AEP serves customers in the United States.
• Signs of an economic slowdown in the United States, and defensive sectors have benefited. Based on the U.S. macro data of the past two months, inflation continues to decline, but at the same time the labour market cools, consumer spending and confidence decline, and the manufacturing industry begins to shrink; therefore, concerns about a soft path for the U.S. economy are rising, major growth sectors have experienced sharp corrections, and funds rotate to more defensive sectors.
• Optimistic outlook for electric power. According to the International Energy Agency’s (IEA) mid-year report, U.S. electricity demand will rebound sharply in 2024, growing 3% compared with the same period last year. The stronger growth rate is partly due to a 1.6% drop in demand compared with 2023 due to mild weather. As the economic outlook improves and demand for air conditioning increases amid severe heat waves and a surge in data centre expansions, so does electricity consumption. Demand is expected to grow by 1.9% by 2025.
• 2Q24 earnings review. Revenue rose by 4.5% YoY to US$4.6bn, miss estimates by US$110mn. Non-GAAP earnings per shares was US$1.25 beating expectations by US$0.02. The company reiterated its FY24 Non-GAAP operating profit guidance of US$5.53 to US$5.73, compared with a consensus of US$5.61 per share and long-term growth of 6% to 7%. American Electric Power has signed a letter of intent to connect an additional 15 gigawatts of data centres over the next 10 years, or 42% of the company’s current peak power load.
• Market consensus.

(Source: Bloomberg)

Toll Brothers Inc (TOL US): Affluence appeal

• RE-ITERATE BUY Entry – 140 Target – 160 Stop Loss – 130
• Toll Brothers, Inc. builds luxury homes, serving both move-up and empty-nester buyers in several regions of the United States. The Company builds customized single and attached homes, primarily on land that it develops and improves. Toll Brothers also operates its own architectural, engineering, mortgage, title, security, landscape, insurance brokerage, and manufacturing operations.
• Favourable macro tailwinds. Interest rate cuts are expected in the second half of the year which would directly translate to reduced mortgage costs, making homeownership more affordable for prospective buyers. Consequently, this will stimulate housing demand and support property prices, benefiting the overall real estate sector.
• Wealth-focused strategy. Toll Brothers’ strategic focus on luxury homes, communities and prestigious locations has shielded it from the adverse effects of higher interest rates by capitalising on the preferences of high-net-worth individuals. The luxury real estate market in North America remains robust due to wealthy individuals diversifying their portfolios, and viewing luxury properties as stable, long-term investments. Despite high mortgage rates, a record number of luxury homes were bought in cash in early 2024, with demand exceeding supply, especially in desirable locations like major cities and coastal areas. Affluent buyers prioritize homes with extensive amenities, larger spaces, and features supporting their lifestyles, including work-from-home setups, gyms, and eco-friendly practices. The market is expected to evolve with changing consumer demands and technological advancements, maintaining strong long-term returns despite high purchase costs, as real estate provides security and a haven for families. A declining interest rate environment is expected to further bolster demand for luxury housing as a wealth preservation and appreciation asset, aligning with the company’s target market. The favourable long-term outlook for the luxury housing market will position Toll Brothers for continued sales growth and reinforce its market position in the luxury housing market.
• Demand and development not slowing down. Toll Brothers has purchased multiple large plots of land and properties in expensive regions for development, showing no signs of a slowdown in the luxury home market. The property developer most recently purchased a 22-acre site in Downingtown with plans to construct 89 townhouses and parcels at 1130 and 1136 Horseshoe Pike for US$6.23mn. Additionally, it also previously purchased Stone Meadows Farm for US$40.5mn and a 21-acre site for US$2.64mn with plans to construct a 55-plus community.
• 2Q24 earnings review. Revenue rose by 13.1% YoY to US$2.84bn, beat estimates by US$180mn. Non-GAAP earnings per shares was US$3.38 missing expectations by US$0.77. For Q3, the company expects deliveries of 2,750 to 2,850 units and average delivered price per home US$950,000 to US$960,000. For FY24, the company expects full-year deliveries of 10,400 to 10,800 units and average delivered price per home of US$960,000 to US$970,000.
• Market consensus.

(Source: Bloomberg)

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Trading Dashboard Update: Cut loss on Bumitama Agri Ltd (BAL SP) at S$0.71.