KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

KGI DAILY TRADING IDEAS – 1 March 2021

IPO Watch

Aztech Global (AZTECH SP): Taking advantage of the hot IPO market

  • Aztech Group has lodged the preliminary prospectus for a SGX mainboard listing of its technology unit, Aztech Global. Aztech Global provides manufacturing services for Internet of Things (IoT) devices, data-communication products and LED lightings. 
  • Profits for 9M2020 declined to S$30.5mn from S$35mn in the period year period due to the mandatory shutdown of its manufacturing facilities in 1Q20 due to Covid-19.
  • The IPO is expected to be in strong demand given the list of big-name cornerstone investors including AIA, AIA Investment Management, DBS Bank, Eastspring Investments (Singapore), Employees Provident Fund Board, HSBC Global Asset Management (Hong Kong), JPMorgan Asset Management (Singapore), New Silk Road Investment, Tokio Marine Life Insurance Singapore and UOB Kay Hian on behalf of certain corporate clients.
  • While sentiments in the technology sector recently took a beating, the outlook is still positive on the back of structural tailwinds, with a cyclical recovery continuing and demand expected to be strong across automotive, industrial and personal electronics segments. 
  • IPO performance continues to be healthy. Nanofilm Technologies (NANO SP), which listed on SGX on 30 October 2020, is still up 87% from its IPO price of S$2.59. 

US Trading Ideas

Workday (WDAY US): Not just another SaaS play

  • BUY Entry – 250 (BUY STOP) Target -280 Stop Loss – 235
  • WDAY provides enterprise cloud applications for finance and human resources. It delivers financial management, human capital management and analytics applications designed for companies, educational institutions and government agencies. 
  • The recent sell-off is a buying opportunity for a company that counts around 40% market share of Fortune 500’s Cloud Human Capital Management systems, which we think is just scratching the surface compared to future growth potential in this space.
  • WDAYs shares have fallen around 13% from the recent peak even after an earnings beat where 4Q20 EPS was US$0.18 above consensus estimates of US$0.73. This was largely attributed to the overall market sell-off in led by technology stocks, and a weaker-than-expected sales guidance for the year ahead. 
  • However, moving forward, as other Covid-related SaaS plays that were critical during the shutdowns start to fall out of favour, we expect that WDAY’s investment thesis might start to pan out as large companies resume their migration into cloud-based human management and financial platforms. The company has recently acquired Peakon, a people analytics platform that measures employee experience and productivity, which will likely be a key step going forward in a hybrid work environment when the economy reopens. 
WDAY US (Source: Bloomberg)

Relx Technology (RLX US): 47x Price/Sales for a super-growth stock; shares are now at post-IPO lows

  • RE-ITERATE BUY Entry – 15 Target – 21 Stop Loss – 12
  • We previously covered RLX’s IPO here, in which the IPO sentiment has cooled down and the shares have consolidated at the US$22-26 range until last week. Its shares underperformed the broader market this week, dropping to a post IPO low of US$16.85 last night. 
  • We see the correction as a good chance to accumulate positions in a high growth stock. Despite the 47x Price/Sales price tag, RLX is expected to double its sales next year, and potentially grow 5x in the next 4 years as the Chinese market warms up to e-vapour products. 
RLX US (Source: Bloomberg)

HK Trading Ideas

Xinyi Glass Holdings Ltd. (868 HK): Still so hot. Solar industry driving strong glass demand

  • RE-ITERATE BUY Entry – 20.5  Target –26 Stop Loss – 18
  • Xinyi Glass Holdings Ltd engages in the manufacturing and sales of automobile, architectural, float, and other glass products for commercial and industrial applications. The company is also involved in the manufacture and sales of rubber and plastic products and the provision of logistics services.
  • Float glass prices in China remain at high levels as the demand after Chinese New Year has resumed. The current average prices are close to RMB2,143/tonne, declining from the recent high of RMB2,350/tonne. It is expected that prices will stay around RMB2,000/tonne in 1H21. 
  • Because of the accelerating development of solar energy supported by the central government, domestic float glass capacity will shift to produce solar panels. Hence, float glass for construction is expected to be in short supply, keeping prices at 10-year highs. Market research estimates the average float glass prices will grow by 10% to 15% YoY in 2021.
  • Market consensus of net profit growths in FY21 and FY22 are 28.6%YoY and 7% YoY, which implies forward PERs of 13.3x and 12.4x. Current PER is 23.7x.
868 HK (Source: Bloomberg)

GDS Holdings Ltd (9698 HK): Get ready for an oversold trade; entering Hang Seng Tech Index

  • BUY Entry – 90 Target – 110 Stop Loss – 80
  • GDS Holdings Ltd is a company mainly engaged in developing and operating high-performance data centers. It is carrier and cloud-neutral, which enables its customers to access all the major the People’s Republic of China (PRC) telecommunications networks, as well as the PRC and global public clouds which it hosts in many of its facilities. It offers colocation and managed services, including direct private connection to public clouds, a service platform for managing hybrid clouds and, where required, the resale of public cloud services. It also provides outsourced data center services in China. Its customers consist of cloud service providers, internet companies, financial institutions, telecommunications carriers, information technology service providers, and large enterprise and public services customers.
  • The company is the market leader in Internet Data Center (IDC). IDC is at the upstream of the value chain of 5G, cloud platform, and other data-heavy internet services. As of 3Q20, area committed and pre-committed increased to 357,344 sqm with a growth of 47.4% YoY. Utilization rate was 75% with a growth of 5 ppts YoY. Monthly service revenue was at RMB2,519 per sqm. Area under construction was 135,871 sqm with a growth of 47.4% YoY. Pre-commitment rate for the area under construction was 65.9%.
  • The company will be included in the Hang Seng Tech Index, effective from 15th March. 
  • Market consensus of the estimated growth of revenue in FY21 and FY22 are 39.7% YoY and 31.0% YoY respectively, which translates to 15.4x and 11.8x forward price-to-sales (PSR). The current PSR is 27.1x based on the annualized 9M20 revenue.
9698 HK (Source: Bloomberg)

SG Trading Ideas

Frencken (FRKN SP): Just keeps getting better and better

  • BUY Entry – 1.25 Target – 1.45 Stop Loss – 1.15
  • FRKN is a manufacturer of high precision industrial machinery and capital equipment for global original equipment manufacturers (OEMS). It counts many global blue-chip companies as its clients, including ASML (semicon), Thermo Fisher (analytics and life sciences), GE Healthcare (medical), Philips (medical), Seagate and Siemens. 
  • FRKN last Thursday posted 2H2020 results where earnings rose 7.3% YoY to SS$24.4mn, led by the 51% YoY surged in its semiconductor sales. The company guided that its 1H2021 revenues will continue to grow from 2H2020, driven by higher sales from across all business segments except industrial automation (which is mainly due to the lumpy nature of business from Seagate, its largest client in this segment). 
  • Shares bucked the market sell-off to close higher by 7% at S$1.35 last Friday, as we still see it 10-30% cheaper compared to peers like Venture, UMS and AEM. M&A play is also heating up in the tech-related manufacturing sector, which we think is possible with FRKN given its strong diversified client base (Europe and Asia). 
FRKN SP (Source: Bloomberg)

UOB (UOB SP): Positive expectations for the year ahead as it goes digital

  • BUY Entry – 24.0 Target – 26.5 Stop Loss – 22.5
  • UOB reported 4Q20 net profit of S$688mn, a slight miss from consensus estimates of S$696mn and a drop from S$1.01bn in the prior year period. The bank has proposed a final dividend of 39 Sing cents with an option for scrip dividend, which is in line with guidance from MAS to cap dividends for FY2020. Dividends are expected to recover to at least S$1.0 in FY2021, as per consensus estimates, implying a minimum 4.0% dividend yield at its current price of S$25. 
  • Despite the earnings miss, banks are the prime beneficiaries of rising interest rates, which are the highest in more than a year, and the global economic recovery. 
  • For 2021, management has guided for lower credit costs as most provisions have already been taken last year. As for its topline, UOB expects single-digit loan growth and double-digit increase in wealth management fees. Its digital expansion plans plans across Southeast Asia is gaining pace – UOB launched its digital-only bank, TMRW, in Thailand last month and in Indonesia in August 2020. Half of all new individual customers in both countries are now onboarded digitally.
  • Valuations are attractive as it trades at 1.1x historical P/B, which is a 20% discount to market leader DBS. Consensus forecast for dividend yield is at 4.3% / 5.0% / 5.4% for FY2021 / 22 / 23F. 
UOB SP (Source: Bloomberg)

Market Movers – What’s Hot

Macro

  • Oil prices rebounded on Monday, with WTI crude breaking above $62/bbl buoyed by signs of a recovery in fuel consumption amid a gradual reopening of some economies as vaccination drives gather pace. Focus later this week will be on OPEC’s meeting. The oil cartel is considering whether to ease the supply cut by 500,000 bbls/d in light of a recent pick up in global demand.

United States

  • TripAdvisor (TRIP US) +14.0%, closing at US$49.62, as the travel and leisure sector benefits on positive news from the vaccine front. Johnson & Johnson’s one-shot Covid-19 vaccines received US authorisation on 27 February and will be administered to Americans within the next few days. 
  • Airbnb (ABNB US) + 13.34%, closing at US$206.35 on street analysts upgrades following its earnings beat. Several research firms have upgraded their target prices for ABNB, citing it as a top recovery pick. 
  • Semiconductor stocks continue to trade near all-time highs despite the recent technology-led sell-off, with shares of Micron (+4% to US$91.53), Lam Research (+4% to US$567.19) and Applied Materials (+4% to US$118.19) among the best US performers last Friday. 
  • (EOG US) -8.54%, closing at US$64.56 as oil producers pull back ahead of the OPEC+ meeting on 4th March and as refineries in Texas begin to resume operations. Brent still trades above pre-pandemic levels even as global oil demand is playing catch-up.

Hong Kong

  • Kuaishou Technology (1024HK) -8.96%, closing at HK$308.8. NetEase Inc (9999 HK) -8.69%, closing at HK$166. Meituan (3690 HK) -8.21%,closing at HK$340. Alibaba Group Holding Ltd (9988 HK) -4.52%, closing at HK$234.4. Tencent Holdings Ltd (700 HK) -4.19%, closing at HK$662.5. JD.com Inc (9618 HK) -4.76%, closing at HK$360. Xiaomi Corp (1810 HK) -5.77%, closing at HK$25.3. Hong Kong tech sector continued to be sold off as the global equity market, especially the tech sector plunged due to the ongoing concerns of rising bond yields. 
  • China Molybdenum Co Ltd (3993 HK) -12.28%, closing at HK$6.0. Zijin Mining Group Co Ltd (2899 HK) -11.27%, closing at HK$11.5. Ganfeng Lithium Co Ltd (1772 HK) -10.87%, closing at HK$99.65. Jiangxi Copper Company Limited (358 HK) -7.97%, closing at HK$18.82. China Hongqiao Group Ltd (1378 HK) -7.32%, closing at HK$9.62. The materials sector topped out as underlying metal prices corrected. Meanwhile, the weak sentiment of the overall market accelerated the sell-off. 
  • Smoore International Holdings (6969 HK) -10.26%, closing at HK$62.95. Nongfu Spring Co Ltd (9633 HK) -9.17%, closing at HK$51.5. The shares were trading lower due to the large-cap sell-off and the retreat of southbound funds.

Singapore

  • SPH (SPH SP) +9.4% to S$1.40 on media reports that it could potentially see strong returns from its investment in South Korean e-Commerce firm Coupang. However, SPH said its indirect stake in Coupang is estimated at 0.1% and that it had invested US$3.9mn in 2014 via a special purpose vehicle. On a potential valuation of US$50 bn for Coupang, SPH’s stake would be worth US$50mn. 
  • Avarga (AVARGA SP) +9.0% to S$0.365 after its Canadian-listed subsidiary Taiga Building Products announced a special dividend of 27.65 Canadian cents. Over the weekend, AVARGA posted FY2020 earnings of S$54.8mn, a 68% YoY increase as full-year revenues rose 21% YoY to S$1.69nm. AVARGA announced a final dividend of 0.78 Sing cents, up from 0.50 Sing cents in FY2019. 
  • Frencken (FRKN SP) +7.1% to S$1.35 after it posted that 2H2020 profits rose 7.3% YoY to SS$24.4mn, mainly led by the 51% YoY surged in its semiconductor sales. The company guided that its 1H2021 revenues will increase from 2H2020, driven by higher sales from across all business segments except industrial automation. It has declared a 3.0 Sign cents final dividend, unchanged from the prior year. 
  • UMS (UMSH SP) -8.7% to S$1.15 as 4Q2020 net profit declined 86% YoY to S$1.26mn from S$9.2mn a year ago, due partly to a one-off S$7mn impairment of goodwill in a subsidiary (Kalf Engineering) and associate company (JEP).  Final dividend was cut to 1.0 Sing cent, down from 2.0 Sing cent in the prior year. 
  • Nanofilm (NANO SP) -3.7% to S$4.64 dragged down by weak sentiments across the technology sector and ahead of its earnings release on Friday (after market close). The company reported a 61% YoY increase in net profit to S$57.6mn for the full-year FY2020 as it maintains a positive outlook. The group’s second plant in Shanghai commenced operations in February 2021.

Trading Dashboard