KGI DAILY TRADING IDEAS – 12 May 2021

IN THE SPOTLIGHT: The Commodities Super Cycle

The bull run in the commodity sector was rekindled in late April after peaking in February.

There are two main factors driving the buoyant commodity prices: Biden’s proposed US$2tn infrastructure stimulus and strong inflation expectations. While fiscal spending has not been rolled out yet, inflation is gradually emerging as the price level of goods and services has been edging up consistently since the outbreak of COVID-19.

Global-E Online (GLBE US): Liberating travel woes through enabling cross-border e-commerce

GLBE is an e-commerce enabler service, helping merchants who are seeking to expand their offerings outside their home country.
GLBE’s prospects and growth trajectory are bright, with over 98% gross and 140% net dollar retention rate since 2018. Sales doubled in FY20 and the company turned profitable last year.
Initial IPO price of US$23-25 indicates a US$3.4bn market cap at around 25x Price/Sales valuation. We see 30-35x Price/Sales (US$29-34) as a possible trading range after the IPO.
GLBE is expected to price on Wednesday and trade on Thursday, 13 May.

SINGAPORE

Golden Agri-Resources (GGR SP): Palm oil to the moon

BUY Entry – 0.25 Target – 0.30 Stop Loss – 0.23
GGR is a global leader in palm oil production, producing more than 2.2mn tonnes of crude palm oil (CPO) in 2020. The company manages 536,000 hectares of plantations, including smallholder farms, across Indonesia. The company has downstream refining and specialty product facilities that manufacture high-quality products for the global agronomy, food, oleochemical, and bioenergy markets.
CPO prices touched a record high of RM 4,923 per tonne recently on firm demand and the rise of competing edible oils (such as soybean oil) will likely keep CPO prices firm in the near term.
On the supply side, while Malaysia’s production of CPO rose 7% MoM to 1.52mn tonnes in April 2021, it was a sharp reduction from the almost 30% jump in March. The increase in Malaysia’s production was mitigated by a larger-than-expected surge in exports, which expanded 13% to a four month high of 1.34mn tonnes. Looking forward, the market will be watching exports in May and the recovery in Malaysia’s production. So far, exports have remained strong, which is bullish for prices. For the first 10 days in May, shipments have surged 37% compared to the month earlier.
Street estimates are mixed with 2 BUYS / 2 HOLDS / 1 SELL. However, recent updates by JP Morgan (TP S$0.55) and RHB (TP S$0.30) point to potentially further upside re-ratings due to the stronger CPO prices in April and May. Consensus currently has an average 12-month TP of S$0.29.

Golden Agri (GAR) is the largest plantation group in Indonesia and the third largest globally in CPO production

Yanlord Land (YLLG SP): Playing ex-dividend date on 19 May

RE-ITERATE BUY Entry – 1.38 Target – 1.50 Stop Loss – 1.32
YLLG is a leading property developer in China with a focus on the luxury residential market in Tier 1 and Tier 2 cities such as Chengdu and Nanjing.
The company will be paying out a final dividend of 6.8 Sing cents, ex-dividend date on 19 May 2021, and payable on 7 June 2021. We note that based on historical precedence, share price tends to rally ahead of big dividend payouts.
For the four months ended 30 April 2021, the group together with its joint ventures and associates’ total contracted pre-sales from residential and commercial units, and car parks was approximately RMB20.717bn on contracted GFA of 622,084 sqm, an increase of 78.1% YoY and 84.9% YoY respectively.
The chairman has also been aggressively buying back shares worth S$18mn since 18 March 2021 to 4 May 2021.

HONG KONG

China Molybdenum Co., Ltd. (3993 HK): Buy the correction and trade on the uptrend

Buy Entry – 5.4 Target – 6.4 Stop Loss – 4.95
China Molybdenum Co., Ltd. is a China-based company, principally engaged in the mining, smelting, processing and trading of metals, such as molybdenum, tungsten and copper. The company operates its businesses through five segments. Its Molybdenum, Tungsten and Related Products segment is mainly engaged in the mining of molybdenum and tungsten. Its Copper, Gold and Related Products segment is mainly engaged in the mining of copper and gold. The Niobium and Related Products segment is engaged in the niobium manufacturing business. The Phosphorus segment is engaged in phosphate manufacturing business. The Copper and Cobalt segment is engaged in the production of Copper and Cobalt. The Company conducts its businesses mainly in China, Australia, Brazil and Congo.
Previously, the company announced its FY20 full-year results. Operating revenue (IXM contributed RMB103.4bn) increased by 64.5% YoY to RMB113.0bn. Net profit (IXM contributed RMB0.77bn) increased by 25.4% YoY to RMB2.3bn. IXM is engaged in the metal trading business which combines the futures and spot commodities.
Operation estimates for FY21:

Principal products	Production volume (tonnes)
Mineral explorationand processing	FY20	FY21F	YoY growth
Molybdenum	13,780	13,800 to 16,900	0.1% to 22.6%
Tungsten	8,680	6,900 to 8,400	-20.5% to -3.2%
Niobium	9,300	8,700 to 10,600	-6.5% to 14.0%
Phosphate fertilizer(HA+LA)	1,090,740	999,000 to 122,100,000	-8.4% to 11.9%
Copper (TFM)	182,597	187,300 to 228,900	2.6% to 25.4%
Cobalt	15,436	16,500 to 20,100	6.9% to 30.2%
Copper (80% equityinterest of NPM)	26,997	24,100 to 29,400	-10.7% to 8.9%
Gold	20,897	21,300 to 26,000	1.9% to 24.4%
Mineral trading
Mineral metals	2,856,000	4,790,000 to 5,850,000	-15.3% to 3.5%
Refined metals	2,798,200	4,790,000 to 5,850,000	-15.3% to 3.5%

The stock has high copper beta (regression against LME copper price). The market estimates of copper price range from US$7,250/tonne to US$10,000/tonne. The respective median and mean are US$8,275/tonne and US$8,625/tonne. Based on the regression model and the closing copper futures price of US$10,000/tonne, the implied stock price is HK$6.18.
Market consensus of net profit growth in FY21 and FY22 are 98.2% YoY and 10.1% YoY, which implies forward PERs of 21.8x and 19.8x. Current PER is 35.4x. Bloomberg consensus average 12-month target price is HK$6.85.

CNOOC Limited (883 HK): Oil upward momentum kick-started, chase it

Re-iterate Buy Entry – 8.6 Target – 10.2 Stop Loss – 7.8
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 Corporate segment is engaged in corporate-related businesses. The Company mainly operates businesses in China, Canada, the United Kingdom, Nigeria, Indonesia and Brazil, among others.
The company has been underperforming the global oil majors due to the inclusion in the US blacklist of military-related enterprises. The company is out of favour for foreign investors. But we note that only 6% of its business is exposed to North America.
The stock has the highest oil beta (regression against Brent) among all oil majors. The market estimates of Brent range from US$52/bbl to US$77.5/bbl. And the respective median and mean are US$64/bbl and US$63.7/bbl. Based on the regression model and US$70 Brent price, the implied stock price is HK$11.8.
Updated market consensus of the estimated growth of net profit in FY21 and FY22 are 171.4% and 6.9% respectively, which translates to 5.3x and 4.9x forward PE. The current PE is 13.1x. The estimated respective dividend yield in FY21 and FY22 is around 8.2% to 8.8%. Bloomberg consensus average 12-month target price is HK$12.16.

Market Movers

United States

Green Brick Partners (GRBK US) fell the most out of residential construction players prior to the release of the weekly mortgage applications index, which has been decreasing, and as inflation fears continue to ramp up in the market, which will cause mortgage rates to rise and reduce red hot housing demand.
Plug Power (PLUG US) reached a Year-to-Date low of US$18.47 before rallying to close out at US$23.60 after announcing delays for its 1Q21 results due to its restatement, but will be able to release both its 2020 annual report and 1Q21 results next week. The company also kept to its 2021 and 2024 billings guidance, while giving guidance for 1Q21 and 2Q21 performance.
3D Systems (DDD US) surged after behind a 1Q21 top and bottom line beat. 1Q21 sales of US$146mn is 7% above consensus, while US$0.17 EPS is US$0.15 above consensus. 3D System’s performance has led to positive momentum across other 3D printing peers such as Stratasys (SSYS US) and ExOne (XONE US) on Tuesday’s trading.
FuboTV (FUBO US) gained 23% after-hours following strong 1Q21 results. Sales of US$120mn is up 135% year-on-year, 15% above consensus, while subscriber count of 590,430 is +105% year-on-year and +8% quarter-on-quarter. While 2Q21 guidance is fairly low relative to 1Q21 performance, management expects FY21 sales to reach around US$525mn (23% above consensus) and subscriber count to hit 840,000 (around 11% above consensus).
Palantir Tech Inc (PLTR US) climbed back above the US$20 level after a beat-and-raise 1Q21 results. 1Q21 sales of US$341mn was around 3% above consensus while EPS of US$0.04 was 14% ahead of estimates. 2Q21 guidance of US$360mn is 5% ahead of consensus, and the company revealed that it accepts bitcoin payments, while also contemplating investing in Bitcoin.
Trading Dashboard: Stop loss on Axcelis Technologies at US$37.40

Singapore

LHN (LHN SP) Shares of LHN surged by 19% on higher-than-average trading volume of 30mn shares. It currently trades at its highest since its IPO in 2015. Last month, the real estate management services provider gave a positive profit guidance where it expects a net profit before tax of no less than S$17mn, an estimated 4.5x YoY increase.
Golden Agri-Resources (GGR SP) Shares of the palm oil producer rose as crude palm oil futures traded at all-time highs on firm demand for edible oil. Stronger soybean oil prices on the US Chicago Board of Trade (CBOT) also helped prices of palm oil.
Lion-OCBC Sec HSTECH ETF (HST SP) Shares of the ETF that tracks 30 of the largest technology companies listed in Hong Kong slumped to its lowest since its listing on the SGX in December 2020. Hong Kong technology stocks sold-off on concerns over China’s anti-monopoly regulations and inflation jitters.
UMS Holdings (UMSH SP) UMS shares declined by 6% following the sell-off in the US and HK technology sector. This was despite the company announcing a positive 1Q2021 performance where PATMI surged 44% YoY to S$15.4mn. Sales were in line with our forecasts while profit was above our expectations due to operating leverage.
Trading Dashboard: Cut loss on Rex International (REXI SP) at S$0.172

Hong Kong

Jiangxi Copper Co Ltd (358 HK) Cyclical stocks were hammered as the overall market was sold off. Investors started to take profit after a strong rally on Monday. LME copper futures pulled back from the historical high of US$10,747/tonne to US$10,382/tonne.
Shanghai Fosun Pharmaceutical Group Co Ltd (2196 HK) Being impacted by the news flows and market sentiment, the stock swung widely recently. Investors were more cautious and prone to take short-term gains.
COSCO SHIPPING Holdings Co Ltd (1919 HK) Cyclical stocks were hammered as the overall market was sold off. The recent rally has priced in the high freight rates, and investors started to take profits. Global container freight index climbed to a new high of US$4,798 as of 10th May.
Chongqing Iron & Steel Co Ltd (1053 HK) Iron ore futures pulled back from the high on Monday night. Several futures exchanges in China raised margins and commissions on iron ore and several steel product futures. The cooling measures led to the sector’s price correction.
China Youzan Ltd (8083 HK) The company announced 1Q21 results. Revenue grew by 11.9% YoY to RMB417.3mn. Gross profit grew by 15.7% YoY to RMB245.1mn. Net loss widened by 27.1% YoY to RMB168.2mn. Gross merchandise volume grew by 13% YoY to RMB23.6bn.