KGI DAILY TRADING IDEAS – 14 July 2021

IPO Watch: F45 Training | Singapore Trading Ideas | Hong Kong Trading Ideas | Market Movers | Tra d ing Dashboard

IPO Watch

F45 Training (FXLV US): Fitness, fun and friends? Sign me up!

F45 Training is one of the fastest growing fitness franchisors in the US, known for their functional 45-minute workout programmes.
Despite COVID-19, F45 managed to grow its franchise count by another 352 locations. The company was able to partially pivot towards online workout programs, minimising revenue loss.
At US$15-17/share, F45 will IPO around the US$1.5-1.6bn market cap region, with a high Price/Sales of 19x.
While F45 is going public at a rich valuation, we note that the company is one of the fastest growing fitness franchises in the world with 300-500 new franchises set up yearly. The company also came very close to breakeven in 1Q20,
F45 Training is expected to price on Wednesday and trade on Thursday, 15 July.

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SINGAPORE

HRnetgroup (HRNET SP): First five days after the weekend are always the hardest

BUY Entry – 0.71 Target – 0.80 Stop Loss – 0.67
Headquartered in Singapore where it was founded in 1992, HRnetGroup started off as a 4-person team. Today, with over 900 consultants spread across 13 Asian cities, HRnetgroup is one of the leading recruitment and staffing firms in Asia. The company has 12 brands, including HRnetOne, Recruit Express, RecruitFirst and SearchAsia.
Working towards recovery. HRNET is a good way to play the economic and labour market recovery in Asia. Singapore’s labour market has started to recover from 1Q2021: Unemployment rate for residents has improved to 4.0% in 1Q 2021, down from 4.4% in 4Q 2020 and 4.8% in 3Q 2020. Meanwhile, retrenchments have declined 28% YoY. (see chart below)
Upside in the labour market. Weakness in the sectors hit by Covid is starting to be offset by growth sectors in healthcare, technology and financial services. The ratio of job vacancies to unemployed persons in Singapore has improved to 0.96 in 1Q 2021 (almost equivalent to one vacancy for every unemployed person), an improvement from 0.66 in 1Q 2020 and 0.55 in 2Q 2020, during the height of the circuit breaker.
Attractive valuations. HRNET currently trades at 14.6x and 13.3x FY2021 and FY2022 P/E, with consensus EPS growth of 6-10% over the next two years. The stock offers a decent dividend yield of 4% over the next three years.

HRnetgroup’s brands across 13 Asian cities

Singapore’s unemployment rate for residents is improving

Jiutian Chemical (JIUC SP): Fantastic chemistry

BUY Entry – 0.085 Target – 0.120 Stop Loss – 0.080
Jiutian is the second largest Dimethylformamide (DMF) producer in China, with a total annual capacity of 150,000 tons of DMF and methylamine (MA). Both these chemicals are important ingredients in industries as diverse as consumer goods, petrochemicals, electronics, pharmaceuticals and fertilisers. In addition, it now produces chemicals for fast growing sectors such as batteries that are used in electric vehicles.
China’s economy has benefited from supply disruptions in the rest of the world. We see this trend continuing this year and may surprise on the upside given the unprecedented amount of fiscal and monetary stimulus around the world.
Robust prices. Prices of DMF, its main product, remain resilient. DMF prices rose above RMB 12,000 per tonne last week, 22% higher than our RMB 9,800 forecast for 2021.
Outperform with fundamental TP of S$0.145. Given the buoyant DMF prices, we maintain our Outperform recommendation and TP of S$0.145 which we published in our initiation report on 17 May 2021.
Earnings watch and catalyst. The company is likely to report its first half earnings in the second week of August.

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HONG KONG

BYD Electronic International Co Ltd (285 HK): Buy on the expectation of the new business contribution

Buy Entry – 45 Target – 51 Stop Loss – 42

BYD Electronic International Co Ltd is an investment holding company principally engaged in the manufacture of mobile intelligent terminal components and modules. The Company with its subsidiaries mainly provides one-stop services including new material development, product design, research and development, manufacturing, supply chain management, logistics and after-sales services. Its businesses include three major parts: smartphones and personal computers (PCs), new intelligent products and automotive intelligent systems, covering molds, metals, plastic parts, glass, ceramics and electronic products. Its products are used in consumer electronics, Internet of things, smart home, smart industry, smart business, smart game equipment, smart cockpits, smart networked systems, communication modules and other fields. The Company conducts its businesses within the China market and to overseas markets such as Asia-Pacific and the United States.
The company is one of the Apple-themed stocks as it has become the original equipment manufacturer for the 2020 iPad model since last September. The recent correction was due mainly to the market expectations of Apple slashing iPhone 13 mini assembling orders.
The company is also one of the e-cigarette-themed stocks as it had registered several patents for the e-cigarette businesses in 2Q21. Previously, market news mentioned that commercial production began in June. Therefore, investors should be able to see the contribution from the new business in the upcoming earnings announcement in August.
The company initiated the diversified OEM businesses strategy which helps buffer the company against the impact of volatility in the various sector cycles. Though mobile device OEM remains the main revenue contributor, the growth of the e-cigarette market could change its revenue structure by increasing billions of RMB in the next couple of years.
Updated market consensus of the estimated growth of EPS in FY21 and FY22 are -15.5% and 28.8% respectively, which translates to 18.9 and 14.7x forward PE. The current PE is 16.1x. Bloomberg consensus average 12-month target price is HK$54.65.

Fuyao Glass Industry Group Co Ltd (3606 HK): Speed Bump on the resumption of uptrend

Reiterate Buy Entry – 49.75 Target – 58.2 Stop Loss – 45.8
Fuyao Glass Industry Group Co Ltd is a China-based company, principally engaged in the manufacture and distribution of float glasses and automobile glasses. The company’s products portfolio consist of automobile glasses, such as coating glasses and others, which are applied in passenger cars, buses, limousines and others, and float glasses. The company distributes its products within domestic markets and to overseas markets.
Impacted by shortage of automobile chips, the automobile production recovery has slowed down even as demand for passenger vehicles continue to rise. Automobile glass is one of the parts in a vehicle, and hence, its sales are highly correlated to the auto production volume.
As the automobile sector started to recover, the price performance of this counter is relatively lagging. The production issues of the auto sector will be mitigated in 2H21, which will favor the turnaround of the stock.

Key financials highlight:

(RMB mn)	1Q21	1Q10	YoY change
Revenue	5,706.0	4,170.5	36.8%
Gross profit	2,316.4	1,436.6	61.2%
GPM (%)	36.8	34.4	2.4 ppt
Net profit	850.5	451.0	88.6%
NPM (%)	14.9	10.8	4.1 ppt

Updated market consensus of the estimated growth of net profit in FY21 and FY22 are 51.7% and 23.8% respectively, which translates to 27.0x and 21.9x forward PE. The current PE is 41.3x. Bloomberg consensus average 12-month target price is HK$55.23.

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Market Movers

United States

Boeing (BA US) erased last week’s gains after reports of a production defect emerged on its 787 Dreamliner planes. Boeing subsequently cut production rate and its monthly delivery target for their undelivered planes.
Despite both Goldman Sachs (GS US) and Morgan Stanley (MS US) reporting strong earnings on Tuesday premarket, the shares of both banks headed in opposite directions.
Meanwhile Affirm (AFRM US) and other “Buy Now Pay Later” (BNPL) players fell sharply after Goldman Sachs and Apple announced plans to enter the BNPL sector.
Sohu.com Limited (SOHU US) gained 28% after regulator approval for Tencent to privatise Sogou Inc (SOGO US) at US$9/share, which Sohu has a 33.8% stake in. The news was fairly monumental for Chinese stocks as it represented a positive sign for the tech industry that is facing increasing regulatory scrutiny.

Singapore

Kim Heng Limited (KHOM SP), Marco Polo Marine Limited (MPM SP) Kim Heng’s shares surged 19% yesterday, closing at a 52-week high, while Marco Polo Marine’s shares rose by 16%. Marco Polo was featured in SGX Research’s 10 in 10 series (download PDF report here). While both companies were historically involved in the offshore & marine business, they have pivoted toward renewable and offshore wind farm projects. Their traditional offshore & marine business is also set to receive a boost from higher oil prices. In 2Q21, oil prices increased from US$61.45 in April to US$73.47 in June, representing an increase of around 19.5%. Both companies were highlighted in the Business Times on 12 July as the most actively traded offshore and marine stocks in Singapore.
Sarine Technologies Limited (SARINE SP) Shares rose 6.9% yesterday, boosted by large trading volumes in the second half of the trading session. There was no company specific news yesterday but the rise in share price could be due to the rally in diamond prices this year; diamond prices have reached a 5-year high of US$130.49 yesterday. We have an Outperforming rating on Sarine with a TP of S$0.82. Read our report published on 14 May 2021 here.
Leader Environmental Technologies Limited (LET SP) There was no company specific news yesterday, however, shares rose by 5.8%. This could be due to investors looking to buy the dip following the 30% decline in share price from last Friday. It was announced that two executive directors are currently involved in a Commercial Affairs Department (CAD) probe on insider trading. The company is currently in the midst of a rights issue (1 rights share for every two existing shares) at 10 Sing cents.
Starhill Global REIT (SGREIT SP) Unit price rose 4.2% after DBS upgraded the REIT to a BUY and raised its target price to S$0.75. The bank cited that operational results will likely improve as the economy and borders reopen, boosted by its Wisma Atria property. Consensus is overall bullish on the REIT with 5 BUYS / 1 HOLD / 0 SELL, and a 6-7% dividend yield forecast over the next three years.
Mercurius Capital Investment Limited (MCI SP) Shares rose 8.2% to an intraday high of 10.5 Sing cents on Tuesday before dropping to close the day 10.3% lower. The rise in share price was driven by the company’s diversification plans into Malaysia’s grocery business with the S$36mn acquisition of Songmart Holdings. The company issued a correction that there was a typographical error in paragraph 6.2 of the Acquisition Announcement. The EPS after the Proposed Acquisition should be 0.073 Sing cents instead of “0.73” Sing cents.

Hong Kong

Xinte Energy Co., Ltd. (1799 HK). Shares surged as Xinte Energy announced positive earnings alert for 1H21. The group expects to record an unaudited profit attributable to company owners of no less than RMB 1.15bn in 1H21, as compared to RMB 1.74mn in 1H20. Expected increase in earnings was mainly due to the increase in sales of polysilicon products, substantial increase in the sales price of polysilicon products, as well as the increase in the scale and power generation of the group’s wind power and photovoltaic self-operated power stations.
China MeiDong Auto Holdings Limited (1268 HK). There was no company specific news yesterday. Shares closed at an all-time high as automobile dealer stocks rose collectively. According to the China Automobile Association, 1H21 production and sales of new energy vehicles reached 1.215mn and 1.206mn respectively, an increase of 2.0 times YoY.
China Telecom Corporation Limited (0728 HK). China Telecom and China Unicom announced a centralized procurement plan for 2.1GHz 5G base stations, which is expected to benefit ZTE and China Tower in 2H21. Bank Of America maintained a BUY rating for ZTE and China Tower with TP HK$ 30 and HK$1.8 respectively.
Q Technology (Group) Company Limited (1478 HK). Shares closed at a one-month high after the group’s earnings was announced on 9 July. The group disclosed the sales data of its main products for June 21, where the total number of camera modules sold were RMB 38.4mn, representing a 0.3% MoM increase and a 20.5% YoY increase. In addition, 10.25mn fingerprint recognition modules were sold in June with a 35.4% MoM increase and a 50.6% YoY increase.
China Yongda Automobiles Services Holdings Limited (3669 HK). Shares closed at an all-time high. Automobile dealer stocks collectively rose yesterday. According to the China Automobile Association, in 1H21, the production and sales of new energy vehicles reached 1.215mn and 1.206mn respectively, a YoY increase of 2.0 times. In addition, Daiwa Securities raised Yongda’s TP from HK$22 to HK$24 and reiterated a BUY rating as the group’s earnings quality should continue to improve due to strong sales of BMW and Porsche.
Trading Dashboard: Take profit on Hua Hong Semiconductor (1347 HK) at HK$43.6.

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