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19 October 2022: Riverstone Holdings Ltd (RSTON SP), Dongfang Electric Corp Ltd. (1072 HK)

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Riverstone Holdings Ltd (RSTON SP): A Covid play for a short term bounce

  • BUY Entry – 0.590 Target – 0.630 Stop Loss – 0.570
  • Riverstone Holdings Limited produces, sells, and distributes clean-room products for use in highly controlled and critical environments. The Company’s products include nitrate and natural rubber gloves and clean-room packaging materials and finger cots, as well as face masks, face pouches, hoods, caps, jumpsuits, and swabs. The Group’s products are qualified and widely used by major global players in the electronic and healthcare industries. It exports more than 80% of the products to key customers in Asia, the Americas and Europe.
  • Rising covid cases in Singapore. In Singapore, there has been a recent increase in the number of Covid-19 cases emerging, a portion of which have been reinfected. The new wave of Covid-19 cases is driven by the predominant subvariant, XBB, circulating in the local communities. With the high number of infections expected, the government needs to ensure that there is enough protection provided for the healthcare workers taking care of the infected patients. To date, MOH said, the increase in hospitalised cases remains proportionate to the rise in overall local cases.
  • Increase in covid cases after the long holiday in China. Since the Golden Week holiday in China, there has been an outbreak in covid cases across the country. With the Communist Party congress ongoing, there has been tighter covid restrictions implemented as local cases soared to their highest since August. China has repeatedly quashed any speculation of a let-up in its tough counter-epidemic policies, which can range from locking down a local community to sealing an entire city, even though fatalities remain low by global standards and symptoms, if any, are mostly mild. Therefore, with the increase in covid cases, more testing will be done and more of such PPE will be needed for their frontline workers dispatched.
  • 1H22 results review. On 11 August, Riverstone Holdings Limited reported earnings of RM208.9 million (S$64.3 million) for the first half ended June, sinking 79.9 percent from RM1.04 billion in the year-ago period. H1 revenue fell per cent to RM754.3 million, compared to RM2.02 billion in the corresponding 6-month period last year. This was due to the extensive investment in production expansion during the Covid highs resulting in the current oversupply of gloves and inventory.
  • Updated market consensus of the EPS growth in FY22/23 is -75.9%/-5.8% YoY respectively, which translates to 8.7x/9.2x forward PE. Current PER is 5.08x. Bloomberg consensus average 12-month target price is S$0.74.

(Source: Bloomberg)

Genting Singapore (GENS SP): “Rooms” are hot

  • RE-ITERATE BUY Entry – 0.780 Target – 0.835 Stop Loss – 0.750
  • Genting Singapore is best known for its award-winning flagship project Resorts World Sentosa, one of the largest fully integrated destination resorts in South East Asia. Genting Singapore is one of the constituent stocks of the FTSE Straits Times Index.
  • Hotel prices hit a 10-year high. Singapore hotel room prices exceeded the pre-Covid level and hit a high in almost a decade in July 2022. As of July, the average room rate reached S$259/night, up c.70% YoY. The strong demand was driven by the increase in visitor arrivals amidst easing Covid-19 restrictions. Visitor arrivals in Singapore rose for the sixth straight month in July to 726,601, up from 543,733 in June, according to the tourism board.

Singapore hotel room price by tier

(Source: Singapore Tourism Analytics Network)

  • Upcoming high-profile events pushing hotel prices higher. This week, hundreds of chief executives, crypto investors and innovators, and even a Bollywood star are flying in for a series of high-profile Mice events. The Singapore Tourism Board mentioned that nearly 90,000 delegates would be expected to attend about 25 Mice events around this period, similar to the number of events held pre-Covid-19. Some of the events held this week include the crypto conference – Token2049, the 20th Forbes Global CEO Conference, the ninth annual Milken Institute Asia Summit and the inaugural edition of the Time100 Leadership Forum. A number of these events will be held concurrently with the Formula One Grand Prix, taking place between Friday to Sunday. The entertainment lineup this weekend includes performances by Marshmello, Westlife and Green Day. Other big names in entertainment coming to Singapore later this year include Justin Bieber, Maroon Five, Guns N’ Roses and Jay Chou.
  • Updated market consensus of the EPS growth in FY22/23 is 82.1%/60.7% YoY respectively, which translates to 28.2x/17.5x forward PE. Current PER is 53.1x. Bloomberg consensus average 12-month target price is S$0.95.

(Source: Bloomberg)

Dongfang Electric Corp Ltd. (1072 HK): 4Q22 more power-related projects to commence construction

  • Buy Entry – 11.5 Target –13.5 Stop Loss – 10.5
  • Dongfang Electric Corp Ltd is a China-based company mainly engaged in the manufacturing and sales of power generation equipment. The Company operates five major reporting segments: Clean and High-Efficiency Energy Equipment segment, Renewable Energy Equipment segment, Engineering and Trade segment, Modern Manufacturing Service Industry segment, and Emerging Growth Industry segment. The Company’s main products include water turbine generator sets, steam turbine generators, wind turbine generator sets, power station steam turbines and power station boilers as well as gas turbines. he Company distributes its products within the domestic market and to overseas market.
  • Ongoing investment in power grid and power source infrastructure. As of August, the cumulative investment of power grid and power source infrastructure in 8M22 grew by 10.7% and 18.7% YoY to RMB266.7bn and RMB320.9bn respectively. In August, China’s Power Grid announced that it planned to invest more than RMB150bn (US$22 billion) in the 2H22 in ultra-high voltage power transmission lines. Owing to the slowdown in economic growth in China, the central government has been pushing for infrastructure expansion. We expect more power projects to kickstart in 4Q22 as the authority tries to maintain full-year economic growth.
  • 1H22 results review. Operating income grew by 23% YoY to RMB27.3bn, driven by the growth of thermal power, engineering contracting, international trade, wind power and other segments. Net profit attributable to shareholders of the company jumped by 31.6% YoY to RMB1.8bn. The new effective orders grew to RMB36.7bn. The company will announce its 3Q22 results on 28th October.
  • The updated market consensus of the EPS growth in FY22/23 is 15.9%/22.7% YoY respectively, which translates to 13.0x/10.6x forward PE. The current PER is 12.7x. Bloomberg consensus average 12-month target price is HK$14.17.

(Source: Bloomberg)

Sinopharm Group Co., Ltd. (1099 HK): A value and defensive counter amidst market sell-off

  • RE-ITERATE Buy Entry – 15.5 Target – 17.3 Stop Loss – 14.6
  • Sinopharm Group Co Ltd is a China-based company principally engaged in pharmaceutical and medical devices distribution business. The Company operates its business through four segments. Pharmaceutical Distribution segment is engaged in the distribution of pharmaceutical products to hospitals, other distributors, retail pharmacy stores and clinics. Medical Devices segment is engaged in the distribution of medical devices, as well as provides installation and maintenance services. Retail Pharmacy segment is engaged in the operation of chain pharmacy stores. Other Business segment is engaged in the distribution of laboratory supplies, manufacture and distribution of chemical reagents, production and sale of pharmaceutical products.
  • 1H22 earnings review. 1H22 revenue grew by 8.9% YoY to RMB36.1bn. Net profit attributable to shareholders dropped by 9.1% YoY to RMB674mn. The decrease in profit was mainly attributable to the decline in the results of Sinopharm Accord’s associates due to the impact of the scattered and frequent outbreaks of the Covid-19 pandemic, which resulted in a decline in the store traffic and a slowdown in the sales growthof the retail sector. In addition, the retail business segment opened new directly-operated stores in2021and the first half of 2022 with large initial investment in new stores, the benefits of which have not yet been realized, resulting in a decrease in the margin levels. At the same time, the performanceof Sinopharm Accord’s associates declined, leading to a decrease in investment income. The company will announce its 3Q22 results on 26th October.
  • A defensive stock amidst a market downturn. The Hong Kong market has been hammered by both a slowdown in China’s economy and geopolitical risks. Growth, value, and cyclical sectors, as well as other thematic stocks, have been sold off indiscriminately. However, this stock is relatively outperforming the rest as its business is largely immune to inflation and policy risks. The business driver is the distribution volume rather than profit margins. The growth in demand for medicines and medical devices is stable with low price sensitivity.
  • The updated market consensus of the EPS growth in FY22/23 is -3.0%/9.3% YoY respectively, which translates to 5.6x/5.1x forward PE. The current PER is 5.9x. The FY22F/23F dividend yield is 5.5%/6.0%. Bloomberg consensus average 12-month target price is HK$22.4.

(Source: Bloomberg)

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Singapore

  • LS 2 Holdings Ltd (LSHL SP) surged 135.3% yesterday. The Singapore Regulation issued a query to LS 2 Holdings after shares in the company surged by 76.47% or 2.6 cents to 6 cents from its closing price of 3.4 cents on Oct 17. The company pointed out that the proposed privatisation offer of Colex Holdings by Bonvests Holdings on Oct 17 could have contributed to the share price and volume movements in the company. Colex is a company that specialises in contract cleaning and waste management.
  • Medtecs International Corp Ltd (MED SP), Top Glove Corp Bhd (TOPG SP) and Riverstone Holdings Ltd (RSTON SP) shares rose 61.5%, 2.2% and 1.7% respectively yesterday. Following news of the current wave of COVID-19 cases, driven by the XBB strain, an Omicron subvariant, has been on the rise in Singapore over the past month and will likely peak around mid-November. MOH said that in response to the surge over the past two weeks, public hospitals have rapidly activated various measures to operate about 200 more beds for COVID-19 patients. The number of COVID cases in our ICUs are slowly rising in tandem, as the community cases have increased, albeit at a lower trajectory.
  • Yangzijiang Financial Holding Ltd (YZJFH SP) climbed 2.9% yesterday. The company issued a share-buy-back notice on 17 October, purchasing 4,305,900 shares to be held as treasury shares for a total of SGD 1,507,523.58, at a price per share of between SGD 0.345 to 0.35.

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  • RemeGen Co Ltd (9995 HK) Shares spiked 19.1% yesterday. Yantai Maibari International Biopharmaceutical Co Ltd has accepted its application for listing on the GEM of the Shenzhen Stock Exchange. It plans to publicly issue no more than 101 million A-share ordinary shares, and plans to raise 1.6 billion yuan for investment in the biomedical innovation centre and operation with headquarters construction projects and supplementary working capital projects. Rongchang Bio is the largest customer of Maibari. As early as April 2013, when Maibari was established, Rongchang Bio invested 73.5 million yuan, accounting for 49% of the registered capital.
  • Innovent Biologics Inc (1801 HK) Shares soared 14.8% yesterday. The latest clinical phase I results show that its IBI362 has become the world’s first weight loss single drug with a weight loss rate of more than 11.5% within 12 weeks of administration. Tianfeng believes that IBI362 is expected to become a blockbuster innovative drug in the weight loss market in the future.
  • Dongfang Electric Corp Ltd (1072 HK) Shares rose 13.5% yesterday. Since June this year, investment in power grids and power sources has begun to accelerate significantly. As of the end of August, the investment in power grid infrastructure construction was 266.7 billion yuan, year-on-year growth of 10.70%. The investment in power infrastructure construction was 320.9 billion yuan, with year-on-year growth of 18.70%. The investment in the power grid and power supply side both accelerated significantly.
  • BYD Electronic International Co Ltd (285 HK) Shares jumped 10.7% yesterday, after it said third-quarter net profit likely more than quadrupled as it extended its sales lead over Tesla Inc in the world’s largest auto market. Robust sales and a product range broader than other EV competitors have in turn allowed the company, which is 19% owned by Warren Buffett’s Berkshire Hathaway, to significantly reduce costs per vehicle. BYD estimated net profit for the July-September quarter to come in between 5.5 billion yuan and 5.9 billion yuan ($765 million to $820 million) – an increase of 333% to 365% from the same period a year earlier.
  • Kingdee International Software Group Co Ltd (268 HK) Shares climbed 10.5% yesterday. In the field of Xinchuang, in the past two years alone, Kingdee and Xinghan products have helped 122 large enterprises to complete localization substitution. Goldman Sachs and Tianfeng Securities pointed out that it has gradually reached an inflection point in investment, and its profit margin may be impressive, maintaining a “buy” rating.

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