27 February 2023: Propnex Ltd. (PROP SP), Prada SpA (1913 HK), Star Bulk Carriers Corp. (SBLK US)

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Propnex (PROP SP): My money is mine

BUY Entry 1.69 – Target – 1.80 Stop Loss – 1.64
Propnex Limited operates as a real estate agency. The Company offers business strategies, consultation, training, marketing support, and technological innovations for real estate sector, as buying, selling, and renting of properties. Propnex serves customers in Singapore, Indonesia, and Malaysia.
Return of mainland China buyers. Gloomy China’s economic outlook has prompted a significant number of affluent Chinese individuals to diversify their businesses and investments. As a result, there is now a noticeable increase in the number of ultra-rich families from China relocating to Singapore as Singapore is a sweet spot of low taxes and a sound legal system.
Home Sales Bounce Back. Sales of new private homes in Singapore more than doubled in the first month of 2023, compared to 170 in the previous month. Sales were healthy, considering most show flats were closed during the Chinese New Year period and despite a high-interest rate environment and cooling measures implemented in September 2022. However, on a YoY basis, home sales were still 42.8% lower.
Budget 2023. The higher BSD rates for higher-value properties in residential and non-residential properties would result in up to a 2% increase in total costs for buyers.There has been an increase in purchases of luxury residential properties by foreigners in 2022 and possibly more in 2023. This change in stamp duty increases the transaction costs for foreigners but does not discourage them from buying residential properties.
3Q22 results review. Revenue rose 2.1% YoY to S$730.8 million, while net profit fell 2.5% YoY to S$44.6 million.On a per share basis, earnings improved to S$0.0475 in Q3 FY 2022, from S$0.0389 in the prior year period.
Updated market consensus of the EPS headline growth in FY23/24 is -2.60%/3.33% respectively, which translates to 11.33x/10.97x forward PE. Current PER is 10.69x.

(Source: Bloomberg)

TheHourGlass (HG SP): The clock is ticking

RE-ITERATE BUY Entry 2.25 – Target – 2.45 Stop Loss – 2.15
The Hour Glass Limited retails and wholesales watches, jewelry and related products through its subsidiaries. The Company also manufactures watches and invests in properties. Having established itself in Singapore as a premier watch boutique, the Group expanded worldwide. The Group holds exclusive agency and distribution rights to Gerald Genta, Breguet, Daniel Roth, Bertolucci, Burberrys, Christian Dior, Revue Thommen, Hublot and Montega.
Revival of Daniel Roth. Daniel Roth, a Swiss watch brand owned by LVMH, is set to make a comeback as an independent company, with its first new model scheduled to be released in 2023. However, those interested in purchasing the brand’s watches will have to go through The Hour Glass, as they hold exclusive distribution rights.
Post-Covid boom. Last year, there were about 6.3 million visitors arriving in Singapore, a YoY increase of 1,810.5%. China lifted its overseas travelling restrictions in early January 2023, and Singapore is expected to see a spike in Chinese tourist influx this year. In January 2023, there were 931,500 visitors (up 1,529.3% YoY) in Singapore. According to a recent market survey from travel agents in China, Southeast Asian countries are among the top cross-border travelling preferences after a three-year lockdown.
Luxury spending. Despite the challenging economic climate characterized by surging inflation, rising interest rates, and the looming possibility of recession, the demand for luxury goods has remained steady. This demand is largely driven by affluent individuals who have benefited from the recent wealth accumulation and the savings accrued during the Covid lockdown periods. Additionally, the return of Chinese shoppers – the primary source of profits for luxury companies before the pandemic – is expected to bolster the industry, with Chinese consumers saving one-third of their income and depositing 17.8 trillion yuan (US$2.6 trillion) into banks last year.
Retail sales. Singapore’s retail industry, and other service sectors, are expected to reap the rewards of the ongoing revival of leisure and business air travel, as well as China’s decision to reopen its borders. Data from Singapore Tourism Board shows approximately 49% of tourists receipts from Mainland China in 2019 (pre-pandemic) were from shopping. According to the department of statistics Singapore, retail sales on watches and jewellery increased by 13.1% YoY in December 2022 and 10.8% MoM. In 1H23, it expects retail trade to improve by 8% and operating revenue to increase by 2% in the first quarter.
1H23 results review. Revenue rose 18% YoY for the six months ended Sept 30 to S$555.5mn from S$472.4mn. Net profit jumped 35% YoY from S$62.6mn to S$84.6mn, despite higher operating costs.
Updated market consensus of the EPS in FY24/25 is 4.35%/4.17% respectively, which translates to 9.4x/9.0x forward PE. Current PER is 8.7x and the 5 year historical PER is 8.8x.

(Source: Bloomberg)

Prada SpA (1913 HK): Expensive taste

BUY Entry – 52 Target – 56 Stop Loss – 50
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.
Lyst index. Lyst, a reporting index that uses shopper data to rank popular fashion brands quarterly, has released its latest report for October to December 2022, marking its fifth year of customer insights. This unique index ranks fashion’s top brands and products by gathering shopping data from two hundred million customers globally. The determination of brand heat on the Lyst index chart goes beyond sales and views. It also includes social media mentions, activity, and engagement stats from around the world to determine which brands top the rankings. In Lyst’s latest report, Prada ranked at the top followed by Gucci and Moncler.
World’s biggest luxury spenders. Growing global affluence has led to an upswing in luxury spending, contributing to Mr. Bernard Arnault’s rise as the world’s richest person through his luxury-goods powerhouse LVMH. Despite the pandemic, there was high consumer confidence, and South Koreans have emerged as the world’s top per-capita spenders on luxury brands. According to a Morgan Stanley report, South Korean nationals accounted for over 10% of total retail sales by high-end brands such as Prada, Moncler, Bottega Veneta, and Burberry Group, with spending on personal luxury goods rising 24% to 21.8 trillion won (S$23.2 billion) in 2022.
Rise of social media marketing. Social media marketing has risen in recent years, with brands utilizing these platforms to reach more users. Brands engage celebrities and influencers to create content by sending them new products and occasionally paying them a fee. The popularity of South Korean pop culture has led top fashion houses and luxury brands to sign South Korean stars as ambassadors, influencing fans to purchase endorsed products through various advertisements.
1H22 earnings. Revenue in 1H22 was €1.9 bn, up 22% YoY. Retail Sales rose 26% YoY to €1.7 bn.
The updated market consensus of the EPS growth in FY22/23 is 54.5%/18.5% YoY respectively, which translates to 35.5x/30.0x forward PE. Current PER is 41.92x. Bloomberg consensus average 12-month target price is HK$55.42.

(Source: Bloomberg)

Yankuang Energy Group Co Ltd (1171 HK): Expecting a seasonal rebound

RE-ITERATE BUY Entry – 23.1 Target – 26.0 Stop Loss – 21.5
Yankuang Energy Group Co Ltd is a China-based international comprehensive energy company engaged in coal and coal chemical industry. The Company operates in five segments. The Coal Mining segment is engaged in underground and open-cut mining, preparation and sale of coal and potash mineral exploration. The Smart Logistics segment provides railway transportation services. The Electricity and Heating Supply segment provides electricity and related heat supply services. The Equipment Manufacturing segment is engaged in the manufacture of comprehensive coal mining and excavating equipment. The Chemical Products segment is engaged in the production and sale of chemical products. The coal products mainly include thermal coal, pulverized coal injection (PCI), and coking coal. The coal chemical products mainly include methanol, ethylene glycol, acetic acid, ethyl acetate and crude liquid wax, among others. The Company distributes products in the domestic market and to overseas markets.
Coal prices. Coking coal rebounded to a three-month high at RMB1,958/MT, driven by seasonal replenishment of inventory and recovery of smelting activities. Basic metals such as aluminium, copper, and steel had a good start in 2023 as China was reviving infrastructure expansion and bailing out the property market. On the other hand, thermal coal prices remained flat at RMB800/MT. Power plants are about to replenish thermal coal inventories in March/April, and hence, prices are expected to rebound seasonally.

China coking coal price performance

(Source: Bloomberg)

China thermal coal price performance

(Source: Bloomberg)

Seasonality. Based on the last 15-year track record, Yankuang performs well during March/April which is the coal re-stocking period.

Monthly returns over the past 15 years

(Source: Bloomberg)

FY22 estimated earnings. The company expects to realise a net profit attributable to the shareholders of about RMB30,800 mn, an increase of about RMB14,500 mn or approximately 89% YoY, from RMB16,259 mn in FY21.
The updated market consensus of the EPS growth in FY23/24 is -7.7%/-6.1% YoY respectively, which translates to2x/3.4x forward PE. Current PER is 3.2x. FY23F/24F dividend yield is 17.5%/16.75% respectively. Bloomberg consensus average 12-month target price is HK$26.94.

(Source: Bloomberg)

Star Bulk Carriers Corp. (SBLK US): Recovering shipping activites

BUY Entry – 24.0 Target – 27.0 Stop Loss – 22.5
Star Bulk Carriers Corp., a shipping company, engages in the ocean transportation of dry bulk cargoes worldwide. The company’s vessels transport a range of major bulks, including iron ores, coal, and grains, as well as minor bulks, such as bauxite, fertilizers, and steel products.
Baltic Dry Index turning around. The supply chain disruptions have tapered substantially, and freight rates have been falling over the past few months. However, China is entering a period of seasonal replenishment of inventories, including coal, iron ore, copper, aluminium, and etc. In 2H23, the manufacturing and economic recovery is expected to accelerate. Currently, BDI is at 883, and the recent low was 530. The average from 2017-2019 is 1380.

Baltic Dry Index

(Source: Bloomberg)

Tailwinds from Southeast Asia countries. India will continue to import more coal and other hard commodities as multinational companies move some of the supply chains to India. The ongoing supply chain reallocation to other Southeast Asia countries supports the shipping sector.
4Q22 earnings beat. Revenue dropped by 41.0% YoY to US$60.7mn. Non-GAAP EPS was US$0.9, beating estimates by US$0.07. The time charter equivalent (TCE) rate in 4Q22 was US$19,590 compared to $37,406 in 4Q21, which is indicative of the weaker market conditions prevailing during the recent quarter.
The updated market consensus of the EPS growth in FY23/24 is -43.6%/34.0%, respectively, which translates to 7.3x/5.5x forward PE. Current PER is 4.5x. FY23F/24F dividend yield is 10.5%/16.9%, respectively. Bloomberg consensus average 12-month target price is US$27.98.

(Source: Bloomberg)

Enphase Energy Inc (ENPH US): Lagging performance

RE-ITERATE BUY Entry – 200 Target – 240 Stop Loss – 180
Enphase Energy Inc. manufactures solar energy equipment. The Company offers home and commercial solar and storage solutions. Enphase Energy generates the majority of its revenue in the United States.
Expanding solar development in Brazil. Enphase has reported a surge in the installation of residential solar systems in Brazil. Brazil is expected to increase its solar capacity by 10GW in 2023, a significant 52% jump from its current capacity.
Innovative technology. The company introduced a two-way system that integrates electric vehicle charging with its solar home energy system. This technology will enable electric vehicles to power homes during blackouts and provide grid support during periods of high demand. The integration of this system will allow users to have greater control over their electricity usage.
Expanding product offerings in Europe. Enphase announced a strategic partnership with Enerix in Germany to offer Enphase Energy Systems, powered by IQ Microinverters and IQ Batteries, to its network of more than 100 franchise partners across Germany and Austria. It has recently begun shipping IQ batteries to customers in Austria and has existing customers in Belgium, Germany and North America. Furthermore, Enphase has increased its manufacturing capacity by partnering with Flex in Romania, which will now supply its microinverters to the European market. Hence, enabling Enphase to meet the growing demand for its products in the region, while also improving its supply chain efficiency.
4Q22 earnings review. Revenue jumped by 75.6% YoY to US$724.7mn. GPM was 43.8%. Net income rose 33.7% YoY to US$153.8mn from US$115.0mn. Non-GAAP EPS arrived at US$1.51.
The updated market consensus of the EPS growth in FY23/24 is 17.1%/32.1%, respectively, which translates to 37.6x/28.5x forward PE. Current PER is 72.9x. Bloomberg consensus average 12-month target price is US$292.23.