KGI DAILY TRADING IDEAS – 28 June 2021

IPO WATCH

DiDi Global (DIDI US): Here comes the 4th ride-hailing giant

Didi is the largest ride-hailing platform service in China, with a growing presence in Latin America.
DiDi holds over 80% market share in China’s shared mobility sector, which is currently just 4% of the overall mobility market in China. The shared mobility space in China is expected to grow at 30% CAGR till 2025, ahead of the international shared mobility space.
At US$13-14 per ADS (4 ADS = 1 share), Didi will have an initial market cap that is close to US$65bn, with an EV/Sales valuation of around 12.5x.
Despite DiDi’s valuation drop from the US$100bn rumor to US$65bn, DiDi will IPO at a valuation premium to Uber and Lyft. Thus we find DiDi to be rather fairly priced, with upside to come from improving profitability margins or an overall sentiment shift for Chinese Big Tech.

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SINGAPORE

Hyphens Pharma (HYP SP): A fresh start

BUY Entry – 0.31 Target –0.43 Stop Loss – 0.28
Hyphens focuses on the sales and marketing of specialty pharmaceutical products in several ASEAN countries through exclusive distributorship or licensing and supply agreements with brand principals from Europe and the US. In addition, the company markets its own proprietary range of dermatological products under Ceradan, TDF brands and health supplements under Ocean Health.
1Q2021 turnaround. Hyphens 1Q21 revenue increased 7.5% YoY while gross profit rose 11.2% YoY thanks to a resurgence in its Vietnam sales. While the latest quarterly net income was relatively flat YoY, we note that it managed to achieve a record quarterly sales in 1Q.
Growth spurt. We expect the company to speed up growth going forward as countries in the region reopen. In the online space, one of its subsidiaries was awarded with an e-pharmacy license for wellAway Pharmacy to provide a platform for clinics to order and deliver medicine to patients’ homes. The group also launched several new products last year, including Ceradan Hand Lotion Sanitiser and High Strength Omega-3 Vitamin D3-Enriched and Fast Absorb Iron Energy Formula.
Upgrade to Outperform and raise TP to S$0.43, based on 17x FY2022F P/E. Read our full report here.

Keppel Corp (KEP SP): Let it go…can’t hold it back anymore

BUY STOP Entry – 5.20 Target –6.34 Stop Loss – 4.85
Keppel Corp announced yesterday that it has signed a non-binding Memorandum of Understanding (MOU) with Sembcorp Marine (SMM SP) to combine Keppel Offshore & Marine (Keppel O&M) and SMM into a Combined Entity.
In the same announcement, Keppel Corp signed a non-binding MOU with Kyanite Investment Holdings Pte Ltd (Kyanite), a wholly owned subsidiary of Temasek, with a view to sell Keppel O&M’s legacy completed and uncompleted rigs and associated receivables to a separate company, which would be majority owned by external investors.
If the proposed transaction is successfully completed, the Combined Entity will be a listed entity and Keppel Corp will receive shares in the Combined Entity and a cash consideration of up to S$500mn. Keppel Corp intends to distribute all the Combined Entity shares that it receives to shareholders.
Meanwhile, Keppel Corp will still retain ownership of Floatel International Ltd and SGX-listed Dyna-Mac holdings Ltd.
Our view. It’s overall positive for Keppel Corp, and should provide a much needed re-rating catalyst to its share price. It’s a good deal as Keppel Corp will still receive S$500mn in cash, which will help strengthen its balance sheet.
Not so good for SMM, at least in the short-term. On the other hand, we think the development will be short-term negative for SMM’s share price as SMM will need to recapitalise through another massive rights issuance of S$1.5bn.
Outperform, TP S$6.34. We currently have an outperform recommendation and a TP of S$6.34. Consensus estimates has 10 BUYS / 2 HOLDS / 2 SELLS and a 12-month TP of S$6.26 (+23% potential upside).

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HONG KONG

Baidu Inc (9888 HK): Buy the breakout

Buy stop – 200 Target – 250 Stop Loss – 180

Baidu Inc is a Chinese language Internet search provider. The company offers a Chinese language search platform on its Baidu.com Website that enables users to find information online, including Webpages, news, images, documents and multimedia files, through links provided on its Website. The Company operates through two segments, Baidu Core segment and iQIYI segment. Baidu Core mainly provides search-based, feed-based, and other online marketing services, as well as products and services from the Company’s new artificial intelligence (AI) initiatives. Within Baidu Core, the Company’s product and services offerings are categorized as Mobile Ecosystem, Baidu AI Cloud and Intelligent Driving & Other Growth Initiatives. iQIYI is an online entertainment service provider that offers original, professionally produced and partner-generated content on its platform.
Bullish market sentiment for Chinese technology companies resumes. Among the big tech companies, Baidu has the cheapest valuation as its respective TTM and FY21 PER was 9.4x and 17.7x.
The company recently had multiple positive catalysts, including stepping into EV market with a joint development with Geely Auto (175 HK), spinning off an independent artificial intelligence chip unit Kunlun with a valuation of RMB13bn, and launching VR 2.0. Baidu, compared to other big tech companies, has less exposure to the anti-trust regulations as its technology applications are mainly supporting services to various sectors.
Market consensus of net profit growth in FY21 and FY22 are -2.0% YoY and 16.8% YoY, which implies forward PERs of 20.9x and 17.9x. Current PER is 24.1x. Bloomberg consensus average 12-month target price is HK$308.7.

Aluminum Corporation of China Limited (2600 HK): Bull run was just halted, not stopped

Re-iterate Buy Entry – 4.25 Target – 4.85 Stop Loss – 3.9
Aluminum Corporation of China Limited (Chalco) is an aluminum producer with operations in bauxite and coal mining, alumina refining and primary aluminum smelting. The company operates through alumina segment, including the mining and purchasing of bauxite and other raw materials, and production and sale of alumina, as well as alumina-related products; primary aluminum segment includes the procurement of alumina, other raw materials, supplemental materials and electricity power, the production and sale of primary aluminum and aluminum-related products; trading segment is engaged in the trading of alumina, primary aluminum, other non-ferrous metal products, and crude fuels; energy segment includes coal mining and power generation, including conventional coal-fired power generation and renewable energy generation, such as wind power and photovoltaic power, and corporate and other operating segment includes corporate and other aluminum-related research, development, and other activities.
China started to release national metal reserves to curb the skyrocketing metal prices. However, the first batch of aluminum sales was announced at 50,000 tonnes, which was lower than expected. Meanwhile, the National Energy Administration proposed to nudge trials of distributed photovoltaic development on rooftops across counties and cities in China. The plan will drive demand for aluminum as well.
The correction of aluminum futures stabilized recently. As of 24th June, Shanghai Changjiang aluminum spot price closed at RMB18,650/tonne, down 6.8% from the peak in early May. And the recent low was RMB18,250/tonne.
The stock has relatively high aluminium beta (regression against aluminium futures). The market estimates of aluminium prices range averages at US$2,400/tonne. Based on the regression model and the average estimate, the implied stock price is HK$5.18.
Market consensus of net profit growth in FY21 and FY22 are 626.1% YoY and 32% YoY, which implies forward PERs of 18.9x and 16.7x. Current PER is 48.4x. Bloomberg consensus average 12-month target price is HK$5.54.

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Market Movers

United States

Nike Inc (NKE US) spiked to a new all-time high after blowing away fiscal 4Q earnings estimates and giving strong guidance on Thursday. EPS of US$0.93 is almost double of analyst estimates for US$0.51, and Nike gave FY22 sales guidance of US$50bn vs analyst estimates of US$48.5bn.
Occidental Petroleum Corporation (OXY US) climbed 18% for the week as crude oil prices continue their ascent, with Bank of America seeing US$100 oil prices next year as a possibility.
JinkoSolar (JKS US) surged after beating 1Q21 adjusted earnings expectations and easing concerns over the recent solar products ban from the Biden administration. 1Q21 revenue of US$1.21bn is higher by US$30mn while non-GAAP earnings per ADS of US$0.15 is higher by US$0.16. However, the company gave a weaker 2Q21 guidance with sales to be similar to 1Q21, while analysts are expecting US$1.42bn.
Micron (MU US) rallied above US$80 to close at US$82.03 for the week as various analysts gave pre-earnings report updates while maintaining their buy calls. Apart from Goldman Sachs who trimmed their target price from US$122 to US$108, other analysts updating last week kept their target prices, with Micron’s average analyst TP at US$116.25. Micron reports earnings this Wednesday.
Alibaba (BABA US), JD (JD US) and Baidu (BIDU US) followed their Hong Kong listed counterparts upwards as large Chinese tech stocks mostly rallied for the week.

Singapore

OTS Holdings Ltd (OTS SP) There was no specific company news today. The rise in share price could be due to the positive outlook and sentiment investors have over OTS, after the company’s listing on 17 June. High trading volume in the second half of the trading session today led to a 7.6% increase in share price. Refer to our IPO not on OTS here.
Leader Environmental Technologies Ltd (LET SP) Shares rose by 6% as SGX has granted approval for listing of and quotation of up to 663,488,100 rights shares at an issue price of S$0.10 per share, pursuant to the rights issue announcement made earlier by the group on 26 April 2021 and 3 May 2021.
Keppel Corporation Ltd (KEP SP) Shares surged by 6% on Friday after Thursday’s trading halt was lifted. Keppel Corporation announced that it has signed two non-binding MOUs, one with Sembcorp Marine (SMM) to enter into exclusive negotiations on combining Keppel Offshore & MArine (Keppel O&M) and SMM. Second MOU was signed with Kyanite, a wholly owned subsidiary of Temasek, to sell Keppel O&M’s legacy completed and uncompleted rigs and associated receivables to a separate Asset Co to be formed. The Asset Co would be majority owned by external investors, which Temasek intends to procure. We have covered this in our 25th June Daily Trading Ideas and our TP is S$6.34.
Medtecs International Corp Ltd (MED SP) Shares rose after it was announced that the Director/CEO of Medtecs, William Yang acquired 500,000 shares for a total consideration amount of S$420,272, increasing his total stake in the company to 2,500,000 shares after the transaction.
Sembcorp Marine (SMM SP) Shares dropped 27% after it announced an additional S$1.5bn rights issue to help the company pivot towards clean energy. Sembcorop Marine will issue up to 18.8bn new shares on the basis of 3 new shares for every 2 existing shares at S$0.08 per share, a massive 58% discount to its last close price of S$0.191 on 23 June. The rights issue is expected to complete in 3Q2021, barely a year from its earlier S$2.1bn rights issue in September 2020.
Trading Dashboard: Add Keppel Corp (KEP SP) at S$5.39 and Mermaid Maritime (MMT SP) at S$0.075. Take profit on Q&M Dental (QNM SP) at S$0.77 and remove Raffles Medical Group (RFMD SP) at S$1.13.

Hong Kong

Chongqing Iron & Steel Co Ltd (1053 HK) Steel sector jumped as iron and steel futures prices rebounded. Iron ore China (62% Fe fines) index futures rose by 2.12% to SG$219/tonne (YTD high: SG$226.85/tonne) on Friday.
China Telecom Corporation Limited (728 HK) Shares closed at a YTD high, rising by 25% last week. Previously, the company adjusted the dividend policy by increasing the payout ratio. GIC increased holdings by 56.3mn shares at an average price of HK$2.52. The latest filing showed that GIC held 1.5bn shares in the company, accounting for 11.25% of shares outstanding.
Kuaishou Technology (1024 HK) Shares rebounded from the lows of HK$185.7 since IPO after announcing its monthly active users reached 1bn globally. Morgan Stantley reiterated its HK$300 target price and an OVERWEIGHT rating.
New Oriental Education & Technology Group Inc. (9901 HK) Education sector rebounded as CITIC Securities reiterated co-curricular education as an important supplement to school education. The new regulations are not expected to phase out the sector.
Bilibili Inc (9626 HK) Shares closed at a new high since its dual listing in Hong Kong. Morgan Stanley believed that mobile games and advertisement services will be the growth drivers for future margin and profit growth, reiterating US$155 target price and an OVERWEIGHT rating.

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