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30 January 2023: Sembcorp Marine Ltd (SMM SP), Xinyi Energy Holdings Ltd (3868 HK)

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Sembcorp Marine Ltd (SMM SP): Further improved outlook 

  • Entry – 0.140 Target – 0.150 Stop Loss – 0.135
  • Sembcorp Marine (SMM) provides engineering solutions to the global offshore, marine and energy industries. The Group focuses on four key capabilities, mainly, Rigs & Floaters; Repairs & Upgrades; Offshore Platforms and Specialised Shipbuilding. The group operates shipyards in Singapore, Indonesia, the UK and Brazil. Its key clients include major energy companies, drilling contractors, shipping companies and owners/operators of floating production units.
  • Possible acquisition. Sembcorp Marine has issued an interim business update for the third quarter of 2022 and for the nine months ended September 30, 2022. The company announced that it has signed revised agreements to effect the proposed combination with Keppel Offshore & Marine (KOM) via a direct acquisition with simplified transaction structure and improved terms. Sembcorp Marine expects to hold an extraordinary general meeting in January 2023 with regard to the acquisition. Should the deal go through, Temasek will own around 35.5% of the new Sembcorp Marine entity, compared to 54.6% now.
  • 3Q22 updates. From the start of FY2022, the Group had a total of 21 projects under execution with 12 projects scheduled for completion and delivery in FY2022. It reported that it has continued the smooth execution of projects with nine successful completions and deliveries to customers year-to-date. Despite these successes, the company expects losses in the second half of 2022 similar in range to the first half of 2022. In addition, the company reported that it has secured Year-to date new contracts in excess of S$6.71 billion, including S$0.42 billion of repairs & upgrades contracts, with the largest contract worth S$4.25 billion from Petrobras for the P-82 FPSO. Thus far, the group has a net order book of S$7.11 billion, with renewable wind energy and other cleaner and green solutions accounting for around 34% of it.
  • Company Outlook. The company’s outlook is positive, as they are seeing an increase in orders due to a combination of factors such as high oil and gas prices, renewed focus on energy security due to geopolitical tensions, and a shift towards renewable energy sources. This suggests that the company’s performance is likely to continue to improve in the near future.
  • Updated market consensus of the EPS  in FY23/24 is -0.001/0.002 respectively, Bloomberg consensus average 12-month target price is S$0.140.

(Source: Bloomberg)

Frencken Group Ltd. (FRKN SP): Sales Surge from China’s re-opening

  • RE-ITERATE Entry – 1.10 Target – 1.20 Stop Loss – 1.05
  • Frencken Group Limited (“Frencken”) is a Global Integrated Technology Solutions Company that is listed on the Main Board of the Singapore Exchange. They provide comprehensive Original Design, Original Equipment and Diversified Integrated Manufacturing solutions for world-class multinational companies in the analytical & life sciences, automotive, healthcare, industrial and semiconductor industries.
  • Re-opening of China’s Economy. The re-opening of China’s economy is bound to drive the demand for semiconductors and technology-related software, alongside the price cuts for consumer goods such as automobiles and smartphones. Trade restrictions between U.S. and China also drive the demand for semiconductor from other parts of the world, and Frencken Group Limited stands to benefit from this increase in demand for semiconductor following China’s reopening of its economy.
  • Geographically well-diversified. Frencken has multiple design centres and manufacturing sites spanning Asia, Europe and the USA. Their global footprint and local expertise enhance the value that they are able to bring to customers by facilitating seamless engagement leading to faster time-to-market and faster time-to-profit.
  • Near-term weak demand challenges but see long-term strong demand. Outlook for the semiconductor and machines remains bleak in the near term with recessionary fears and interest rate hikes. However, the industry sees a 2H 2023 recovery with technology being more and more in long-term demand. Analysts also see China reopening fully by the end of 2023, which would bring up the demand within the semiconductors and technology industry.
  • Updated market consensus of the EPS growth in FY23/24 is 12.77%/5.66% YoY respectively, which translates to 8.57x/8.14x forward PE. The current PER is 9.17x. Bloomberg consensus average 12-month target price is S$1.07.

(Source: Bloomberg)

XINYI ENERGY HOLDINGS LTD (3868 HK): Solar remains popular theme in 2023

  • BUY Entry – 3.02 Target – 3.40 Stop Loss – 2.83
  • XINYI ENERGY HOLDINGS LIMITED is a China-based investment holding company. The Company is principally engaged in the management and operation of solar farms through its subsidiaries, and generates revenue by selling the electricity to subsidiaries of the State Grid. The Company operates Jinzhai Solar Farm, Sanshan Solar Farm, Nanping Solar Farm, Lixin Solar Farm, Binhai Solar Farm, HongAn Solar Farm and Wuwei Solar Farm, among others. These solar farms are mainly located in Anhui, Tianjin, Fujian and Hubei Provinces in China. The Company mainly conducts its businesses in domestic market
  • Development in solar energy. Chinese and Swiss researchers have announced a breakthrough in the development of high-performing perovskite solar cells (PSC), which they say could lead to cheaper and cleaner energy. The team was able to stabilize the perovskite material, a key component of the cells, and improve its efficiency, making it a viable alternative to traditional silicon-based solar cells. The research is still in its early stages, but the team is optimistic about its potential impact on the renewable energy industry.
  • Renewable energy appeal. With global carbon emissions increasing year by year, the development of renewable energy is attracting a lot of attention. Technologies used to manufacture various clean energy sources such as, large solar wafers, black silicon and ultra-high monocrystalline and multicrystalline silicon increase the electricity output, thereby reducing the cost needed to produce each unit of power. They are key to accelerating the proliferation of renewable energy to fight global warming and climate change.
  • Global investments in renewable energy. According to a report from Bloomberg New Energy Finance, global investments in clean energy have reached parity with those in fossil fuels for the first time, approximately $1.1 trillion each. The report found that investments in clean energy totaled $401 billion in 2020, while investments in fossil fuels reached $407 billion. This marks a significant shift from previous years, when investments in fossil fuels far outpaced those in clean energy. The report attributes this change to falling costs for renewable technologies, such as wind and solar power, as well as increased government support for clean energy initiatives.
  • 1H22 earnings review. 1H22 revenue rose by 13.1% YoY to HK$1.26bn. 1H22 profit attributable to shareholders of the company was flat at HK$623.1n.
  • The updated market consensus of the EPS growth in FY23/24 is 14.4%/16.8% YoY respectively, which translates to 15.0x/12.9x forward PE. The current PER is 17.7x. FY23F/24F dividend yield is 6.1%/6.8% respectively. Bloomberg consensus average 12-month target price is HK$3.91.

(Source: Bloomberg)

CMOC GROUP LTD (3993 HK): High demand for metals

  • RE-ITERATE BUY Entry – 4.25 Target – 4.80 Stop Loss – 3.98
  • CMOC Group Ltd, formerly China Molybdenum Co Ltd, is a China-based company mainly engaged in the mining, smelting, processing and trading of molybdenum, tungsten, copper and other metals. The Company operates through six segments. The Molybdenum and Tungsten Related Products segment is engaged in the mining of molybdenum and tungsten ore. The Copper and Gold Related Products segment is engaged in the mining of copper and gold. The Niobium and Phosphate Related Products segment is mainly engaged in the production of niobium and phosphate fertilizers. The Copper and Cobalt Related Products segment is engaged in the production of copper and cobalt. The Metals Trading segment is principally engaged in the sales of metals. The Other segment is mainly engaged in mining support business. 
  • Copper prices are rising. Copper prices have risen globally due to supply disruptions caused by mine disruptions and reduced capital expenditure on mining firmss. Additionally, China’s economy reopening has further increased the demand for copper, as China is responsible for about half of global copper consumption. 
  • Demand for copper and cobalt. Copper has high conductivity, making it ideal for use in electrical wires. The market for both renewable energy and electricl vehicles is expanding, leading to more copper for wiring to connect various sources of renewable energy, such as wind and solar farms. In addition to the growing interest in renewable energy, electric vehicle production is rising as well, with EVs using about double the amount of copper needed to make traditional vehicles. Cobalt has recently gained popularity due to its role in battery technologies, with the lithium-ion batteries, mostly known for usage in EVs, accounting for more than 50% of the demand for cobalt. 
  • Copper futures seasonality. Copper performs the best in February in a year based on the last 15-year’s track record. 
  • 3Q22 earnings review. 3Q22 operating revenue fell by 2.5% YoY to RMB40.7bn. 9M22 operating revenue grew by 4.7% YoY to RMB132.5bn. Net profit attributable to shareholders of the company increased by 49.1% YoY to RMB5.3bn.
  • The updated market consensus of the EPS growth in FY22/23 is 60.6%/7.5% YoY respectively, which translates to 12.12x/11.28x forward PE. The current PER is 11.74x. Bloomberg consensus average 12-month target price is HK$5.24.

(Source: Bloomberg)

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Trading Dashboard Update: Add Genting Singapore (GENS SP) at S$0.980 and CMOC (3993 HK) at HK$4.25.

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