KGI DAILY TRADING IDEAS – 7 July 2021

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SINGAPORE

Uni-Asia Group (UAG SP): Sailing to the moon

BUY Entry – 0.93 Target –1.42 Stop Loss – 0.85
UAG is an alternative investment company which owns and manages bulk carriers, invests in Hong Kong commercial offices and develops residential properties in Japan. The group derives around 65% of its revenues from charter income generated by its fleet of bulk carriers. The remainder of revenue is from its property projects in HK and Japan. While its shipping business performed poorly in 2020 due to weak charter rates and impairments, it has shown a strong V-shaped recovery in 2021.
To the moon. It is not only meme stocks that are reaching for the moon. Record demand for consumer goods and commodities, together with supply-chain disruptions, are driving charter rates for container liners and dry bulk carriers to their highest in more than ten years.
More than a V-shaped recovery in charter rates. More specific to Uni-Asia’s fleet of 18 handysize carriers, the Baltic Handysize Index recently staged a strong rebound after a short-lived correction (triple from last year; see the Baltic Handysize Index shown below), and now trades above 1,500 points. Furthermore, we expect higher rates to be sustainable as it is driven by favourable supply-demand dynamics for small bulk carriers.
Maintain Outperform and raise our TP to S$1.42. We maintain an Outperform rating while raising our TP to S$1.42, based on SOTP valuations. The favourable supply-demand dynamics for handysize dry bulk carriers should benefit the group over our forecast period. We raise the multiples for the shipping business to 0.8x FY2021F P/B (previously 0.5x FY2021F P/B); we also raise our multiple for its Japan & HK property business to 0.6x FY2021F P/B. Its balance sheet remains healthy as it continues to pare down debt; this will likely be a precursor to higher dividends.
Read our full report here.

Baltic Dry Index Handysize Index (2016-2021 YTD)

ISDN (ISDN SP): Accelerating the pace of industrial automation

RE-ITERATE BUY Entry – 0.73 Target –0.85 Stop Loss – 0.68
Latest update: Ex-dividend on 6 July 2021 for the 0.8 Sing cents dividend. Payable date will be 27 August 2021.
ISDN is a leading engineering solution provider in motion control and industrial computing solutions. The group generates around 68% of sales from China and 70% from the motion control segment.
Accelerated growth due to Covid-19. ISDN reported an increase in revenue from S$291.0mn in FY19 to S$361.9mn in FY20, a 24.4% YoY jump. PATMI increased by 115% YoY, from S$7.0mn in FY19 to S$15.1mn in FY20, mainly due to the growth in gross profit of 23.4%. EPS more than doubled YoY from S$1.68 cents to S$3.51 cents and dividends increased from 0.4 Sing cents to 0.8 Sing cents.
Strong start to the year. 1Q21 revenue increased 23.4% YoY, from S$79.8mn in 1Q20 to S$98.4mn in 1Q21. Gross profit rose by 52.7%, due to increased gross profit margins from 21.8% to 27.0%, contributed by accelerated sales growth in the Motion Control segment. Bottom line remained strong with a 95.4% increase YoY, from S$3.1mn to S$6.0mn, which was achieved by a combination of solid gross profit margins and substantially decreasing distribution costs and administrative expenses.
Growth momentum to continue; upside from its hydropower plants next year. Sales to China are expected to grow in light of Sino-US tensions. Coupled with the growing trend in industrial automation in China, we expect a continued boost to ISDN’s top line. Revenue recognition from its Indonesian hydropower business next year is likely to provide further upside.
Fundamental OUTPERFORM and TP to S$0.85. Read our report here.

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HONG KONG

Yadea Group Holdings Ltd (1585 HK): Two-wheeled is as good as four-wheeled

Buy Entry – 15.6 Target – 19 Stop Loss – 14
Yadea Group Holdings Ltd. is an investment holding company principally engaged in the development, manufacture and sales of electric two-wheeled vehicles and related accessories. The company’s main products include electric scooters, batteries and chargers, electric bicycles and electric two-wheeled vehicle parts.
The company just announced a positive profit alert where 1H21 net profit growth will be no less than 40% YoY, attributable to the increase in the sales of electric two-wheeled vehicles.
Electric vehicles have been the main investment theme. The company’s main product is a subsegment of the theme. As the market leader of the electric two-wheeled vehicles, the company dominates around 25% of the domestic market in terms of sales volumes. The company has a target to achieve 35% market share in the next couple of years. The revenue and net profit CAGR over the past five years was 23.8% and 17.3% respectively. Hence, the company is still in an expansionary mode.
Range bound trading. Shares have been trading range bound between HK$15 and $20 since March this year. Technically, the stock has formed a support at HK$15.
Consensus estimates. Market consensus of net profit growth in FY21 and FY22 are 69.6% YoY and 39.3% YoY, which implies forward PERs of 28.3x and 20.3x. Bloomberg consensus average 12-month target price is HK$31.1.

Geely Automobile Holdings Limited (175 HK): Another chance to get on board

Reiterate Buy Entry – 22.5 Target – 26.5 Stop Loss – 20.5

Geely Automobile Holdings Ltd is an investment holding company principally engaged in the production and sales of automobiles. The company mainly develops, manufactures and sells automobiles, including cars, sport utility vehicles (SUVs), new energy and electrified vehicles. The company’s car types include home, travel and sports. The company’s new energy and electrified vehicles include electric vehicles, battery electric vehicles, hybrid electric vehicles, mild hybrid electric vehicles and plug-in hybrid electric vehicles. In addition, the Company produces and sells automobile parts and related automobile components.
The recent correction was due mainly to the withdrawal of an application for listing on Shanghai Star Board. This had limited impact on the fundamental business. Therefore, it could be a buy-the-dip opportunity for investors who missed out on the previous rally which was driven by the positive sentiment of the EV sector.
Previously, the company announced some good news. Jidu Auto, the electric vehicle (EV) venture between Chinese search and AI giant Baidu and automaker Geely, will unveil its first model at the 2022 Beijing Auto Show. The 1.56mn units vehicle sales target for this year is intact despite the ongoing chip shortage. The company also formed a JV with Guangdong Xinyueneng Semiconductor to cover the design, manufacturing and sale of integrated circuits, and the manufacturing of discrete semiconductors.
Updated market consensus of the estimated growths of EPS in FY21 and FY22 are 62% and 27.2% respectively, which translates to 23.7x and 18.6x forward PE. The current PE is 36.2x. Bloomberg consensus average 12-month target price is HK$27.27.

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Market Movers

United States

DiDi Global (DIDI US) fell 25% on Tuesday’s first hour of trading before recovering to close at US$12.49 for a 20% overall drop following China’s tech crackdown saga over the weekend.
Other Chinese ADRs such as JD (JD US), KE Holdings (BEKE US) and Full Truck Alliance (YMM US) fell 5% or more following the news on DiDi. Further pressure is expected on US-listed Chinese companies that handle sensitive data of Chinese consumers, as China looks to prevent the data from falling into American hands.
Amazon (AMZN US) climbed to a new high after the Pentagon scrapped its US$10 billion JEDI contract that was initially going to Microsoft (MSFT US).
Banking stocks (WFC US; GS US;C US) dropped across the board prior to 2Q21 earnings as bond yields continued falling, with the US 10 year government bond yield now near 1.35%.

Singapore

Fortress Minerals Limited (FORT SP) Shares rose as the company announced that in response to Malaysia transitioning into Phase 2 of the National Lockdown, mining and processing activities in Malaysia have resumed at approved worker capacity of 80% on 5 July. The rise in share price could also be due to investors’ positive outlook on the company as iron ore prices continued to trade above US$200 (TSI Iron Ore CFR China 62% FE Fines), which is just less than 10% lower than the record high price reached in mid-May.
Kim Heng Limited (KHOM SP) There was no company specific news today. Shares could have risen due to the rally in oil prices which is currently at US$77, the highest since October 2018. Furthermore, in Kim Heng’s previous EGM, the company announced plans to diversify into the renewable sector, including constructing components for wind farms. This was bolstered by news announced yesterday by the Ministry Of Trade and Industry that the government will equip enterprises and the workforce with competitive advantages like sustainability, in line with the Singapore Green Plan 2030.
Samudera Shipping Line Limited (SAMU SP) Shares rose after container freight rates continued to rise to record levels due to ongoing disruption to global supply chains. The Drewry World Container Index (WCI) rose 4% last week to an average of US$8,399 per feu, representing a 346% YoY gain. The company also announced the disposal of a container ship for US$12.5mn. The sale of the vessel will result in an increase in NTA from 36.11 US cents to 35.21 US cents.
ISDN Holdings Limited (ISDN SP) Shares rose and closed at their highest since February 2021. Business Times picked up our report published on Monday, where we maintained an OUTPERFORM rating while raising our TP to S$0.85. Refer here to read our full report.
Del Monte Pacific Limited (DELM SP) Shares rose after a company official said that Del Monte Philippines Inc’s P44bn IPO is “all set to go” once the company secures regulator approval. Del Monte’s COO mentioned that the company has progressed very well during the pandemic due to focus on health and wellness and is optimistic on its growth moving forward, due to potential in international business, especially with China as it is number 1 fresh pineapple export market.

Hong Kong

Dongyue Group Limited (0189 HK). Shares rose as Dongyue Group, being the leading enterprise in the fluorosilicone industry in China and the largest fluorosilicone producer in Asia, sought to benefit from the rise in prices of high value-added fluorine materials PVDF (polyvinylidene fluoride resin). Additionally, high demand for lithium batteries and photovoltaic backplanes also benefits Dongyue as PVDF is a raw material for lithium batteries.
Theme International Holdings Limited (0990 HK). There was no company specific news. On 29 June, it announced that 815mn new shares had been issued and allotted with total HK$611mn net proceeds from the subscription.
Red Star Macalline Group Corporation Ltd. (1528 HK). Shares continued to rally and closed at a 52-week high after the announcement that Red Star and Jiaran Zhijia will strategically cooperate to optimize the competitive environment and maintain the order of the home furnishing industry by sharing resources and digitization.
Jinxin Fertility Group Limited (1951 HK). Shares dipped as there was a pre-market allotment of 42mn shares by major shareholders at HK$18.25 per share, a 6.6% discount from previous day’s price.
Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (2196 HK). The Pharma sector continued to plunge as the Center for Drug Evaluation (CDE) announced on 2 July that there would be modification on the guiding principles for clinical development of drugs. Investors believe that this would directly reduce the possibility of drugs developed using the me-too method on the market in the future, which will affect the number of new drugs companies produce and reduce the number of orders that CXO companies can obtain.
Trading dashboard: Cut loss on Trip.com (9961 HK) at HK$270. Cut loss on Xinyi Solar (968 HK) at HK$14.9

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