The Edge Singapore Fri, Jun 10, 2022
Silverlake Axis
Price target:
PhillipCapital ‘buy’ 38 cents
Resumption of bank IT spending
PhillipCapital has initiated a “buy” on Silverlake Axis (SAL), a Singapore-listed customised software solutions and core banking systems provider.
The brokerage has also given the company a target price of 38 cents, which is pegged to an FY2022 P/E of 20x. The target price is also an 11% upside to peer valuations of around 18x P/E, writes analyst Glenn Thum in his June 6 report.
“Our target P/E of 20x is 15% higher than the historical average P/E of 17.5x. In our view, Silverlake should trade at a higher premium to its historical P/E with the introduction of Mobius and the resumption of bank IT spending post-pandemic,” he adds.
To Thum, SAL’s Mobius cloud-based banking software is the differentiator to the company’s business. The software, which was launched in 2020, allows banks to roll over new digital products in a targeted and timely manner. Banks can utilise Mobius with their existing core banking software and propel it to new digital products in credit cards, debit cards, personal loans and deposits.
Mobius’ cloud-based nature also means banks are able to avoid purchasing and managing hardware assets. SAL has recently signed a deal with one of the largest banks in Thailand and is continuing to see increasing inquiries in the region.
Thum expects SAL’s Mobius software to generate almost RM100 million ($31.3 million) worth of orders over the next two years.
During the Covid-19 pandemic, the company’s recurring maintenance and enhancement revenue contributed to 72% of its revenue for the FY2021 ended December 2021, and grew at a CAGR of 4%.
“With the opening of borders and economies in Asean, we should expect SAL’s customers to increase their IT spending to accelerate their digitalisation plans to grow,” Thum says.
SAL’s long track record and proven client base in Southeast Asia is also a positive factor for investors, in the analyst’s view.
Its core banking platform is being used by three of the five largest Southeast Asian-based financial institutions. The company has also largely retained all its clients since bringing them on board its platform.
Furthermore, SAL’s project pipeline is at a healthy RM1.7 billion, with a record-high order backlog of RM450 million, representing a growth of 50% y-o-y. “This should keep them busy for the next one to two years,” Thum says.
“Silverlake is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities. Silverlake should be able to secure its foothold in Asean and look to expand into other regions,” he adds. — Felicia Tan
Hyphens Pharma International
Price target:
PhillipCapital ‘buy’ 43 cents
Investment from Metro
PhillipCapital Research analyst Paul Chew has upgraded Hyphens Pharma from “accumulate’’ to “buy” as he sees digital healthcare being a new growth and stock catalyst.
“Hyphens Pharma’s underlying growth strategy is to be a leading portfolio of proprietary skin health products and brands across Asia,” says Chew, who has also upped his target price to 43 cents from 34.5 cents.
In addition, Chew has raised FY2022 ending December earnings by 40% to $9.2 million to incorporate earnings from the acquisition of Novem.
On May 27, Hyphens Pharma announced that Metro Holdings, a property and retail company, will be investing $6 million for a 10% stake in DocMed Technology (DocMed), valuing it at $60 million.
A digital health platform, DocMed is a subsidiary of Hyphens Pharma.
DocMed owns Hyphens Pharma’s medical B2B hypermart POM Medical Hypermart (POM) and a licensed e-pharmacy WellAway. POM’s revenue in FY2021 came in at $41 million including offline sales.
DocMed will use the proceeds to build up its manpower across technology, operations and marketing areas and enhance its B2B platform to serve doctors. The platform can be enhanced with more pharmaceutical offerings, mobile features and a regional footprint across Asean. The expected timeline to enhance and expand the B2B platform is two years.
Chew views the transaction as a funding event rather than crystallisation or monetisation of Hyphens digital assets.
“The proceeds have the potential to enhance the B2B platform with more doctors, pharmaceutical companies, transactions and new sources of revenue,” the analyst writes. “Such milestones could drive further rounds of financing and higher valuations.”
The analyst also notes that DocMed’s platform will be an important space to showcase drugs to doctors. In turn, DocMed can generate new sources of revenue such as advertising and promotion from pharmaceutical companies.
Overall, Chew sees the creation and development of the digital healthcare platform DocMed as an additional growth and share price catalyst for Hyphens Pharma, with near-term earnings drivers being the acquisition of Novem and growth in specialty pharma sales due to the return of elective surgeries post-Covid-19. This is considering Hyphens Pharma’s multiple-year growth strategy to expand its proprietary brands of skincare products across the region. — Chloe Lim
Yangzijiang Financial Holding
Price target:
CGS-CIMB ‘add’ 74 cents
Generous dividend payout
CGS-CIMB Research has initiated coverage on Yangzijiang Financial Holding (YZJFH) with an “add” call and a target price of 74 cents.
YZJFH is the carved-out and spun-off debt investment and investment management division of Mainboard-listed Yangzijiang Shipbuilding.
The target price is based on a 2023 P/B of 0.6x, which is comparable to Chinese banks, and a 2023 P/E of 9x, which is at the peer average, say analysts Lim Siew Khee and Izabella Tan.
The 0.6x P/B valuation has been given a 70% weightage since 70% of YZJFH’s net tangible assets (NTA) is currently in its debt investment business, while its 9x P/E valuation has been given a 30% weightage for its remaining 30% NTA, they add.
To them, their valuations are “conservatively discounted against [YZJFH’s] peers.”
YZJFH’s proposal to conduct a share buyback of up to 10% of its outstanding shares has not been factored into the analysts’ assumptions. On June 8, the company announced that its shareholders have approved the share buyback mandate and it will thus be setting aside $200 million for this purpose.
In their report dated June 6, the analysts say they like the stock as it is the only Singapore-listed mid-size cap proxy to fund management and private equity.
The analysts also like the counter’s “generous” dividend payout of 40% and yield of 4.1% to 6.24% in FY2022 ending December to FY2023 with a consistent return of funds of around 11%.
In their report, Lim and Tan called YZJFH a “force to be reckoned with”. They add that its assets under management (AUM) growth, as well as the long-standing relationship between chairman Ren Yuan Lin and CEO Vincent Toe, are positive factors.
In addition, YZJFH’s strong track record in China and the performance of GEM Asia Growth Fund, YZJFH’s wholly-owned subsidiary, are also merits to the investment.
As at end-April, YZJFH had a net book value of $4.2 billion, which it also considers as its AUM.
The group’s current AUM, according to Lim and Tan, is now around $4.76 billion. The sum includes YZJFH’s AUM via engagement for investment advisory services (at around $500 million) and the establishment of GEM Asia Growth Fund (at around $60 million, $140 million pending).
According to YZJFH’s management, the group aims to grow its total AUM to $7 billion in three to five years.
“We believe the AUM growth to $7 billion within three to five years will underpin earnings growth and dividend payout. YZJFH is currently trading at 0.49x 2022F P/B, below its peers who trade at an average of 1.85x 2022 P/B,” the analysts say.
By the end of FY2022, YZJFH is also expected to have $0.76 million in additional cash from its maturing investments, which will increase its pool of investable funds to $1.81 billion, which is around 85% of its current market cap. — Felicia Tan
ST Engineering
Price target:
UOB Kay Hian ‘buy’ $4.60
‘Fine balance’ of defence and growth
UOB Kay Hian’s Roy Chen has re-initiated coverage on Singapore Technologies Engineering (ST Engineering) with a “buy” recommendation and a target price of $4.60.
“Our target price implies 23.5x FY2023 P/E, or 1.3 standard deviation above its historical average. This is plausible as ST Engineering’s strong orderbook provides good visibility for growth in the medium term,” writes Chen in his report dated June 6.
“The target price translates to 11.1% upside (total return of 15.0% if including the 3.9% yield) over ST Engineering’s last close price of $4.14 [on June 2], which is at 21.1x FY2023 P/E, or 0.1 standard deviation below its historical average forward P/E of 21.3x,” he adds.
The analyst is positive on the counter’s prospects, as he sees it being a “fine balance” of defence and growth.
“As an anchor supplier to Singapore’s Ministry of Defence and an integrated solutions provider to a number of Singapore governmental agencies, ST Engineering is a strategic cornerstone of the country’s defence and security structure,” the analyst writes.
The counter had demonstrated “good resilience” during the Covid-19 pandemic, and its defence and public security segment is set to grow in tandem with Singapore’s defence spending.
ST Engineering is also set to benefit from the growing demand of international customers amid a volatile global security climate and geopolitical landscape, says Chen.
With a suite of solutions that address the various needs of cities, including their connectivity, mobility, security, infrastructure and environmental needs, ST Engineering is “well poised” to ride the rising demand, he adds.
“In addition, as the world’s leading satcom ground segment technology provider, ST Engineering is at the forefront of the satcom sector’s revolution and is well-positioned to capture business opportunities unlocked by the Low Earth Orbit satellite technology,” Chen writes.
ST Engineering’s commercial aerospace segment is also likely to recover fully by the end of FY2023 ending December 2023, according to the analyst’s estimates.
To him, promising signs include the high utilisation of ST Engineering’s existing airframe maintenance, repair and operations (MRO) capacity, as well as its slots for several freighter conversion programmes having been fully booked till FY2024/FY2025.
Airbus’ ramping up of its aircraft production will benefit ST Engineering’s nacelle original equipment manufacturer (OEM) business, and ST Engineering’s investment in new freighter conversion and MRO capacities will contribute to the revenue recovery during FY2023, says Chen.
Finally, the group’s record orderbook of $21.3 billion as at the end of the 1QFY2022, provides “good revenue visibility” and underpins Chen’s revenue CAGR projection of 10.9% for FY2022– FY2024.
For this, Chen has conservatively forecast a flat core net profit of $526 million for FY2022. The figure excludes one-off gains and losses, but includes the Covid-19 related government grants.
“We expect the positive impact from the improving business performance to be offset by the drop in grants,” Chen writes.
“Excluding the effect of government grants, ST Engineering’s core net profit would have risen 64% y-o-y in FY2022 by our estimate,” he adds.
Moving forward, the analyst has estimated that ST Engineering’s core net profit will grow by 16.7% and 6.1% in FY2023 and FY2024 respectively, driven by revenue growth and margin improvement helped by operating leverage.
The analyst is estimating revenue for FY2022 to reach $9.6 billion, which represents a “remarkable growth” of 24.2% y-o-y, driven by both organic business growth across all business segments as well as fresh contribution from TransCore, which was acquired in March.
“Thereafter, revenue is expected to grow 6.1% and 3.5% in FY2023 and FY2024 respectively, mainly due to organic business growth and higher project deliveries,” he writes.
In his view, catalysts to the counter’s share price include strong contract win momentums, as well as stronger-than-expected earnings growth. Meanwhile, a negative margin surprise due to project cost overruns or failure to pass down cost pressures from inflation, as well as events that may disrupt the recovery of the aviation sector, are downside risks.
Other downside risks include a prolonged global supply chain disruption that may dampen ST Engineering’s growth outlook, as well as the failure to realise growth and synergies from the acquired entities. — Felicia Tan
