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Singapore Post Limited ($0.535, up 2.5%) will be raising postage, package delivery as well as doorstep parcel delivery rates from 1 January 2023 in tandem with the increase in Goods and Services Tax (GST) as well as exceptional inflationary cost increases across manpower, fuel and electricity.
Singpost’s market cap stands at S$1.2bln and currently trades at 19.1x forward PE and 1.0x PB, with a dividend yield of 2.8%. Consensus target price stands at S$$0.53, representing 1% downside to current share price. Despite the increase in pricing of Singpost’s offerings, the extra revenue generated will be used to offset the GST and given limited potential upside to consensus share price, we maintain our HOLD recommendation on Singpost.
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SIIC Environment Holdings (S$0.188, down S$0.005) announced the following developments: expansion agreements have been signed in relation to the Xiaocao’e Project and the Chongren Project in the People’s Republic of China, involving total designed capacity of 70,000 tonnes per day; the Yicheng Project and first phase of the Chongren Project of total designed capacity 40,000 tonnes per day have commenced commercial operation; and the Fengxin Project has signed a tariff increase agreement.
At S$0.188, SIIC’s market capitalisation is S$484.2 mln and currently
trades at 3.2x forward PE, 0.26x PB with a dividend yield of 5.4%.
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Concerted actions towards reopening. Recent feedback we got suggested that there still are concerns among foreign investors that China may impose lockdowns again. We see little sign that China would do so. As mentioned above, comments from central government officials, top medical experts, as well as local governments’ actions, indicated a concerted attempt to ensure smooth reopening. We think the focus has been shifted to ensuring medical treatment for severe cases, from containing the virus spread. While economic disruptions are inevitable as cases climb, we are encouraged to see actions on stabilizing economy and boosting business activities.
Reiterate our positive view on China/HK stocks. We reiterate our positive view on China/HK stocks on faster-then-expected reopening pace and undemanding valuation. Hang Seng Index is still trading at 9.4x forward 12-month P/E, a level last seen in early September, before China tightened Covid restrictions to battle against the resurgence before the 20th Party Congress.
Stock picks in health care sector. In addition to our preference of reopening names and long-term strategy beneficiaries, our health care team identified stocks to benefit from increasing patient visits to hospital amid gradual reopening. The team likes Shandong Weigao and CR Medical. Prescription drug makers like CSPC, Shanghai Henlius and Consun will also benefit from increasing hospital visits.
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Singapore Airlines (SIA)
Soaring strongly into the end-year holiday season
- November operating statistics continue to show encouraging signs of healthy travel demand, which is expected to continue heading into the end-year holiday season
- Group passenger load factor (PLF) moderated slightly to 85.9% (from October’s 86.4%) due to increased capacity
- Group capacity almost doubled y-o-y, to reach 75% of pre-COVID levels in November
- Number of passengers carried also rose from 2.27 million to 2.41 million
- We believe there is still room for further recovery into 2023 boosted by (i) the return of corporate travelers, and (ii) pent-up demand from tourists in the East Asia region
- MICE activities will revitalize the corporate travel segment, as Singapore looks to position itself as a leading MICE hub in the region -> 2022 saw 135 Singapore Tourism Board (STB)-supported MICE events, far from the average 591 events seen in 2017-19
- The return of Japan and Chinese tourists will provide a strong second wind to their core East Asia segment, which has held up well even in their absence in 2022 -> SIA Flagship recorded a PLF of 80.7% to East Asia in November (vs. Group’s 78.8 in FY2019/20)
- Recent corporate actions underscore management’s confidence in SIA’s near-term operating profitability and performance – (1) redemption of first tranche (S$3.5bn) of its mandatory convertible bonds, (2) resumption of dividends post-COVID, i.e., interim dividend of 10Scts, (3) merger between Air India and Vistara, and (4) plausible purchase of 50 Embrarer 190-E2 jets
- We currently have a BUY recommendation on SIA with TP S$6.60
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Tenaga Nasional (TNB MK)
Pass-through continues
Overhang removed for now
The government has again upheld Tenaga’s pass-through mechanism for 1H23 through a combination of direct compensation and a surcharge increase for large non-domestic users. ICPT concerns are thus alleviated for now, but could resurface again in six months given still elevated coal prices. Maintain HOLD with an unchanged MYR8.70 TP. We prefer Mega First (MFCB MK, BUY, CP: MYR3.35, TP: MYR4.30) in the utilities space.
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V.S. Industry (VSI MK)
In recovery mode
Results within expectations; maintain BUY
VSI’s 1QFY23 results came in within expectations, at 23%/24% of ours/consensus’ full-year forecasts respectively. We maintain our earnings estimates and TP of MYR1.15, derived by pegging VSI’s fully-diluted FY24E EPS of 8sen to a PER of 14.4x (at -0.5SD to its 5-year PER average), with the -0.5SD peg to reflect the increasing economic risks globally.
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