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Market talk for the week (17 May)
21 May 2021
What happened in markets this week, and what are analysts talking about?
Tencent
Tencent reported 1Q results which were generally in line with estimates. Revenue +25% yoy to RMB135,303m ; Net profit +65% yoy to RMB47,767m while non IFRS net profit grew 22% yoy to RMB33,118m.
• CIMB; Mark & Chi Man: Maintain ADD with a lower TP of HK$677.1. The slowdown in online game revenue growth was somewhat expected due to the positive impact of COVID-19 in 2020 on online gaming revenue. Tencent stated that it would increase its investment in 3 strategic areas (1) Business services (SaaS products); (2) games; (3) short video. The increase in investment is expected to put pressure on near-term profitability- as such reduce net profit forecasts for FY21-23F with a lower DCF based TP of HK$677.1.
• UBS: Maintain BUY with a lower TP of HK$730. Sees Tencent as the less risky option in a sector facing regulatory and competitive headwinds. Believe the magnitude and pace of investment will be milder compared to peers who are building asset-heavy and lower margin businesses. As a result of the investments which will hit near term earnings, revise earnings down by 7% in 2021-2022 and lower PT to HK$730 (from HK$780).
• UOB: Maintain BUY with a lower TP of HK$789. Good 1Q results as online gaming revenue growth normalizing, online advertising remaining strong and Fintech and business services revenue growth accelerating to 47% on faster growth from cloud segment, consolidation of Bitauto, and healthy growth in fintech services. However, the House also reduced it TP to HK$789 (from HK832) as it lower its net profit forecasts on ongoing investments and as the company enter another period of transition.
Singapore Airlines
• UOB; K Ajith: Maintain SELL with lower TP S$4.15: Earnings were within expectations, however, the issuance of S$6.2b in mandatory convertible bonds (MCB) offers shareholders little to cheer. Temasek has given an undertaking to take up any unsubscribed portions. Including the latest MCB, SIA would have raised S$21.6b since the pandemic started. Monthly operating cash burn has declined to S$100-150m from S$250m in Feb 21. SIA plans to raise pax capacity to 32% (of pre-pandemic levels) by Jul 21. (Currently pax capacity in Apr 21 was 24% of pre-pandemic level)
• CLSA: Maintain SELL at S$4.20. The house remains cautious of SIA's recovery outlook and lowers its passenger traffic assumption cutting its FY23F net profit forecast by 16%. Stock is trading at 1.3x forward P/B against a long-term average of 0.96x.
Jiutian
Jiutian is a manufacturer of chemicals that are used as feedstock for a variety of applications including DMF, which is used in consumer goods, pharmaceutical, agrochemical products and electronics sectors.
•KGI, Joel: Initiate Outperform with TP of S$0.145: TP is based on 7x FY2022F PE, as the House expects to record earnings in 2021, helped by favorable industry supply/demand dynamics. The Group declared its first dividend since 2008 of S$0.0035 for 1Q2021. The House forecasts a full year dividend of S$0.0063-0.0084 for FY2021-2023F based on 30% payout ratio, which will translate to a yield of 7-9%.
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