May 21, 2021

Market talk for the week (17 May)

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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. 

Results highlights

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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