June 25, 2021

Market talk for the week (21June)

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What happened in markets this week, and what are analysts talking about?

Kimly Group

CIMB; Initiate with BUY and TP S$0.46 The house believes Kimly will maintain its status as the top coffee shop operator in Singapore, with earnings expected to grow at a CAGR of 47% in FY19/20-22F. Kimly has 72 coffee shops in Singapore at end Sep 20, and is trading at 14x FY22 PE, below its initial 25x PE at IPO in Mar 17. The House likes Kimly for its resilient business model, strong cashflow and net cash balance sheet. 

Keppel Corp & Sembcorp Marine

After months of market speculation, Keppel Corp and Sembcorp Marine have announced that they have agreed to explore a potential tie-up that will see the combination of their struggling offshore and marine business (O&M) as the industry continues its downturn. The deal will see Keppel Corp spinoff its O&M business into a listed entity with Temasek becoming the largest shareholder in the combined company. Separately, Sembcorp Marine also announced a S$1.5b fully committed rights issue with Temasek committing to subscribe up to 67% of the rights issue and DBS underwriting the reminder.

Keppel Corp 1 year share price

Sembcorp Marine 1 year share price

CIMB; KEP exit to create a mega yard for SMM. Near term more positive for Keppel vs Sembmarine as Keppel is finally exiting the O&M via the spinoff and divestment of stranded rigs/receivables of S$3.9b. 

UOBKH; Keppel Corp Maintain BUY and TP S$6.37. The House view developments as largely positive as Keppel moves towards vision 2030 of generating a double-digit ROE and more recurring income. Keppel will get S$500m cash from Sembcorp Marine and an undisclosed number of shares in the combined entity. Keppel will distribute all its shares in the combined entity to shareholders while the S$500m may be distributed as a special dividend. 

Venture Corp

Macquarie, Downgrade to Underperform with TPS$13.20. COVID-19 has resulted in loss of wallet share of IQOS for Venture which accounts for >20% of revenue in 2017.  The COVID-19 situation in Malaysia has resulted in VMS losing wallet share for IQOS and the House believes the business could be at a key turning point where customer Philip Morris may re-consider its contracting arrangement. Ex-IQOS, Venture has not been able to significantly grow earnings from other product arenas. The House cuts its FY21-23F earnings by 9-29%, TP of S$13.2 based on P/B. 

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