Wilmar International Ltd (WIL SP) – Benefiting from Higher Swine Prices and Stronger Currencies
Recommendation: ADD
Target Price: S$3.64
Stop Loss: None specified
Date of Recommendation: 30th August 2024
Broker: CGS-CIMB Securities
Investment Thesis: Wilmar International Ltd, a leading agribusiness group in Asia, is well-positioned to benefit from improving profitability across its key business segments. The company’s diversified operations, spanning food products, feed, and industrial products, are set to deliver robust earnings growth, driven by favorable commodity prices and potential tailwinds from currency movements.
- Improved Profit Margins: Wilmar reported a core net profit of US$606.3 million in 1H24, a 5% increase year-on-year. The company achieved sales volume growth across its food products, feed, and industrial products segments. Notably, profit before tax (PBT) margins expanded across all three segments, including the plantation and sugar milling segment.
- Higher Swine Prices in China: The recent increase in swine prices in China is expected to support better crush margins for soybean, a key feed ingredient. This development is anticipated to boost profitability for Wilmar’s feed and industrial products segment in 2H24.
- Sugarcane Harvesting Season in Australia: The ongoing sugarcane harvesting season in Australia is likely to enhance profitability in Wilmar’s plantation and sugar milling segment. This seasonal uptick in production is expected to contribute positively to the company’s overall earnings in the second half of the year.
- Potential Stake Sale in Adani-Wilmar: Wilmar is considering a potential stake sale in its associate, Adani-Wilmar, which could result in a one-off gain in 2H24. This strategic move would further strengthen Wilmar’s financial position and provide additional funds for future expansion.
Valuation:
Wilmar’s shares are trading at an attractive valuation, with the potential for further upside as the company capitalizes on favorable market conditions. The target price of S$3.64 reflects the expected earnings growth and the positive impact of potential currency tailwinds.
Share Price Catalysts:
- Higher swine prices in China driving improved crush margins.
- Successful execution of the sugarcane harvesting season in Australia.
- Positive outcomes from the potential stake sale in Adani-Wilmar.
🐖 Japfa Ltd (JAP SP) – Riding on Buoyant Protein Prices
Recommendation: ADD
Target Price: S$0.43
Stop Loss: None specified
Date of Recommendation: 30th August 2024
Broker: CGS-CIMB Securities
Investment Thesis: Japfa Ltd, a leading agri-food company, is set to benefit from buoyant protein prices and favorable market dynamics in its key operating regions. The company’s diversified portfolio, spanning animal feed, dairy, and protein production, positions it well to capture growth opportunities in Indonesia and Vietnam.
- Strong Performance in 2Q24: Japfa saw its core net profit triple quarter-on-quarter to US$40.0 million in 2Q24, driven by buoyant average selling prices (ASPs) of broilers and day-old chicks in Indonesia, as well as higher swine prices in Vietnam. This impressive performance was further supported by a decline in the prices of key feed ingredients.
- Tight Protein Supply: The supply of proteins remains tight, especially for swine in Vietnam, where African Swine Fever (ASF) continues to affect production. This supply constraint is expected to keep protein prices elevated, benefiting Japfa’s profitability in the coming quarters.
- Share Buyback Program: Japfa has announced an equal access offer to buy back 9% of its shares at S$0.355 per share. This move demonstrates the company’s confidence in its future prospects and is likely to provide support for the share price.
Valuation:
Japfa is trading at a compelling valuation, with the potential for significant upside as the company continues to benefit from strong protein prices and effective cost management. The target price of S$0.43 reflects the company’s robust earnings outlook and favorable market conditions.
Share Price Catalysts:
- Continued tight supply of proteins, particularly in Vietnam.
- Successful execution of the share buyback program.
- Ongoing strength in protein prices, particularly in Indonesia and Vietnam.
💻 Sea Limited (SE US) – Positioned for Growth Amid Currency Tailwinds
Recommendation: ADD
Target Price: US$88
Stop Loss: None specified
Date of Recommendation: 30th August 2024
Broker: CGS-CIMB Securities
Investment Thesis: Sea Limited, a leading global consumer internet company, is poised to benefit from a weaker US dollar and favorable market conditions across Southeast Asia. The company’s diversified portfolio, which includes e-commerce, digital entertainment, and financial services, positions it well for sustained growth.
- Positive Impact of Weaker US Dollar: The recent depreciation of the US dollar against Southeast Asian currencies is expected to result in positive translation impacts for Sea Limited, given its reporting currency is in US dollars. This currency tailwind is likely to boost the company’s top-line growth in 3Q24.
- Strong Performance in Key Markets: Sea Limited continues to perform well in its key markets, with robust demand for its e-commerce platform, Shopee, and its digital entertainment arm, Garena. The company’s strategic focus on expanding its digital financial services is also expected to contribute to long-term growth.
Valuation:
Sea Limited’s shares are trading at a favorable valuation, with significant growth potential driven by its strong market position and the positive impact of currency movements. The target price of US$88 reflects the company’s growth prospects and the expected benefits of a weaker US dollar.
Share Price Catalysts:
- Continued growth in e-commerce and digital entertainment.
- Expansion of digital financial services across Southeast Asia.
- Positive impact of currency movements on revenue and earnings.
🚕 Grab Holdings (GRAB US) – Capitalizing on Weaker US Dollar
Recommendation: ADD
Target Price: US$4
Stop Loss: None specified
Date of Recommendation: 30th August 2024
Broker: CGS-CIMB Securities
Investment Thesis: Grab Holdings, Southeast Asia’s leading super app, is well-positioned to capitalize on the depreciation of the US dollar and the growing demand for its diverse services, including ride-hailing, food delivery, and digital financial services.
- Currency Tailwinds: Like Sea Limited, Grab is expected to benefit from the weaker US dollar, which will positively impact its revenue and earnings due to favorable currency translation effects. This is particularly significant as Grab generates revenue in various Southeast Asian currencies while reporting in US dollars.
- Diversified Service Offerings: Grab’s diversified service offerings across multiple verticals provide resilience against market volatility. The company’s continued investment in digital financial services, including mobile payments and lending, is expected to drive future growth.
Valuation:
Grab’s shares offer a compelling investment opportunity, with the potential for significant upside driven by its diversified business model and the positive impact of currency movements. The target price of US$4 reflects the company’s strong growth prospects and favorable market conditions.
Share Price Catalysts:
- Increased adoption of digital financial services in Southeast Asia.
- Continued growth in ride-hailing and food delivery services.
- Positive impact of currency movements on financial performance.
🏥 Raffles Medical Group (RMG SP) – Resilient Performance Amidst Healthcare Challenges
Recommendation: HOLD
Target Price: S$1.40
Stop Loss: None specified
Date of Recommendation: 30th August 2024
Broker: CGS-CIMB Securities
Investment Thesis: Raffles Medical Group, a leading integrated healthcare provider in Asia, is expected to deliver steady performance amidst ongoing challenges in the healthcare sector. The company’s diversified business model, which includes hospitals, clinics, and health insurance, provides resilience against market uncertainties.
- Stable Earnings Outlook: Despite the challenging operating environment, Raffles Medical Group has managed to maintain stable earnings, supported by its diversified revenue streams. The company’s strategic focus on expanding its healthcare services across the region is expected to contribute to long-term growth.
- Ongoing Cost Pressures: Raffles Medical Group continues to face cost pressures, particularly in terms of staffing and operational expenses. However, the company’s strong brand and reputation in the healthcare sector provide a buffer against these challenges.
Valuation:
Raffles Medical Group is trading at a reasonable valuation, with the target price of S$1.40 reflecting the company’s stable earnings outlook and the resilience of its business model. While the stock offers limited upside potential in the near term, it remains a solid defensive play in the healthcare sector.
Share Price Catalysts:
- Continued expansion of healthcare services in Asia.
- Stable earnings performance amidst market challenges.
- Potential cost management improvements to offset rising expenses.
