Acquisition mode in motion to lift DPU
Improved user engagement
UOB Kay Hian analyst
Julia Pan has maintained her “buy” call on e-commerce giant
Alibaba with a maintained target price of
US$311 ($423.89).
“Our target price implies 31 times
FY2021 forward P/E , or 0.8 SD above its fiveyear historical mean, on the back of a 25%
EPS CAGR in FY2021–
2024,” says Pan in a report dated Sept 30.
In 2020, China’s retail platforms — including Alibaba — saw sustained improved user engagement despite the Covid-19 outbreak.
China’s retail mobile monthly active users (MAU) grew 15.8% y-o-y to 874 million in 2Q2020. New users’ average revenue per user (ARPU) exceeded RMB3,000 ($602) in FY2020 with more than 70% of new users coming from tier 4-6 cities.
Physical goods’ gross merchandise value (GMV) for fast-moving consumer goods (FMCG), apparel, and consumer electronics under Alibaba offshoot Tmall grew 40%, 17%, and 27% y-o-y respectively.
The growth supersedes China’s retail growth of 6%, –8% and 6% in the same categories in 2Q2020.
In August, Taobao GMV grew 20% y-o-y, surpassing pre-Covid-19 levels. The platform saw over seven million merchants joining the platform as at 1HFY2020.
The online store also saw improved recommendation feeds and impressions of Taobao Live and short-form videos on its app.
Moving forward, Alibaba says it will focus on upgrading its recommendation feeds for Taobao mobile app as well as to enrich its live ecosystem and interactive entertainment products to drive new-user growth.
Alibaba’s cloud business also saw heightened growth. Alicloud achieved 9.1% and 28.2% of global and Asia Pacific Infrastructure as a Service (IaaS) market share in 2019, and 42.4% market share in China’s IaaS and Platform as a service in March 2020 alone.
It had served more than 60% of A-share companies as at June with ARPU CAGR of 40% from 2018 to June.
Alicloud CEO Jeff Zhang says the company is looking to expand its presence in the Southeast Asian market due to its fast growth opportunity.
As at March, internet data centre revenue from Southeast Asia grew 200% y-o-y on the back of a 50% y-o-y growth in newly registered entities.
During the Covid-19 pandemic, the average number of daily buyers for Alibaba’s wholesale marketplace arms, 1688.com, and Alibaba.com, achieved 51% and 100% growth y-o-y. — Felicia Tan
DBS Group Research analysts Rachel Tan and Derek Tan are positive given Keppel REIT is “kick-starting” its acquisition mode which is seen to drive its underlying DPU growth.
They have maintained their “buy” call on Keppel REIT with an increased target price of $1.40 from $1.35 previously to factor in the acquisition of Pinnacle Office Park in Sydney’s Macquarie Park on Sept 13, and some interest savings from a lower average cost of borrowing.
According to the analysts, this is probably the first asset acquisition made among the nonindustrial and logistics REITs since the Covid-19 pandemic started.
“The long-awaited redeployment of capital post a series of divestments in the past few years will drive underlying DPU growth with the accretive acquisition and embedded rental escalations. Based on pro-forma FY2019 numbers, underlying DPU accretion is estimated to be around 4%,” they write in a report dated Oct 2. They estimate underlying FY2021 DPU to grow by 13%.
Following the merger between CapitaLand Mall
Trust (CMT) and CapitaLand Commercial Trust (CCT), Keppel REIT (KREIT) will become the only pure-office REIT, a valued trait that investors have “yet to appreciate”. “We believe KREIT’s best-in-class office portfolio, anchored by Singapore Grade A offices in prime CBD locations, is well-positioned to benefit from a potential recovery in a very tight net supply market. Valuation remains attractive at 0.8 times P/ NAV, below the sector’s historical mean,” they say.
The analysts also believe that the REIT’s low expiring rents will provide a buffer to weather a decline in rental income.
They also note that the REIT could do better under a more optimal shareholding structure.
Keppel REIT, which is currently trading at a lower velocity compared to its large-cap S-REIT peers, can match its peers if its sponsor, Keppel Land, considers paring down its stake to a more “optimal 30– 35% level”, similar to its peers, they say.
“We believe that the boost in liquidity and K-REIT’s position as a pure-play office play post-CCT-CMT merger, will drive a re-rating in share price towards its NAV over time, in line with an improvement in earnings,” they add. — Felicia Tan