Singapore Strategy - UOB Kay Hian 2015-11-20: 3Q15 Report Card ~ Lacking Beats

Singapore Strategy - UOB Kay Hian 2015-11-20: 3Q15 Report Card ~ Lacking Beats DBS GROUP HOLDINGS LTD D05.SI  CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND COMMERCIAL TRUST C61U.SI  CAPITALAND LIMITED C31.SI 

STRATEGY ‒ SINGAPORE 3Q15 Report Card – Lacking Beats 

  • The 3Q15 reporting season ended with only 13% of the results of stocks under our coverage exceeding expectations (15% in 2Q15) and others mainly in line. 
  • Consensus and our estimates continue to suffer downward revisions. 
  • Stay selective on a mixed macro outlook and earnings downside. 


WHAT’S NEW 


• Lack of positive surprises. 

  • 3Q15 results ended on a lacklustre note. Only 13% of the results exceeded our expectations (15% in 2Q15). 
  • On a more positive note, 30% of the results disappointed in 3Q15, better than the 39% registered in 2Q15 as more results were in line during 3Q15. 


ACTION 


• Consensus and our estimates continue to trend down. 

  • We note that consensus estimates were reduced after 3Q15 as 2016F EPS growth by consensus is estimated at 5.5% compared to 7.3% before the results. 
  • Similarly, we have reduced our 2016F EPS growth to 8.3% from 9.3%. 
  • Sectors that saw 2016 EPS growth reductions include banks, aviation, oil services and property whereas upgrades were seen in plantation and SREITs. 

• Mild change in 2016 top-line growth and margins are stabilising. 

  • We have reduced our 2015 top-line forecasts slightly but raise our 2016 turnover growth assumption to 6.1% (from 5.8% previously). A slight positive is that EBIT margins appear to be stabilising at 7.5-7.7% for 2015-17, which remains relatively unchanged after the 3Q15 results. 

• Banks – mixed showing. 

  • Compared with market expectations, UOB (non-rated) exceeded expectations and DBS met expectations for their 3Q15 results. 
  • OCBC’s results were slightly below expectations and it disappointed in asset quality, although the new NPLs from rescheduling of loans extended to Oil & Gas support services companies were not overdue. 
  • DBS’ 3Q15 net interest income grew 13.2% yoy as it benefitted from a 3bp qoq expansion in NIM due to an improvement in cost of deposits. DBS’ loan growth was also stronger at 9% yoy, compared with 3.8% for OCBC and 3.6% for UOB. 
  • Post the results, we have trimmed our FY16 forecasts by 3-6% (for DBS and OCBC) to assume lower loans growth and a rise in absolute NPL. 

• Telcos – ringing up the profits. 

  • The sector delivered in-line to slightly above results. While SingTel’s and M1’s results were within our expectations, StarHub exceeded our expectations slightly. 
  • StarHub’s revenue from post-paid mobile grew 3.5% yoy, which helped mitigate lower pre-paid mobile revenue. We maintain HOLD on StarHub and prefer SingTel and M1 for sector exposure. 
  • A key focus remains the potential for a new fourth operator but we think the risk has abated as key contenders may have difficulties in raising funds. 

• Offshore & Marine – more earnings cut ahead. 

  • With the exception of Triyards, Ezion and Keppel Corp (all in line), most of the other results were below expectations. 
  • A notable disappointment was Sembcorp Marine (SMM) which saw 3Q15 net profit collapse 76% yoy. This was due to a reversal of profits previously recognised on five vessels due to non-payment by customers. The situation is likely to get worse with the latest news of the termination of contract by Marco Polo Drilling. 
  • We slash our FY15-17 net profit forecasts by 21-35% but see more downside risk. 

• Property developers was mixed whereas S-REITs are in line. 

  • CapitaLand came in within expectations but City Dev disappointed as key segments, property development and hospitality, suffered a softening in Singapore and the rest of Asia. Out of the 14 SREITs we cover, only two were below expectations and these were from the hospitality segment (ART and CDLH-T). 
  • A key contributing factor was weak room rates (for both) and vacancy rates (for ART). For the sector strategy, we continue to prefer diversified, deeply-valued developers over REITs. Our top picks in the S-REITs space include Ascott REIT, CapitaLand Commercial Trust and Mapletree Logistics Trust as these stocks offer the best risk adjusted return potential within our coverage. 
  • Regional yield spreads also remain the most attractive for Singapore REITs with up-cycle spreads indicating over 25% upside potential. 

• Other notable results; SATS shines whereas GENSP dim. 

  • SATS impressed us with its 2QFY16 earnings which beat our expectations, amid better-than-expected cost control. Much of these cost savings will continue into the next few quarters and will be supplemented with revenue growth from TFK. 
  • As a result, we raised FY16-17 forecasts by 8-10% and upgraded SATS to BUY. 
  • Conversely, GENSP disappointed as its adjusted EBITDA came in 15% below our estimates due to an impairment on receivables. 
  • Rolling chip volume for the VIP segment fell about 50% yoy and 20% qoq and the only bright spark was a normalised theoretical win rate, We have a lowered target price of S$0.97 for GENSP but maintain BUY. 

• Inexpensive valuations but earnings still trending down. 

  • Following our earnings cut, the FSSTI’s 2016F PE of 12.7x is at a 18% discount to its 20-year mean of 15.5x. With macro outlook remaining uncertain and for potential pull-backs ahead of rising interest rates, we would buy on weakness and stay defensive. 
  • On our BUY list are DBS, City Development, CapitaLand, CCT, ComfortDelGro, SingTel, SingPost, First Resources and SCI
  • We reiterate SELL s on SIA Engineering, Nam Cheong and Sembcorp Marine.


Key Stocks Recommendation





Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2015-11-20
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.30 Same 3.30
BUY Maintain BUY 22.34 Same 22.34
BUY Maintain BUY 10.75 Same 10.75
BUY Maintain BUY 1.79 Same 1.79
BUY Maintain BUY 4.08 Same 4.08


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