Singapore Strategy - CIMB Research 2016-07-18: Potential misses and beats in 2Q16 earnings

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Singapore Strategy - Potential misses and beats in 2Q16 earnings

Our brainstorm attempt across sectors suggests that there could be more misses than beats in this earnings season.
Potential beats: DBS, OCBC, SIAE, SMM and Bestworld.
Potential misses: GL, KEP, FR, GGR, IFAR, RMG, SPOST, SATS and CD.

We make no changes to our stock recommendations as target prices are set with a 12-month view. This note highlights the potential surprise element if investors are positioning ahead of results. Telcos and REITS are unlikely to major surprises on earnings with Singtel, MAGIC, MCT and KDC REIT as our preferred picks.

Banks: Generating interest income can prove to be challenging in 2Q and beyond as loan growth goes into negative and NIM expansion story can unwind as SIBOR falls. DBS could be a potential beat in 2Q16 with better earnings visibility from treasury activities, active debt capital market and fees from Manulife life bancassurance.
OCBC could benefit from accounting profit from non-par fund gains on recovery in bond prices.
SIAE could see bumper dividend from S$178m gain on restructuring SIAE/Rolls Royce. This may not apply to SIA given the airline’s heightened capex trend.
SMM could beat our forecasts but meet consensus if EBIT margin is higher with back- end loaded profit from some deliveries. SCI utilities should be in line as weak power prices in Singapore will be offset by gas/water/solid waste, while India will be seasonally stronger from SGI’s wind load factor, buffering TPCIL’s lower utilisation.

Property: Developers are likely to fall into lower end of expectations as residential completions are back-end loaded in 2H16. GL could miss earnings mainly on translation weakness from the British pound.
Capital Goods: Keppel Corp could miss consensus estimates on weaker O&M earnings with few deliveries in 2Q16. Infra will be weak from lower power prices. Property should continue to drive yoy earnings growth.
Transport: Changi airport volume remained strong but we could see ASP pressure for SATS due to the product mix (more LCC) and stiff competition. Comfort Delgro could miss due to translation weakness.
Commodities: First Resources, Golden Agri and Indofood Agri could disappoint on weaker-than-expected production in Apr-May. Wilmar’s weak 2Q16 is expected due to pressured crush margins in China and volatile markets.
Other potential misses include Raffles Medical Group with Holland V start-up costs and Singpost could see earnings drag from Trade Global and higher depreciation.

Added bancassurance revenue is helpful in an environment of slow revenues. Concerns on 2017-18 NPLs are valid but its 0.95x P/BV valuation has priced in a large chunk of such challenges, in our view.

Continued momentum from Taiwan may not have been priced in. We also see room for further multiple expansion if the company continues to deliver on earnings.

Uncertainties from Alibaba’s JV and new strategy to be unfolded by the incoming CEO could range bound share price in the short- term.

LIM Siew Khee CIMB Securities | Kenneth NG CFA CIMB Securities | http://research.itradecimb.com/ 2016-07-18

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