Singapore Strategy - UOB Kay Hian 2016-07-28: All About Results And Dividends For Now

Singapore Strategy - UOB Kay Hian 2016-07-28: All About Results And Dividends For Now Singapore Strategy BUMITAMA AGRI LTD P8Z.SI CHINA AVIATION OIL(S) CORP LTD G92.SI FIRST RESOURCES LIMITED EB5.SI NERATELECOMMUNICATIONS LTD N01.SI

STRATEGY – SINGAPORE: All About Results And Dividends For Now

  • We highlight stocks that could surprise in their upcoming results and dividends. 
  • Stocks with potential positive surprises include CAO, Neratel and SOG
  • Companies that could disappoint include SMM, SCI, First Resources, Bumitama and Ezion.


All eyes on results and dividends. 

  • With limited external catalyst in the near term, we think the market would focus on results and dividend surprises for direction. The latter is particularly relevant in view of expectations that interest rates could remain lower for longer, especially after Brexit. 
  • This report highlights stocks to keep a close watch on in terms of possible earnings or dividend surprises, and our key picks to navigate this scenario.


Stocks that disappointed have been punished. 

  • Within our coverage, stocks that have disappointed in their recent results include SPH, Ezra, Keppel Corporation and M1. Wilmar also shocked the market with a profit warning on 19 July. Consequently, prices of these stocks were punished by -2% to -6% on the day after the disappointments.

Stocks with potential earnings surprises. 

  • Within our universe, stocks that could surprise on the upside include mid-cap gems such as China Aviation Oil (CAO) and Singapore O&G (SOG). CAO could surprise positively, particularly from its 33%-owned associate due to the opening of Shanghai Disneyland, which could boost traffic volume at Shanghai Pudong Airport. SingPost could disappoint should the group review or write down its goodwill, which amounts to S$493.5m.

Dividends still in focus as interest rates stay lower for longer. 

  • In our view, dividend stocks could be in focus, notwithstanding the strong performance of dividend-yield stocks. We attribute this to the low interest rate environment, weak corporate earnings outlook and lack of positive catalyst for the market. On this basis, we think stocks that could surprise by paying more dividends may enjoy a near-term boost after their results announcements. 
  • Stocks that could cut dividends include SingPost as we believe the group may move towards a dividend payout ratio rather than an absolute dividend per share payment to align dividends to profitability. 
  • Otherwise, stocks to watch out for positive dividend surprises include Neratel (special dividend from disposal gains) and Wing Tai (possible special dividend from sale of 50% stake in Nouvel 18).

Limited upside points to yield to enhance market returns. 

  • After the 7.8% bounce from the Brexit lows, the FSSTI is looking fairly valued. The recent results and profit warnings suggest corporate earnings are also likely to remain lacklustre in 2016, with 2017’s still relatively hazy. 
  • Currently, the FSSTI is trading at 14.9x FY16F PE, which is close to its long-term mean of 15.4x (since 1995). 
  • On a P/B basis, the FSSTI is trading at 1.22x, which is at a -23% discount to the long-term mean P/B of 1.59x but we think a discount is warranted as 2016-17F ROE of 8.4% and 8.5% are lower than the long-term market mean ROE of 11.2%. 
  • Using a blend of PE and P/B and assuming a 10% fair discount would suggest a year-end target of 2,910 for the FSSTI.
  • Our key picks to navigate the mixed 2H16 results include DBS, City Developments, CDREIT, ST Engineering, SingTel, First Resources and Bumitama
  • Among mid-cap gems, we like CAO, Neratel, Valuetronics and ISOTeam
  • Key SELLs include SIA Engineering, M1 and StarHub.


UOB Kay Hian Valuation of Key Stock Recommendations 2016-07-28

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-07-28
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.25 Same 1.25
BUY Maintain BUY 1.85 Same 1.85
BUY Maintain BUY 2.00 Same 2.00
BUY Maintain BUY 0.835 Same 0.835