Singapore Strategy
OVERSEA-CHINESE BANKING CORP
O39.SI
SINGTEL
Z74.SI
SINGAPORE TECH ENGINEERING LTD
S63.SI
VENTURE CORPORATION LIMITED
V03.SI
FRASERS LOGISTICS & IND TRUST
BUOU.SI
Singapore Strategy - 2Q16 Report Card – From Bad To Worse
- 2Q16 results disappointed as more companies under-delivered and cut dividends.
- Stay selective in companies with resilient earnings and dividend yields amid the uncertain outlook.
WHAT’S NEW
- Another quarter to forget. The proportion of disappointing results within our coverage crept up to 37% in 2Q16 from 34% 1Q16. About 48% reported in-line results vs 58% in 1Q16.
- On a brighter note, 15% exceeded estimates and these were company-specific rather than sector factors as headwinds continued to pressure top-line growth.
- Other than resilient sectors such as healthcare, land transport and S-REITs, most sectors suffered declines in turnover.
ACTION
- Further cut to 2016F market EPS growth; recovery in 2017 but risks persist.
- Our FSSTI EPS growth forecast for 2016 fell to -8.1% from -2.4% after the 2Q16 reporting season.
- Sectors that saw downward revisions include aviation, plantation, shipyards and property development.
- On a lower base, we forecast 2017 market EPS to recover by 7.1% (from 6.4%) but we see potential downside as the external environment remains challenging (Singapore’s July NODX fell 10.6% yoy).
Banks: In line but overhang on asset quality.
- While DBS’ results exceeded expectations and OCBC’s were in line, all eyes were on asset quality especially after the announcement of Swiber going into judicial management.
- DBS enjoyed loan growth of 3.9% qoq on higher corporate loans and trade loans. OCBC’s loan growth continued to contract by 1.2% qoq due to a steep 21.9% qoq decline in trade loans.
- DBS’s NIM expanded 2bp qoq to 1.87% due to an improvement in cost of deposits and CASA ratio while OCBC’s NIM fell 7bp. NPLs increased across the board (DBS: +21% qoq, OCBC: +12% qoq), with the increase primarily from the O&G sector.
- Until the dust settles on the uncertainties over the banks’ exposure to O&G sector, our preferred pick is OCBC, which at 0.99x P/B is trading close to -2SD.
Telcos: Mixed; all eyes on potential new entrant.
- The sector turned in mixed performances in 2Q16.
- StarHub exceeded expectations but this was mainly due to a gain of S$9.5m from its investment of a 9.1% stake in mm2. ARPU for pre-paid remained under pressure and pay-TV subscribers contracted by 10,000 in 2Q16.
- M1 was below estimates due to: a) mobile revenue falling 2.2% yoy on a steep decline in voice & SMS revenue, and b) pre-paid ARPU contracted by a severe 17.4% yoy. We have SELLs on StarHub and M1.
- Singtel’s 1QFY17 results were slightly above our expectation as Telkomsel and Bharti Airtel outperformed with contributions rising 31% and 5.1% yoy respectively.
- Singtel is our top pick in the sector.
S-REITs: Disappointment in hospitality; other segments in line.
- The hospitality disappointed as the strong growth in tourist arrivals did not translate into stronger earnings.
- CDLH-T’s earnings were impacted by weaker corporate demand and asset enhancement initiatives at M Hotel and Grand Copthorne Waterfront Hotel. Consequently, we downgraded CDLH-T to HOLD after the recent share price strength.
- Both CCT and K-REIT were in line with expectations.
- We are OVERWEIGHT on the sector and our key picks include Frasers Logistics Trust (FLT), A-REIT and K-REIT.
Aviation: SATS a bright spot; others primarily below.
- SATS had a good start to 1QFY17, with operating margin rising 2.3ppt yoy, likely due to TFK’s reversal to the black, the resumption of the JetStar Asia contract and a fall in operating expenses.
- SIA was below expectations on weak pax yield and higher non-fuel costs. Following the results, we cut our FY17 net profit forecast by 38% to S$622m. Maintain HOLD with a lower target of S$10.20 (previously S$11.50).
- As for ST Engineering, we remain confident of its longer-term prospects as its enhanced capabilities, strong financials and diversified businesses position the group well in an environment of uncertain outlook. ST Engineering remains on our BUY list with a DDM-based target price of S$3.60.
Safety in dividends but watch out for cuts.
- 2QFY16 results saw more dividend cuts than increases.
- Unsurprisingly, shipyard companies such as Keppel Corp, SMM and SCI slashed interim dividends by 20-63%.
- Stocks which delivered higher interim dividends include CCT, CMT, Mapletree Ind (MIT) and ComfortDelGro (CD).
- We have a BUY on CD as management continues to deliver steady growth despite an increasingly challenging environment. We like its strong operating cash flow and strong financials, which could allow the group to raise dividend payouts, in our view. In addition, the potential de-listing of SMRT could also accord CD a scarcity premium being the only listed land transport operator in the FSSTI.
Be selective.
- We remain selective on the FSSTI as earnings outlook continues to be challenging and valuations appear fair.
- Our key picks are OCBC, ST Eng, Singtel, Venture, FLT, K-REIT, A-REIT, City Dev and Wing Tai.
- SELLs include SIA Engrg, MIT, StarHub and M1.
KEY STOCK RECOMMENDATIONS
Andrew Chow CFA
UOB Kay Hian
|
Singapore Research Team
UOB Kay Hian
|
http://research.uobkayhian.com/
2016-08-18
UOB Kay Hian
SGX Stock
Analyst Report
10.48
Same
10.48
4.70
Same
4.70
3.60
Same
3.60
1.08
Same
1.08
9.82
Same
9.82
