4Q16 Report Card - UOB Kay Hian 2017-03-02: A Pick-up In Beats

4Q16 Report Card - UOB Kay Hian 2017-03-02: A Pick-up In Beats

4Q16 Report Card - A Pick-up In Beats

  • 4Q16 results saw a pick-up in results that exceeded expectations. However, market 2017 earnings were reduced again, with cuts in banks, shipyards and telcos. 
  • We remain selective on the FSSTI, buying laggards and solid blue chips together with some quality and inexpensive mid caps.


More pleasant surprises. 

  • 4Q16 results saw a higher number of results that exceeded expectations; 32% in 4Q16 compared with 11% in 3Q16. 
  • On the other hand, 26% of the results disappointed in 4Q16, which is little changed compared with 25% in 3Q16.


  • Still in cutting mode. As expected, market earnings continued to trend down. 
  • Our latest 2017 market EPS growth post 4Q16 is 5.6% yoy, which is lower than the 7.8% yoy before the 4Q16 reporting season.
  • Sectors that had earnings downgrade include banks, shipyards and telcos.

Banks – Slight miss but focus on asset quality and NIM. 

  • Both DBS’ and OCBC’s 4Q16 results were slightly below due to higher specific provisions for oil & gas. 
  • DBS’ loans grew 3.9% qoq, underpinned by regional corporate loans and gains in market share for Singapore housing loans. NIM contracted 6bp qoq to 1.71%. Deposits expanded S$23b or 7.1% qoq, driven mainly by US dollar-denominated fixed deposits. 
  • On OCBC, we expect its credit costs to taper off in 2018 and normalise in 2019. OCBC’s loan growth rebounded by 5.5% qoq in 4Q16 after suffering weak demand and a contraction in trade loans in 1H16. Organic loan growth was at 2% qoq in constant currency terms - excluding impact from the acquisition of Barclays’ wealth management business. NIM edged up 1bp qoq to 1.63%.

Telcos – StarHub cuts dividends as only Singtel delivered. 

  • StarHub’s 4Q16 results were below expectations due to a combination of higher handset subsidies, less grants from NGNBN and a one-off provision for restructuring. As a result, the group reduced its dividend guidance from 5 S cents to 4 S cents/quarter for 2017. We maintain BUY but with a lower DCF-based target of S$3.22 (previously S$3.55). 
  • Singtel continued to deliver, with 3QFY17 results in line with expectations. The Singapore consumer business saw growth in broadband and pay-TV, as well as cost containment. For its regional mobile associates, Telkomsel’s mobile subscribers expanded 14% yoy while data revenue grew 28% yoy. The IPO of NetLink Trust could provide special dividends of up to 17.5 S cents/share and has to be completed by Apr 18.

Property – Developers shine; S-REITs within expectations. 

  • Both City Dev and CapitaLand exceeded our estimates. 
  • City Dev’s results came in ahead of expectations (7%) due to higher-than-expected earnings contribution from development property in China. However, we downgraded City Dev to HOLD as a result of its strong share price performance. 
  • CapitaLand’s FY16 results exceeded our estimates by 15% on higher contributions from China residential projects and shopping malls. Stripping out exceptionals, 4Q16 operating PATMI grew 16.0% yoy due to a stronger operating performance. 
  • As expected, most S-REITs’ results were in line, with the exception of CDREIT, whose results were above expectations due to better-than-expected performances in New Zealand and Japan. However, domestic RevPAR saw continued weakness on waning corporate demand. HOLD but with a higher target price of S$1.47 (previously S$1.41). 
  • Our key picks in S-REITs are FLT, CCT and A-REIT.

Shipyards – Generally better but impairment at Keppel’s O&M. 

  • Keppel Corp exceeded our estimates, with a surprise mainly from an expansion in O&M operating margin and higher-than-expected property earnings. This is despite a S$227m impairment on its O&M unit. 
  • As for SCI, core earnings were above our expectations. Utilities’ earnings remained robust, helped by one-offs from China and the UK. India’s loss was largely due to start-up losses from its second power plant SGPL, and was a disappointment. Marine earnings swung back into the black for the quarter and SMM’s results were in line.

Notable results – Venture and Hock Lian Seng. 

  • Venture’s 4Q16 results were above expectations. Revenue grew 23.1% yoy while gross margin improved 1.7ppt yoy to 23.1%. The slight disappointment was that its final DPS was unchanged at 50 S cents/share. We remain BUYers but have raised our PE-based TP to S$12.40 (from S$11.00 previously). 
  • Hock Lian Seng’s FY16 core earnings were in line, but what surprised us pleasantly was its special dividend of 10.0 S cents/share. Together with a final DPS, the total DPS is 12.5 S cents, which imply a dividend yield of more than 20%. Reiterate BUY and target price of S$0.69, based on 7.6x ex-net cash 2017F PE (including special dividends) with a 2016 dividend yield of over 20%.

Stay selective. 

  • We remain selective on FSSTI as earnings continued to be downgraded.
  • However, downside could be limited as valuations are undemanding. We continue to favour laggard solid stocks with visible earnings and reasonable yield. 
  • Our key picks are OCBC, SingTel, Venture, CapitaLand, FLT, A-REIT, SCI and CCT. 
  • SELLs include SIA Engineering and Wilmar. Investors should also switch out of SATS into STE after the outperformance of SATS. 
  • Investors with appetite for mid caps could consider CAO, Hock Lian Seng and ISOTeam.

Andrew Chow CFA UOB Kay Hian | Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-03-02