Singapore Market Focus - DBS Research 2017-05-23: Earnings Season Wraps Up

Singapore Market Focus - DBS Vickers 2017-05-23: Earnings Season Wraps Up Singapore Stocks Market Straits Times Index P/E STI Support & Resistance

Singapore Market Focus - Earnings Season Wraps Up

More upside than downside surprises 

  • The 1Q17 results season that just ended saw 29% (previously 16% in 4Q16) of companies under our coverage reporting earnings that were above expectations. At the same time, a lower 19% (previously 28% in 4Q16) reported earnings that came in below expectations.
  • The traditionally stable SREITs sector witnessed several trusts delivering better-than-expected DPUs. These were Ascendas REIT, CapitaLand Retail China Trust, CDL Hospitality Trusts, Frasers Logistics & Industrial Trust, Mapletree Greater China Commercial Trust, Manulife US Real Estate and OUE Hospitality Trust.
  • The industrials sector saw the highest percentage of earnings disappointments. Noble Group was a major drag as the company reported a core loss of USD125m for the quarter. We now forecast a net loss of USD347m for FY17F and USD21m for FY18F due to Noble’s inability to effectively hedge the price risk in its coal business, and still negative operating cash flows.
  • Within the industrials sector, results from Pan-United, Singapore Post and ST Engineering were also weaker-than-expected. Despite this, we maintain our positive outlook for ST Engineering and even raised our TP to S$4.12 (prev. S$3.80). 
  • ST Engineering remains in our Model Portfolio. The company has guided for a strong 2Q17 that could see profit before tax rising at least 20% q-o-q. We think the Singapore defence contract secured in March this year could be worth around S$1bn. The order book currently stands at a record S$13.3bn.

Downward earnings revision trend resumes 

  • The 1Q17 results season saw a resumption of the downward earnings revision trend for stocks under our coverage. FY17F earnings were revised down by 2.9% while FY18F earnings were cut by 1.5%. This is against earlier optimism that the earnings upward revision witnessed in 4Q16 results season could be sustainable given the better-than-expected economic data trend YTD.

Technology and SREITs enjoyed earnings uplift 

O&G, commodities, consumer goods and services sectors suffered earnings cuts 

  • A closer examination reveals that the bulk of the earnings cuts came from the industrials sector because of one single stock, Noble Group, which had reported losses. Ex-Noble Group, there was a 1% cut to FY17F earnings and 0.6% cut for FY18F. 
  • The O&G sector also suffered earnings cut through the likes of Ezion and PACC offshore as the operating environment remained weak.
  • The consumer services sector was dragged down by SIA whose quarterly numbers were hit by weak passenger yields and non-operating charges. Meanwhile, Japfa dragged down the consumer goods sector after it reported weaker-than-expected earnings due to lower contributions from Japfa Comfeed Indonesia and Animal Protein outside Indonesia.

STI - Mid to high single digit EPS growth 

  • For stocks under our coverage, we now forecast EPS growth of 12.5% for 2017F and 8.1% for 2018F. 
  • Our STI EPS growth forecast is in the mid to high single digit at 9.4% (consensus 6%) for 2017F and 6.4% (consensus 7.2%) for 2018F.

STI – Recovery optimism factored in for now, near-term pullback to 3150 

  • Following the modest cut to FY17F and FY18F earnings post 1Q17 results season, we lower STI’s forward PE levels by c.21pts for FY17F and c.13pts for FY18F.

  • STI currently trades at just slightly below 14.02x (+0.25SD) blended FY17/18F PE, even as the earnings revision trend has turned negative again. 
  • We maintain our view that the STI has priced in the YTD recovery optimism. While it is possible for the STI to head for 3350 by year-end, we keep our view for near-term resistance at 3250 with pullback support at 3150.

Yeo Kee Yan CMT DBS Vickers | http://www.dbsvickers.com/ 2017-05-25
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.350 Same 1.350