Singapore Stocks
2Q17 Earning Financial Reports
CHINA AVIATION OIL(S) CORP LTD
G92.SI
HOTUNG INVESTMENT HLDGS LTD
BLS.SI
MEMTECH INTERNATIONAL LTD
BOL.SI
TIANJIN ZHONG XIN PHARM GROUP
T14.SI
Singapore Stocks To Buy Now
Singapore Strategy 2Q17 Report Card - Pockets Of Solid Outperformances
- 2Q17 results saw a higher number of beats with several sectors including banks and exporters delivering solid earnings.
- Our 2017 market EPS growth forecast has been revised to 8.5% (from 6.6% previously). Following the earnings revision, our target for FSSTI has been revised to 3,410.
WHAT’S NEW
Encouraging 2Q17 with more beats.
- 2Q17 reporting season saw 28% of companies reporting results that exceeded expectations (vs 24% in 1Q17) and 51% meeting expectations (vs 44% in 1Q17). The number of disappointments fell to 21% in 2Q17 compared with a higher 31% in 1Q17.
- The beats were concentrated on banks and technology/exporters whereas notable disappointing results included Raffles Medical and Ezion.
ACTION
Market earnings raised slightly in 2Q17 due to banks and Venture.
- Following the results season, we raise 2017F market EPS growth to 8.5% yoy from 6.6% previously.
- Driving the increase were banks and technology (mainly Venture). Aviation also enjoyed an earnings upgrade post 2Q17, and this was mainly underpinned by SIA.
- Conversely, the healthcare sector saw earnings reduction due to cuts at Raffles Medical on rising competition for foreign patients as well as elevated costs ahead of the group’s new hospitals in China.
- Due to a higher earnings base in 2017, our 2018 market EPS growth has been reduced slightly to 4.4% yoy from 5.2% yoy previously.
Banks – Still delivering in 2Q17.
- OCBC beat expectations and DBS met expectations. Compared with consensus forecast, UOB exceeded expectations.
- DBS and OCBC achieved broad-based loan growth of 1.5% and 1.8% qoq respectively.
- In terms of NIMs, OCBC outperformed DBS, with the former enjoying a 3bp rise in NIMs due to rising SIBOR and SOR whereas DBS’ NIM was steady at 1.74%, as higher NIMs in Singapore were eroded by NIM compression in Hong Kong.
- All three banks enjoyed growth in fee income and asset quality stabilised with NPL ratio inching up marginally by 1bp qoq for DBS, 4bp qoq for UOB and unchanged for OCBC. NPL formation eased yoy for all three banks.
- Our picks are DBS (BUY, target: S$24.85) and OCBC (BUY, target: S$13.38).
Technology/exporters – Firing on all cylinders.
- The technology/exporters under our coverage (Venture, Sunningdale, Memtech and ISDN) had a stellar 2Q17.
- Most enjoyed earnings upgrades, with prominent upgrades made to Sunningdale whose 2017/18 net profits was upgraded by 14%/17% respectively and Venture whose 2017/18 net profits were upgraded by 12%/3% respectively. Memtech also delivered a solid 2Q17 as 2017- 19F net profits were raised 5-10% after the results.
- Our key picks are Sunningdale (BUY, target: S$2.51) and Memtech (BUY, target: S$1.18).
Property – Developers mixed; S-REITs within expectations.
- CapitaLand 2Q17 results were in line whereas City Development came in below our estimates. The latter was due to lower-than-expected contributions on timing of project completions (stronger 2H17 from completion of D’Nest, New Futura, The Brownstone and Commonwealth Towers projects).
- S-REITs’ results were largely in line, with a few beats including Ascott Residence Trust ART (better-than-expected contributions from acquisitions) and Frasers Logistic & Industries Trust FLT (lower withholding taxes on distributable income and interest savings).
- Our preferred picks in S-REITs are FLT, CCT FHT and A-REIT.
Shipyards – SCI within expectations but Keppel below; we prefer SCI.
- Sembcorp Industries SCI met expectations as better earnings from Singapore utilities and gas helped offset continued losses in India. All eyes are on SCI’s strategic review which is expected to take place in late-17, with details available in early-18.
- Sembcorp Marine SMM’s 2Q17 actually exceeded our expectations due to strong core operating margin of ~10%, comparable with 2Q16’s. We believe the improved margin was likely due to stronger contribution from the repair & upgrades segment.
- Lastly, Keppel Corp disappointed as O&M contributions were below expectations.
- Within the shipyard sector, our preferred exposure is SCI, with BUY rating and SOTP target of S$3.57/share.
Notable results – Concerns over Raffles’ overseas expansion.
- A notable result was Raffles Medical. Whilst 1H17 results were only slightly below our forecast, investors were concerned on the extent of 2018/19 start-up costs for its new China hospitals and how it would impact earnings outlook over 2017-19.
- Following the results, we cut 2017/19 net profit by 3-15% and have a HOLD rating after its recent share price correction.
Upward revision of FSSTI target but we remain selective.
- We roll our FSSTI target to 3,410 (from 3,250) after the reporting season but remain selective on FSSTI after its YTD 14% rise. We continue to favour reasonably priced stocks with visible earnings and reasonable yield.
- Our key picks are OCBC, CapitaLand, FLT, A-REIT, FHT, SATS, Thai Bev, Wing Tai and CCT.
- SELL SIA Engineering. We would also tactically topslice SIA as the stock is trading at a premium to our fair value of S$10.10.
- Investors with appetite for mid-caps could consider CAO, Hotung, Memtech and Tianjin Zhongxin.
Andrew Chow CFA
UOB Kay Hian
|
Singapore Research
UOB Kay Hian
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http://research.uobkayhian.com/
2017-08-17
UOB Kay Hian
SGX Stock
Analyst Report
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