Singapore Stock Market Strategy
BANYAN TREE HOLDINGS LIMITED
B58.SI
CITYNEON HOLDINGS LIMITED
5HJ.SI
GL LIMITED
B16.SI
SEMBCORP INDUSTRIES LTD
U96.SI
SINGTEL
Z74.SI
Singapore Strategy - 3Q17 Report Card In Line But Upward Earnings Revision In 2018
- 62% of 3Q17 results were in line, with some positive surprises.
- We raise 2018 market EPS growth forecast to 6.5% (from 5.2%) on good performances from banks, telcos and Venture.
WHAT’S NEW
3Q17 performance mostly in line, but less beats.
- The 3Q17 reporting season was mainly in line, with 62% within expectations (2Q17: 51%), 16% exceeded (2Q17: 28%) and 22% below estimates (2Q17: 21%).
- Notable results included Venture Corp, which far surpassed market expectations. Genting Singapore’s 3Q17 results beat expectations amid a better-than-theoretical win rate, significant bad debt recoveries and improved VIP volume.
- DBS disappointed with additional NPL provisions of S$1.7b for its oil & gas (O&G) support services loans.
- SingTel’s 2QFY18 results were in line but its special dividend of only 3 S cents/share (vs consensus of 8-13 cents) was too conservative, in our view.
ACTION
Upward revision of 2017-18F market EPS.
- Post the reporting season, we raised our market EPS growth to 6.7% yoy for 2017 (previously 5.6%) and 6.5% yoy for 2018 (previously 5.2%).
- Leading the upward revision in 2018 were sectors such as banks, aviation, telecommunications as well as technology (Venture Corp).
- Conversely, sectors that are currently being disrupted by technology, such as SPH and ComfortDelGro, continued to suffer earnings downgrades.
Banks: Healthy operating results; clean-up at DBS.
- Banks reported mixed results as OCBC Bank beat expectations while DBS Group came in below.
- DBS cleaned up its O&G loan exposure by taking on additional NPLs of S$1,741m. The group wrote back S$850m in surplus general provisions that are above MAS and FRS 109 requirements to cushion the additional specific provisions.
- OCBC’s 3Q17 net profit of S$1,057m beat expectations due to better-than-expected contributions from Great Eastern.
- Overall, Singapore banks’ net interest income expanded 9-14% yoy and fee income rose 12-14% yoy. OCBC’s NIM improved 1bp qoq, helped by the narrowing gap between 1M- and 3M-HIBOR from 31bp to 20bp during the quarter.
- After the results, we raised our 2017 net profit estimate for OCBC by 2.5% and cut DBS’ by 4.9%. Our preferred pick remains OCBC Bank (Rating: BUY/ Target Price: S$13.56, see report: Oversea-Chinese Banking Corporation (OCBC SP) - UOB Kay Hian 2017-10-27: 3Q17 Impact From Oil & Gas NPLs Fades) followed by DBS (Rating: BUY/ Target Price: S$24.40, see report: DBS Group Holdings (DBS SP) - UOB Kay Hian 2017-11-07: 3Q17 Brutal Cleansing Of Exposure To O&G).
Technology/exporters: Sparkling results from Venture.
- Venture Corp was the star performer within our universe in 3Q17. Net profit in 3Q17 rose 135% yoy, vastly outperforming expectations. Besides the 50% yoy rise in turnover, earnings were boosted by a surge in net margin to 10.5% (3Q16: 6.7%) due to its shift towards more complex products and collaborative partnerships with strategic customers. We raise 2017-19 net profit forecasts by 22-42%. Maintain BUY and S$23.50 target price. (see report: Venture Corporation (VMS SP) - UOB Kay Hian 2017-11-06: 3Q17 Results Above Expectations; Making The Old Economy New)
Property: Developers were below but S-REITs within expectations.
- Both City Dev and CapitaLand reported results that were below expectations.
- City Dev was impacted by the absence of JV contributions and lower divestment gains. More importantly, management is positive on Singapore’s property market, backed by positive pent-up demand from years of subdued market conditions. Maintain HOLD and RNAV-based target price of S$11.40 (see report: City Developments (CIT SP) - UOB Kay Hian 2017-11-10: 3Q17 Results Below Expectations; Expect More M&As Going Forward).
- CapitaLand’s 3Q17 net profit was marginally below expectations. Operating net profit fell 18.8% yoy to 204.5m on fewer handovers of residential projects in China and the impact of divestment of commercial assets in Singapore.
- CapitaLand is our preferred large-cap developer on valuation grounds (Rating: BUY/ Target Price: S$4.30, see report: CapitaLand (CAPL SP) - UOB Kay Hian 2017-11-09: 3Q17: Ready To Pounce). Other developers we like include Wing Tai and Guocoland.
- With the exception of Keppel REIT and CDLHT, all the other S-REITs performed in line in 3Q17. We remain OVERWEIGHT on S-REITs as we see the potential for S-REIT’s spread over risk-free rate of 3.5% compress to 2.8% in a growth or upcycle environment, which suggest a further 15% upside.
- Our preferred picks among S-REITs are CapitaLand Commercial Trust, Frasers Hospitality Trust, Ascendas REIT.
Shipyards: Below expectations but industry bottoming out.
- With the exception of Sembcorp Industries, results of both Keppel Corp and Sembcorp Marine were below expectations.
- Keppel Corp’s 3Q17 net profit was affected by lower-than-expected property and infrastructure contributions. Core earnings showed signs of a turnaround and we are cautiously optimistic.
- Sembcorp Marine was impacted by revenue reversals and inventory write-offs. Although net gearing remained elevated, this is expected to decline to 1.0x after the receipt of US$500m from Borr.
- Our preferred exposure in shipyards is Keppel Corp (Rating: BUY/ Target Price: S$8.35, see report: Keppel Corporation (KEP SP) - UOB Kay Hian 2017-10-20: 3Q17 Earnings Bottom Out; Upgrade To BUY) as the O&M sector is bottoming and the group is on the cusp of embarking on its strategy to become a property and fund management giant.
Aviation: SIA outperformed expectations in 3QFY18 but we like SATS.
- SIA outperformed expectations but management remains cautious on yields. Maintain HOLD and raise our target price to S$11.10 (from S$10.10, see report: Singapore Airlines (SIA SP) - UOB Kay Hian 2017-11-09: Analyst Briefing Takeaways ~ Cargo Recovery Intact, 3QFY18 Should See Further Improvement).
- SATS is our top sector pick (Rating: BUY/ Target Price: S$6.00, see report: SATS (SATS SP) - UOB Kay Hian 2017-11-10: 2QFY18 Transforming Into A Global Player). Its 2QFY18 earnings were in line with our estimate but beat street estimate, with the bulk of growth coming from JV & associates, underpinned by organic growth and recent acquisitions. We think the market has under-appreciated SAT’s upcoming JV with Turkish Airways, which will give it exclusive catering rights to Turkish Airlines, at what would be the largest kitchen at the largest airport.
End-2018 Straits Times Index (FSSTI) target of 3,530 but upside to 3,730 if there are more earnings upgrades.
- Our themes for 1H18 include multi-year growth drivers, reflation picks, quality laggards and stocks with earnings surprises/specific catalysts.
- In the large-cap space, we like OCBC, Keppel Corp, Sembcorp Industries, CapitaLand, Frasers Hospitality Trust, CapitaLand Commercial Trust , Ascendas REIT, SATS, SingTel, Venture and Wing Tai.
- Mid-cap gems include Cityneon, GL Limited and Banyan Tree.
- SELL SPH and top-slice CapitaLand Mall Trust.
Andrew Chow CFA
UOB Kay Hian
|
Singapore Research Team
UOB Kay Hian
|
http://research.uobkayhian.com/
2017-11-18
UOB Kay Hian
SGX Stock
Analyst Report
0.920
Same
0.920
1.500
Same
1.500
1.185
Same
1.185
3.870
Same
3.870
4.530
Same
4.530
