Singapore Market Strategy - UOB Kay Hian 2018-03-05: 4Q17 Results Wrap – In Line; Sporadic Dividend Surprises

Singapore Market Strategy - UOB Kay Hian 2018-03-05: 4Q17 Results Wrap – In Line; Sporadic Dividend Surprises Singapore Stock Market Market Strategy & Outlook BANYAN TREE HOLDINGS LIMITED B58.SI CITYNEON HOLDINGS LIMITED 5HJ.SI CITIC ENVIROTECH LTD. CEE.SI WING TAI HLDGS LTD W05.SI

Singapore Market Strategy - 4Q17 Results Wrap – In Line; Sporadic Dividend Surprises

  • 55% of the 4Q17 results are in line, with sporadic dividend surprises. Our 2018 market EPS growth forecast is up to 8.4% (from 8.1%) owing to a lower base in 2017.
  • We remain selective and hopeful for earnings upgrades to drive the market further.


4Q17 broadly in line, with more misses compared to 3Q17. 

  • The 4Q17 results season ended with 55% of the companies meeting expectations (62% in 3Q17). However, the number of misses in 4Q17 was higher at 31% compared to only 22% in 3Q17. Sectors which disappointed expectations included shipyards, aviation and telecommunications.
  • There were some sporadic positive dividend surprises (including DBS, City Development, CapitaLand, Memtech, Sunningdale and Raffles Medical).


Upward revision of 2018 market EPS but due more to a low base effect. 

  • Following the results, we have raised our 2018 market EPS growth forecast to 8.4% y-o-y from 8.1% previously. However, this was mainly due to a low base in 2017 market EPS growth.
  • Sectors that enjoyed earnings upgrades include the banking and export (Venture) sectors. Conversely, shipyards, plantations and telecommunications endured the most number of misses.

Banks – Surpassing expectations; dividends galore. 

  • Both DBS and OCBC exceeded expectations. Banks have guided for loan growth in the high single digits and we expect NIM expansion to continue into 2018. The pleasant surprise was from the dividend side, as DBS in particular, surprised with a special dividend. 
  • Singapore banks are also well capitalised, with DBS’ CET-1 CAR at 13.9% and OCBC’s at 13.1%. 
  • Our preferred pick remains OCBC (BUY, Target: S$14.90) followed by DBS (BUY, Target: S$30.40) and the catalyst for OCBC is the potential IPO or a trade sale of a 30% stake in Great Eastern Life Malaysia (GELM).

Telecommunications – Generally below. 

  • Only M1 delivered in 2017 as Singtel and StarHub underperformed estimates. 
  • Singtel’s 3QFY18 performance disappointed on lower contributions from its regional associates Telkomsel and Bharti Airtel. The star in its stable was Optus, which enjoyed a net addition of 125,000 post-paid mobile subscribers and grew EBITDA by 14.5% y-o-y. 
  • StarHub’s 4Q17 performance was way below our and market expectations. The group continued to face mounting pressure on its mobile and pay-TV businesses with revenue from the two businesses contracting 3.5% and 7.5% yoy respectively. EBITDA margin contracted 7ppt y-o-y to 16.9% due to hefty handset subsidies and one-off provisions. We cut our 2018-19 net profit forecasts for StarHub by up to 12% post the disappointing results.

Technology/exporters – Venture shines again. 

  • Venture’s 4Q17 results exceeded market expectations but came in line with our estimates. 
  • Revenue growth continued to be driven by the test, medical and others (TMO) segment (+84% y-o-y) which we believe was due to Device I. The higher R&D revenue in 4Q17 lifted gross margin; we expect it to sustain at 24-25% in 2018. A read through of Supplier X’s production suggests that 1Q18 core earnings are expected to be similar to 4Q17’s. We make no change to our earnings estimates. 
  • Sunningdale’s 4Q17 results were in line but its final DPS of 4.5 S cents/share exceeded expectations. 
  • Memtech delivered in-line results and surprised on dividends.

Property – No major surprises from developers but mixed on S-REITs. 

  • City Developments (93% of full-year estimate) and CapitaLand reported results that were broadly within expectations. 
  • City Dev remains optimistic on prospects for the Singapore residential property segment, expecting minimal impact from the increased buyer’s stamp duty (BSD). Maintain BUY on City Dev with RNAV-based target of S$14.03. 
  • CapitaLand’s 4Q17 performance was in line; 4Q17 PATMI of S$267.7m was down 37.8% y-o-y due to lower handover of units for development projects in China. 
  • Keppel REIT and CapitaLand Commercial Trust (CCT) both missed expectations, with the former due to lower-than-expected rental reversion in the Singapore office space and the latter due to divestments of One George Street, Golden Shoe carpark and Wilkie Edge. 
  • CapitaLand Mall Trust outperformed estimates owing to higher occupancies at Bugis Junction and The Atrium@Orchard. We still overweight the SREITs as we see the potential for S-REITs’ spread over risk-free rate of 3.5% compressing to 2.8% in a growth or upcycle environment. 
  • Key picks in S-REITs are CCT, CDREIT and A-REIT.

Shipyards – Below expectations; SMM was a complete miss. 

  • While all the shipyards missed expectations, Sembcorp Marine (downgraded to HOLD) was a complete miss, and excluding several one-offs, we estimate that its core EBIT was close to breakeven. 
  • For Sembcorp Industries, the miss was attributable to its India assets and marine segment but the main focus was its strategic review, where emphasis was on its utilities operations, including the target divestment of S$0.5b over the next two years. 
  • Keppel Corp remains our top pick for a gradual recovery of the O&M sector and asset reflation play.

Aviation – SIA, a standout performer. 

  • Within the sector, SIA outperformed market expectations significantly. Its 9MFY18 headline net profit exceeded consensus’ full-year estimate of S$593m by 20%. The strong performance was underpinned by SIA Cargo (yields rose by 12% vs our estimate of 5.1% growth) and Scoot, which enjoyed a 48% y-o-y rise in operating profit. 
  • Otherwise, ST Engineering’s earnings were in line and SATS’ was marginally below, primarily due to JV earnings falling short of expectations. SATS is our top pick in the sector.

2018 FSSTI target of 3,530 

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-05
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