Singapore Strategy - UOB Kay Hian 2019-03-11: 4Q18 Results Wrap-Up – Another Weak Quarter

Singapore Strategy - UOB Kay Hian Research | SGinvestors.io KOUFU GROUP LIMITED (SGX:VL6) FU YU CORPORATION LTD (SGX:F13) MEMTECH INTERNATIONAL LTD (SGX:BOL) NETLINK NBN TRUST (SGX:CJLU) SINGAPORE TECH ENGINEERING LTD (SGX:S63)

Singapore Strategy - 4Q18 Results Wrap-Up – Another Weak Quarter

  • 4Q18 results recorded continued weakness, where 35% of the companies missed expectations vs 36% in 3Q18.
  • Post results, we further reduced our 2019F EPS by 1.6%. We recommend investors stick to a select group of large caps and small caps with a strong economic moat and earnings visibility.
  • End-19 FSSTI target of 3,450.



WHAT’S NEW


4Q18 – Continued to be haunted by misses.



ACTION


Further EPS cut reflects cautious outlook.

  • Post the 4Q18 results, we have cut our 2019 EPS by 1.6%, while consensus has lowered EPS estimates by 2.6% ytd, reflecting a cautious outlook on the market. This reflects our modest expectation of 8% upside to our FSSTI target of 3450.

Banks – Mixed bag, DBS and UOB in line, OCBC missed.


Aviation – Singapore Airlines (SIA) topped expectation while SIA Engineering (SIAEC) and ST Engineering (STE) were below.


Telecommunications – Mixed bag, Starhub below expectations.

  • For 3QFY19 results, SingTel (SGX:Z74) was in line while Netlink was slightly below expectations. Conversely, StarHub (SGX:CC3)’s 4Q18 results missed expectations on the back of a declining revenue base and EBITDA margins. Service revenue for the sector in 2018 contracted 5% y-o-y, given intense prepaid competition, lower voice revenue as well as a higher mix of SIM-only plans (specifically for SingTel and StarHub).
  • Sector EBITDA margin contracted 2ppt to 32% in 2018 amid higher customer acquisition costs, a notable shift towards SIM-only post-paid plans and higher marketing expenses in the quarter. We foresee sector earnings declining 18% in 2019 (2018: -28% y-o-y) before stabilising in 2020.
  • We have BUYs on both NetLink NBN Trust (SGX:CJLU) and SingTel but the former is our top sector pick. See report: NetLink NBN Trust - 3QFY19 Moderation In Growth For Non-Residential.

Property – Developers missed, S-REITs largely in line.

  • City Developments (SGX:C09)’s 4Q18 results missed expectations due to the impact from higher impairment losses on US hotels and lower profits from property development.
  • On CapitaLand (SGX:C31), 4Q18 results came broadly in line, on the back of a better operating performance (underpinned by recognition from China residential) as well as higher disposal and revaluation gains. CapitaLand is our preferred pick among large-cap property stocks, for its diversified asset base, low exposure to the Singapore residential (7.3% GAV) segment, and high recurring earnings (79% of FY18 EBIT). See report: CapitaLand - Extending Its Wings.
  • Within the S-REIT space, notable results came from CapitaLand Mall Trust (SGX:C38U) and CDL Hospitality Trusts (SGX:J85).
    • CapitaLand Mall Trust posted a 4Q18 DPU of 2.99 S cents (+3.1% y-o-y), bringing 2018 DPU to 11.50 S cents. Revenue increased, mainly due to the acquisition of the remaining 70% stake in Westgate (ie which turned in positive rental reversion of +0.6% for 2018 (vs -0.5% for 9M18)). See report: CapitaLand Mall Trust - 4Q18 Above Expectation.
    • As for CDL Hospitality Trusts, 2018 DPU came in at 9.26 S cents (+0.4%), which is above our expectations. The Singapore portfolio continues to see encouraging improvements (ie with SG RevPAR ex. Orchard Hotel seeing growth of 4.3%), supported by corporate demand, additional business from ASEAN Summit meetings, and Chinese/Indian inbound leisure travelers. See report: CDL Hospitality Trusts - 4Q18 Above Expectation.

Notable results – ST Engineering and Japfa.

  • On a more positive note, the star outperformer was Japfa in 4Q18 as its full-year core net profit beats our expectation by 12%. Core PATAMI soared 676% on a low base of 2017 and was underpinned by the strong turnaround in the Animal Protein Other (APO) segment and solid performance of the Indonesian poultry segment. We raise our 2019-20 net profit forecasts by 5.4-5.8% and reiterate BUY with a higher SOTP-based target price of S$0.98. See report: Japfa - Concerns Overblown On African Swine Flu; Valuation Is Compelling.
  • ST Engineering’s notable results was due to its forward guidance on orderbook recognition, which should lead to at least a 6% rise in top-line growth, excluding the consolidation of MRAS. This provides scope for strong earnings growth in 2019.

End-19 FSSTI target of 3,450.






K Ajith UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2019-03-11
SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950
BUY MAINTAIN BUY 0.285 SAME 0.285
BUY MAINTAIN BUY 1.330 SAME 1.330
BUY MAINTAIN BUY 0.920 SAME 0.920
BUY MAINTAIN BUY 4.060 SAME 4.060



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