OVERSEA-CHINESE BANKING CORP (SGX:O39)
CAPITALAND LIMITED (SGX:C31)
KOUFU GROUP LIMITED (SGX:VL6)
FU YU CORPORATION LTD (SGX:F13)
NETLINK NBN TRUST (SGX:CJLU)
1Q19 Results Wrap-Up - In Line; Slight Upward EPS Revision
- 1Q19 results were largely in line, with 50% (4Q18: 40%) of the companies under our coverage meeting expectations and 22% surprising on the upside.
- Post results, we increase our 2019 EPS slightly by 1.1% on upgrades in the banking and aviation sectors.
- We recommend investors stick to a select group of large caps and small caps with a strong economic moat and earnings visibility.
WHAT’S NEW
1Q19 results in line, fewer misses.
- About 50% of the companies in our coverage reported 1Q19 results that were in line with our expectations, an improvement from the 40% in 4Q18. However, the number of beats was slightly lower at 22% vs 25% in 4Q18.
- Notable outperformers were banks and aviation stocks as OVERSEA-CHINESE BANKING CORP (OCBC, SGX:O39), DBS GROUP HOLDINGS LTD (SGX:D05) and SINGAPORE TECH ENGINEERING LTD (ST Engineering, SGX:S63) exceeded expectations.
ACTION
Slight upward revision to 2019F core EPS.
- Post 1Q19 results, we raise our 2019 overall EPS forecast by 1.1% while consensus has increased EPS estimate by 0.3%. The upward revision is due to earnings upgrades in the aviation and banking sectors but moderated by earnings downgrades in the REIT and healthcare sectors.
CORE EPS REVISION BEFORE & AFTER 1Q19 RESULTS
| 2019F Core EPS | 2020F Core EPS | |||||
|---|---|---|---|---|---|---|
| New | Old | % Revision | New | Old | % Revision | |
| Aviation | 0.26 | 0.25 | 1.6 | 0.29 | 0.28 | 2.1 |
| Finance | 1.75 | 1.72 | 2.2 | 1.83 | 1.84 | (0.1) |
| Healthcare | 0.05 | 0.05 | (1.1) | 0.06 | 0.06 | (1.1) |
| LandTransport | 0.15 | 0.15 | 0.0 | 0.16 | 0.16 | 0.0 |
| Media | 0.13 | 0.13 | 1.0 | 0.13 | 0.12 | 2.2 |
| Plantation | 0.10 | 0.10 | 0.0 | 0.12 | 0.12 | 0.5 |
| Property | 0.36 | 0.36 | 0.0 | 0.37 | 0.37 | 0.0 |
| REITs | 0.10 | 0.10 | (1.4) | 0.10 | 0.10 | (1.8) |
| Shipyard | 0.22 | 0.22 | (0.4) | 0.25 | 0.25 | (0.3) |
| Technology | 1.34 | 1.27 | 5.0 | 1.42 | 1.29 | 10.8 |
| Telecoms | 0.18 | 0.18 | 0.8 | 0.20 | 0.20 | 0.8 |
| Others | 0.05 | 0.05 | (1.0) | 0.05 | 0.05 | (0.3) |
| OVERALL | 0.22 | 0.21 | 1.1 | 0.23 | 0.23 | 0.2 |
Banks: DBS, OCBC and UOB topped expectations.
- The banking sector’s 1Q19 results reflected a strong start with net profit growth of 8-11% y-o-y despite the high base in 1Q18. Hikes in mortgage rates helped DBS and OCBC achieve NIM expansion of 1bp (underlying: 5bp) and 4bp q-o-q respectively. Strong trading income was seen across the board. Asset quality remained stable, while CET-1 CARs were resilient at about 14%.
- OCBC’s CET-1 CAR improved 0.2ppt q-o-q to 14.2%, surpassing DBS’s 14.1% and UOB’s 13.9%, making it the strongest in capital adequacy.
- Our positive view on Singapore banks rests on their attractive dividend yields, which differentiate them from regional peers. We see their dividend payout ratios as sustainable due to robust CET-1 CAR and the option of scrip dividend.
Aviation: Mixed bag; STE and SIA above expectations, SIAEC in line, SATS below expectations.
- ST ENGINEERING (SGX:S63)’s earnings beat was primarily due to the recovery in the marine division which recorded a 38% y-o-y rise in earnings and lower losses from US subsidiary.
- SINGAPORE AIRLINES LTD (SIA, SGX:C6L)’s 4QFY19 results were above our expectations as it recorded a tax credit of S$0.1m (4QFY18: S$63m in tax charge), while JV and associate earnings contributed to higher-than-expected PBT.
- SIA ENGINEERING CO LTD (SGX:S59)’s 4QFY19 results were in line, aided by a recovery in Pratt & Whitney’s PW4000 engine checks.
- On the other hand, key earnings miss for SATS LTD. (SGX:S58) was the steep 63% y-o-y decline in earnings from JV and associates, led by food solutions JV (-86% y-o-y) and gateway services JV (- 32% y-o-y).
Telecommunications: In line, Netlink above expectations.
- NETLINK NBN TRUST (SGX:CJLU)’s 4QFY19 results exceeded expectations on the back of a 3.4% q-o-q and 11% y-o-y growth in residential connection and good cost discipline.
- SINGTEL (SGX:Z74)’s 4QFY19 results were in line with the group reporting a 15.1% y-o-y decline in core net profit as the enterprise business margins were affected by pricing pressure and a shift in product mix. Focus in FY20 includes driving successful data monetisation and cost savings/avoidance of S$490m (from optimal staff structure and opex efficiency)
- As for STARHUB LTD (SGX:CC3), results were within our forecast but ahead of street estimates and we maintain SELL as we remain cautious amid its near-term challenging outlook.
Property: CityDev and CapitaLand within expectations, S-REITs largely in line.
- CITY DEVELOPMENTS LIMITED (SGX:C09)’s 1Q19 results were in line with expectations, boosted by strong margins for development projects recognised this quarter and S$144.3m pre-tax divestment gains. The acquisition of a 24% effective stake in Sincere expands CityDev’s geographical presence in China from 3 to 20 cities, and increases its portfolio allocation in China from 9% to 15%.
- CAPITALAND LIMITED (SGX:C31)’s 1Q19 results came broadly in line as lower revenue contributions from residential projects were mitigated by recurring rental income from new acquisitions. CapitaLand continues to reconstitute its portfolio. In 1Q19. It divested S$485m worth of assets and deployed S$760m in new investments (including acquisitions to secure development pipeline and higher-yielding assets which are immediately income-producing).
- Within the S-REIT space, results were largely in line except for ASCOTT RESIDENCE TRUST (SGX:A68U) and CDL HOSPITALITY TRUSTS (SGX:J85) that were slightly below expectations. The latter’s portfolio was dragged by upgrading works and a competitive environment with 1Q19 DPU declining 3.7% y-o-y to 2.09 S cents, forming 22.1% of our full-year estimate.
Other notable results.
- WILMAR INTERNATIONAL LIMITED (SGX:F34)’s 1Q19 results were 20% above our expectations with positive surprises from the tropical oils and sugar segments despite low soybean crushing and commodity prices. In our opinion, Wilmar is likely to sustain its good 1Q19 results performance into 2Q19 with the recovery in crushing margin and higher soybean crush volume. We see further upside to Wilmar’s share price despite the 17% ytd rise as current share price is only factoring in 17x PE for its China operation.
- JAPFA LTD. (SGX:UD2) missed our and street estimates due to low broiler ASP in Indonesia on a temporary supply-demand imbalance as weaker-than-expected poultry demand caused an oversupply. With Ramadhan in Jun 19 expecting to drive demand for poultry and the regulated culling of unhatched DOC, we expect better Indonesian operations in 2Q19.
Investors should selectively accumulate on pull-backs.
- In the large-cap space, we like OCBC (SGX:O39), CapitaLand (SGX:C31), CapitaLand Commercial Trust (SGX:C61U), Keppel REIT (SGX:K71U), NetLink Trust (SGX:CJLU), Wilmar (SGX:F34) and ST Engineering (SGX:S63).
- Mid-cap gems include Koufu Group (SGX:VL6) and Fu Yu (SGX:F13).
- SELL Golden Agri-Resources (SGX:E5H) and StarHub (SGX:CC3).
Singapore Research Team
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2019-05-22
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