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www.dbsvickers.com
Ed: JS / sa: YM
STISTISTISTI :::: 2222,,,,999947474747....03030303
Analysts Janice CHUA +65 6682 3692 YEO Kee Yan +65 6682 3706 [email protected] [email protected]
LING Lee Keng +65 6682 3703 Singapore Research Team [email protected]
Key Indices
CurrentCurrentCurrentCurrent % Chng 1 day% Chng 1 day% Chng 1 day% Chng 1 day
STI Index 2,947.03 -0.5%
FS Small Cap Index 417.13 -0.3%
USD/SGD Curncy 1.40 -0.6%
Daily Volume (m) 1,562
Daily Turnover (S$m) 1,233
Daily Turnover (US$m) 878
Source: Bloomberg Finance L.P. Market Key Data – DBS Coverage
(%) EPS Gth Div Yield
2014 7.2 3.9
2015F 2.8 3.9
2016F 8.7 4.0
(x) PER EV/EBITDA
2014 14.4 10.9
2015F 14.1 11.1
2016F 12.9 10.2
Source: DBS Bank Stock Picks
Price ($) 8 Oct 15
Target Price ($)
Rcmd
Capitaland 3.02 3.73 Buy
Ezion 0.70 1.00 Buy
Frasers Centrepoint Trust 1.955 2.05 Buy
Mapletree Greater China Commercial Trust*
0.955 1.12 Buy
Pacific Radiance 0.370 0.42 Buy
Riverstone Holdings 1.705 2.15 BUY
Sheng Siong 0.845 1.00 Buy
ST Engineering 3.16 3.40 Buy
Thai Beverage 0.685 0.81 Buy
Venture Corporation 8.11 9.00 Buy
Sembcorp Industries 3.73 4.00 Buy
Singapore Airlines 10.65 11.50 Buy
Source: Bloomberg Finance L.P; DBS Bank
DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity
12 Oct 2015
Singapore Market Focus
Singapore Strategy
Refer to important disclosures at the end of this report
Ride the bounce • Three key events to watch in October: MAS policy
meeting, GDP and 3Q earnings report card
• Preview of 3Q results – earnings cuts could continue
• REITS offer temporary shelter; depressed valuations in oil and gas sector provide trading opportunities
• Stay with stocks with earnings visibility, dividend upside potential and restructuring plays
Three key events to watch. Asia and emerging markets
rebounded strongly in the past week as rate hike expectations were
pushed back. DBS Economist sees the initial FED lift off in 1Q16
(previously Dec 2015) and for rates to increase twice (instead of 4
times) in 2016. Closer home, the three important events that
investors will be following closely in October are: (1) Singapore’s
3Q GDP which could point to a technical recession; (2) MAS could
ease its monetary policy at its policy meeting; (3) 3Q reporting
season which is unlikely to inspire. Market volatility is in full swing,
this time to the upside. We maintain our near term STI trading
range of 2750-3050 and 12-month target at 3200.
3Q preview : most sectors could disappoint except for
transport. With macro uncertainties and the shadow of a technical
recession in 3Q, investors are likely to cast a wary eye on the
upcoming results season. For 3Q results, we will be keeping an eye
on 1) provision and NPLs for banks; 2) margins for downstream
consumer and plantation sectors and the rig builders; 3) forex
impact on plantations and SREITs; and 4) contract
rescheduling/cancellations for rig builders which could point to
further downgrades for 2016. The only bright spot could come
from better earnings from airlines/shipping, as we expect the
positive impact of lower fuel costs to filter through.
Select stocks with earnings visibility or dividend upside - Thai
Bev, , Riverstone, Sheng Siong, Sembcorp Industries, ST
Engineering, Capitaland, Singapore Airlines, and Venture
Corporation. With the potential rate hike likely to be out of the
way till 2016, REITS offer a temporary shelter for investors seeking
yields. Our picks are stocks with sustainable growth - Mapletree
Greater China Trust and Frasers Centrepoint Trust.
Depressed valuations in oil/gas sector throw up trading
opportunities. Oil prices are near the bottom and the risk is on
the upside as we approach a seasonally stronger quarter on winter
demand, while OPEC’s meeting on Dec 4 is the wild card.
Valuations of oil and gas stocks are near their GFC lows. Among
the small caps, we prefer companies which have lower refinancing
risks and are better positioned to survive this downturn - Ezion
and Pacific Radiance. Sembcorp InduSembcorp InduSembcorp InduSembcorp Industriesstriesstriesstries is attractively priced,
near its GFC trough valuation, its steady utility business should
mitigate weakness from the marine sector.
Market Focus
Singapore Strategy
Page 2
Market Outlook
Rate hike expectations have back paddled
FED Chair Janet Yellen had remarked that FED funds rate will
likely rise later this year even as she left interest rates
unchanged at the September FOMC meeting. But chances are
she will have to flip the ‘prediction’ again after September’s
non-farm payrolls rose by a much weaker than expected 142k
(consensus 203k) and hourly wages fell. Job growth at goods
producing industries has slumped since March and payrolls at
the service sector have tumbled in recent months.
Our economist believes that with the weak jobs number, soft
core capex orders and core PCE inflation that has been falling
for 3.5 years, the FED will delay raising rates. DBS Research DBS Research DBS Research DBS Research
sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December
2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times)
in 2016, implying a gradual climb.in 2016, implying a gradual climb.in 2016, implying a gradual climb.in 2016, implying a gradual climb.
US non-farm payrolls
0
50
100
150
200
250
300
350
400
450
1/1/2011
4/1/2011
7/1/2011
10/1/2011
1/1/2012
4/1/2012
7/1/2012
10/1/2012
1/1/2013
4/1/2013
7/1/2013
10/1/2013
1/1/2014
4/1/2014
7/1/2014
10/1/2014
1/1/2015
4/1/2015
7/1/2015
Source: DBS Bank
Core PCE inflation
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
10
/1/2
01
0
1/1
/20
11
4/1
/20
11
7/1
/20
11
10
/1/2
01
1
1/1
/20
12
4/1
/20
12
7/1
/20
12
10
/1/2
01
2
1/1
/20
13
4/1
/20
13
7/1
/20
13
10
/1/2
01
3
1/1
/20
14
4/1
/20
14
7/1
/20
14
10
/1/2
01
4
1/1
/20
15
4/1
/20
15
7/1
/20
15
10
/1/2
01
5
Source: DBS Bank
Closer home, 3 keys events to watch out for in October
The three important events that investors will be following
closely in October in Singapore are:
Risk of technical rRisk of technical rRisk of technical rRisk of technical recessionecessionecessionecession
(1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point
to a technical recession to a technical recession to a technical recession to a technical recession –––– Current consensus is for the figure
to come in at -0.1% saar q-o-q. Our Singapore economist
expects a more negative 0.6% q-o-q contraction for 3Q,
which implies a technical recession after the 4% decline in
2Q15. The manufacturing sector is already in recession,
having contracted the past 3 quarters in y-o-y terms and in 3
out of the past 5 quarters on a sequential basis. The outlook
for the services sector is not strong. Growth moderated to
3.5% YoY in 2Q15, from 4.2% in 1Q. On a sequential basis,
output fell by 1.1% (QoQ, saar) in 2Q. DBS Research forecasts DBS Research forecasts DBS Research forecasts DBS Research forecasts
1.8% y1.8% y1.8% y1.8% y----oooo----y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016, which
is below the official and market consensus forecasts of 2.0-
2.5% and 2.2% respectively.
Singapore GDP
Source: DBS Bank
… and MAS could ease its monetary policy … and MAS could ease its monetary policy … and MAS could ease its monetary policy … and MAS could ease its monetary policy
(2) MAS policy meeting on 14 OctMAS policy meeting on 14 OctMAS policy meeting on 14 OctMAS policy meeting on 14 Oct – With risk of a technical
recession looming and headline CPI reading in negative
territory for 10 consecutive months since November 2014, the
probability has risen that MAS will ease monetary policy at the
upcoming policy meeting and macroeconomic review.
Singapore CPI (% y-o-y)
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
Source: DBS Bank
The SGD NEER has been easing towards the floor of its ap-
preciating policy band. If this continues, our Singapore
economist believes that the MAS will have two options: spend
reserves defending the band or relax its policy.
Market Focus
Singapore Strategy
Page 3
Currency appreciation becomes a difficult policy to maintain in
the current environment whereby recession risk looms and
full-year inflation is expected to be negative. DBS Research
expects the MAS to re-center the SGD NEER policy band lower
by half a band, which by our model would be equivalent to a
one-off devaluation of 2%. The DBS Macro Research team
expects the SGD to depreciate to 1.47 per US dollar over the
next 12 months.
SGD Neer testing the lower limit
Source: DBS Bank
3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire
(3) 3Q results season3Q results season3Q results season3Q results season – The 3Q results season spans from
October till mid-November. The continuation in earnings
downgrades since the start of the year had led to a slash in
FY15F growth forecast from +13.4% (at the start of the year)
down to +2.8% for stocks under our coverage. With a
technical recession on the cards and growth uncertainties
unlikely to go away anytime soon, we continue to expect
further downgrades following the 3Q results season. This is
especially so for FY16, given the high single digit 7.7% EPS
growth forecast.
3Q results preview
Attention turns towards the earnings season that is about to
start. With macro uncertainties and the shadow of a technical
recession in 3Q, investors are likely to cast a wary eye on the
upcoming results season. Growth uncertainties had led to a
downward revision in EPS growth for FY15F from a strong
double digit 13.4% at the end of last year to a mere 2.8%
currently. We expect STI index component stocks to post a
decline in earnings this year. The earnings downgrade trend
could continue given the uncertain economic outlook,
especially for FY16F where growth expectations remains at a
high single digit.
Sector valuation
Eps Growth (%) CAGR PER (x) Div Yld
Sector 2014A 2015F 2016F 14-16 2014A 2015F 2016F 2014 Banking 14.0 11.7 6.1 8.9 10.9 9.8 9.2 3.6
Consumer Goods -0.1 0.3 11.6 5.8 14.2 14.1 12.7 3.0
Consumer Services -3.5 -3.0 15.7 5.9 18.8 19.4 16.8 3.1
Financials -5.1 -0.8 4.5 1.8 23.4 23.6 22.6 6.0
Health Care 17.3 17.9 18.3 18.1 53.7 45.5 38.5 0.8
Industria ls 9.7 15.6 12.4 14.0 20.3 17.5 15.6 3.2
Oil & Gas 9.1 -22.1 14.0 -5.8 8.2 10.5 9.2 5.4
Real Estate 5.2 -2.6 8.9 3.0 13.6 14.0 12.9 2.6
REITS 5.5 6.2 3.3 4.7 15.5 14.6 14.2 6.4
Technology 13.8 8.1 6.6 7.4 13.5 15.2 14.3 5.6
Telecommunications 5.2 0.1 6.2 3.1 15.7 15.7 14.8 4.8
DBS CoverageDBS CoverageDBS CoverageDBS Coverage 7.27.27.27.2 2.82.82.82.8 8.78.78.78.7 5.75.75.75.7 14.414.414.414.4 14.114.114.114.1 12.912.912.912.9 3.93.93.93.9
ExExExEx----propertypropertypropertyproperty 7.17.17.17.1 3.33.33.33.3 8.78.78.78.7
STI DBSV Forecast Avg STI DBSV Forecast Avg STI DBSV Forecast Avg STI DBSV Forecast Avg (Before EI)(Before EI)(Before EI)(Before EI)
6.46.46.46.4 ----1.21.21.21.2 7.77.77.77.7 3.23.23.23.2 12.312.312.312.3 12.412.412.412.4 11.511.511.511.5
STI Consensus AvgSTI Consensus AvgSTI Consensus AvgSTI Consensus Avg 6.46.46.46.4 ----2.92.92.92.9 7.17.17.17.1 2.02.02.02.0 12.312.312.312.3 12.612.612.612.6 11.811.811.811.8
Source: DBS Bank
Market Focus
Singapore Strategy
Page 4
The table below summarises the results preview by sector.
We will be keeping an eye on 1) provision and NPLs for
banks; 2) margins for downstream consumer and
plantation sectors and rig builders; 3) forex impact on
plantation stocks and SREITs; 4) contract
rescheduling/cancellations for rig builders which could
point to further downgrades for 2016. The only bright
spot could come from better earnings from
airlines/shipping, as we expect the positive impact of lower
fuel costs to filter through after unwinding of their
expensive hedge positions.
What to look out for in 3Q
results
Sector Net Earnings : DBS vs
Consensus (S$bn)
Earnings Downside vs
Upside risks
Valuation / stock picks
Banks LIM Sue Lin +65 6682 3711 [email protected]
1. 1. 1. 1. Look out for provisions and Look out for provisions and Look out for provisions and Look out for provisions and
NPLs on the downside.NPLs on the downside.NPLs on the downside.NPLs on the downside. Banks
may possibly add buffers in a
difficult environment. NIM
would likely continue to
surprise on the upside judging
from SIBOR levels (+30bps q-
o-q). Although expectations of
the Fed rate hike have been
pushed back, the possibility of
a hike remains.
2. Loan growth is expected to
be slow. We forecast full year
2015 loan growth at <5%
currently.
We are 6% and 8% below
consensus for FY15F and
FY16F, mainly due to higher
credit cost and lower loan
growth for both years.
Earnings downside would be
credit costs while upside
would be in higher NIM.
OCBCOCBCOCBCOCBC is a buy; UOBUOBUOBUOB is a Hold
(tactical sell).
Consumer (Downstream) Andy SIM CFA +65 6682 3718; [email protected] / Alfie YEO +65 6682 3717; [email protected]
1.1.1.1. Not expecting a significant Not expecting a significant Not expecting a significant Not expecting a significant
pickpickpickpick----up in 3Q15 earnings. up in 3Q15 earnings. up in 3Q15 earnings. up in 3Q15 earnings.
Consumer sentiment
remains subdued. Even
though stimulus packages
have been announced, it
would take time to filter
down to earnings.
2. Possible margin pressure. Possible margin pressure. Possible margin pressure. Possible margin pressure.
We expect margins to be
under pressure as regional
currencies remain weak vs
the USD.
0.0
0.5
1.0
1.5
2.0
2.5
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
Consumer (downstream)Consumer (downstream)Consumer (downstream)Consumer (downstream)S$bn
We have been more
conservative than consensus
and have trimmed our
forecasts by 10-11% since July
on the back of macro
uncertainties and regional
currency weakness.
Downside risks on FY16F. Downside risks on FY16F. Downside risks on FY16F. Downside risks on FY16F. We
are still cautious but less so
now compared to the period
prior to 2Q15 results.
Our FY15F/16F/17F earnings
growth is now more modest
at -4.1%/11%/12%. That
said, we see potential
downside in FY16F earnings if
macro uncertainties persist.
Dairy Farm Dairy Farm Dairy Farm Dairy Farm ((((BUY, TP US$7.34BUY, TP US$7.34BUY, TP US$7.34BUY, TP US$7.34)))). . . .
We like Dairy Farm for its
attractive PE valuations at -
1.5SD of its mean. Core
business after stripping out
Yonghui investment is trading
at 18x PE, below peer and
historical average multiple of
25x.
Petra Petra Petra Petra ((((Fully Valued, TP S$2.40Fully Valued, TP S$2.40Fully Valued, TP S$2.40Fully Valued, TP S$2.40))))....
Petra’s earnings continue to
face challenges on 1) weak
domestic consumption in
Indonesia, and 2) lower
margins on depreciating
IDR. Stock is valued at 28x
FY16F PE compared to regional
peers’ 22x.
SPHSPHSPHSPH (Fully Valued, TP: S$3.51).
SPH’s core print ops is likely to
be affected by the weaker
GDP. We expect cuts to FY16F
DPS and this could potentially
de-rate the counter.
Source :DBS Bank, Bloomberg Finance L.P.
10
11
12
13
DBS FY15F Cons. FY15F
DBS FY16F Cons. FY16F
BanksBanksBanksBanksS$bn
Market Focus
Singapore Strategy
Page 5
What to look out for in 3Q
results
Sector Net Earnings : DBS vs
Consensus (S$bn)
Earnings Downside vs
Upside risks
Valuation / stock picks
Health Care Andy SIM CFA +65 6682 3718; [email protected]
1. Topline growth from Topline growth from Topline growth from Topline growth from
inpatient admissioninpatient admissioninpatient admissioninpatient admissionssss. . . . We
expect to see slower rate of
topline growth on the back
of macro uncertainties,
thereby having an impact
on inpatient admissions. The
weaker regional currencies
are likely to continue to
have an impact on foreign
patient admissions.
2.2.2.2. Margins performance. Margins performance. Margins performance. Margins performance. On
the back of expected slower
topline growth, we would
watch for impact on
margins.
0.0
0.2
0.4
0.6
0.8
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
Health CareHealth CareHealth CareHealth CareS$bn
We have been more
conservative in terms of costs
assumptions vis-à-vis
consensus.
Downside. Downward
revision on earnings possible
on the back of slower topline
and increased costs.
We are Neutral Neutral Neutral Neutral on Healthcare
plays given their rich valuations.
That said, we prefer IHHIHHIHHIHH over
RFMD given its diversified
geographical exposure.
Crude Palm Oil Ben SANTOSO +65 6682 3707 [email protected]
1. ASP net of export levy. ASP net of export levy. ASP net of export levy. ASP net of export levy. Since
16 Jun15, Indonesian
planters began paying
export tax levies. This will be
reflected in weaker than
expected top line
2.2.2.2. FX losses. FX losses. FX losses. FX losses. USD strength will
manifest itself in jump in FX
losses (realised + unrealised)
in 3QCY15
3.3.3.3. Refining margins. Refining margins. Refining margins. Refining margins. For
refiners however, export
levies provide extra cushion.
Expect better margins for
Indonesian refiners vs.
Malaysian refiners.
0.0
1.0
2.0
3.0
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
PlantationPlantationPlantationPlantationS$bn
We believe consensus has not
factored in the impact of
export levies and FX losses –
judging by earnings
expectations
There remain risks of further
earnings downside if:
1. Brazil expands soybean
acreage more than
expected
2. USD weakens
3. Indonesian biodiesel
mandate churns out less
than expected volumes
WilmarWilmarWilmarWilmar looks oversold; strong
Chinese soybean import
volumes in 2H15, drop in
CPO/soybean prices and
Indonesia’s export levies have
been favourable.
Any significant CNY
depreciation would only
temporarily affect Wilmar’s
Consumer segment in China
before prices are adjusted
Source :DBS Bank, Bloomberg Finance L.P.
Market Focus
Singapore Strategy
Page 6
What to look out for in 3Q
results
Sector Net Earnings : DBS vs
Consensus (S$bn)
Earnings Downside vs
Upside risks
Valuation / stock picks
Real Estate Derek Tan +65 6682 3716 [email protected]
1.1.1.1. Revenue trends still stableRevenue trends still stableRevenue trends still stableRevenue trends still stable....
Expected to remain steady
as developers draw down
on locked in sales. The more
resilient commercial
segments should prop up
topline.
2. New New New New ssssales ales ales ales outlook. outlook. outlook. outlook. New
sales from unsold inventory
will be perceived positively
by the market as developers
look to clear unsold stock.
3.0
3.2
3.4
3.6
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
Real EstateReal EstateReal EstateReal EstateS$bn
FY16F skewed by higher
contribution from Fraser
Centerpoint Limited
Downside to earningsDownside to earningsDownside to earningsDownside to earnings. Other
subsectors (office and retail)
in S’pore are weakening,
which may be a drag on
earnings going forward.
Developers are trading at 0.72x
P/NAV and close to 0.6x
P/RNAV, which we believe are
attractive.
Our picks are CapitalandCapitalandCapitalandCapitaland and
City DevelopmentsCity DevelopmentsCity DevelopmentsCity Developments based on
attractive valuations.
REITS Derek Tan +65 6682 3716 [email protected] / Mervin Song +65 6682 3715 [email protected] /
Rachael TAN +65 6682 3713 [email protected]
1. Topline and net property Topline and net property Topline and net property Topline and net property
income grincome grincome grincome growth. owth. owth. owth. We believe
retail REITs will be the most
resilient, followed by
industrials, office and
hospitality REITs.
2. Generally modest rental Generally modest rental Generally modest rental Generally modest rental
reversions reversions reversions reversions expected but
magnitude of downside in
the office and hospitality
sectors will be looked at
closely.
3.3.3.3. IntereIntereIntereInterest cost trends. st cost trends. st cost trends. st cost trends. While
not expected to move
much, we expect most S-
REITs to lock in as much as
possible given the still low
rate environment.
4. Currency. Currency. Currency. Currency. Volatility will have
an impact on distributions.
REITs with exposure to
RMB/HKD will see the most
upside.
3.2
3.4
3.6
3.8
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
REITSREITSREITSREITSS$bn
Above consensus mainly for
retail REITs. We are forecasting
higher returns as we think the
retail sector is more
conservative.
Operational cost pressures Operational cost pressures Operational cost pressures Operational cost pressures
and margins. and margins. and margins. and margins. Net property
income (NPI) margins may
come under pressure as
maintenance, utilities and
security contracts are
renewed. We have factored in
a 10% increase in costs.
Yield spreads of 4.7% is close
to – 1 SD level.
Picks: Mapletree Greater China Mapletree Greater China Mapletree Greater China Mapletree Greater China
TrustTrustTrustTrust, Frasers Centerpoint TrustFrasers Centerpoint TrustFrasers Centerpoint TrustFrasers Centerpoint Trust
and CapitaRetail China TrustCapitaRetail China TrustCapitaRetail China TrustCapitaRetail China Trust.
Source :DBS Bank, Bloomberg Finance L.P.
Market Focus
Singapore Strategy
Page 7
What to look out for in 3Q
results
Sector Net Earnings : DBS vs
Consensus (S$bn)
Earnings Downside vs
Upside risks
Valuation / stock pick
Oil & Gas Services Suvro SARKAR +65 6682 3720; [email protected]
1.1.1.1. OSV utilisation and day OSV utilisation and day OSV utilisation and day OSV utilisation and day
rate rate rate rate trends.trends.trends.trends. We will look
out for whether fleet
utilisation rates are
improving on a q-o-q basis
or are markets still very
volatile. Day rate erosion –
is there more downside
from current levels?
2.2.2.2. New order win outlook.New order win outlook.New order win outlook.New order win outlook.
Are oil majors still in ‘wait
and watch’ mode with
regards to new contracts
or are projects starting to
take off?
3.3.3.3. Financial strength. Financial strength. Financial strength. Financial strength. We
would monitor for any
liquidity or solvency issues
and whether the decline
in asset values will trigger
any financial covenants.
0
1
2
3
4
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
Oi l & GasOi l & GasOi l & GasOi l & GasS$bn
Our day rates and Utilisation
rates assumptions are more
conservative than consensus.
WWWWe expect more e expect more e expect more e expect more earnings earnings earnings earnings
downside potential downside potential downside potential downside potential as day
rates could be weaker than
expected for some vessel
types in current weak market
and new vessels may not be
able to secure charters on
time. Potential rate
renegotiations or impairments
on assets, though unlikely,
cannot be ruled out.
However, having lost up to
85% of market capitalisation,
value is emerging for some of
the quality names, particularly
in the service provider space,
which could potentially be
multi-baggers when oil price
recovers.
We pick financially fit and
sound stocks with cheap
valuations. Our top picks in this
environment are EzionEzionEzionEzion and
Pacific Radiance.Pacific Radiance.Pacific Radiance.Pacific Radiance.
Rigbuilders HO Pei Hwa +65 6682 3714; [email protected]
1. Revenue and marRevenue and marRevenue and marRevenue and margin gin gin gin
trendtrendtrendtrendssss.... Revenue for
offshore projects could
normalise from S$3.2bn a
quarter last year to
S$2.5bn a quarter; EBIT
margins could also come
under pressure in view of
delivery push-backs and
sluggish rig orders. This
could be partially
mitigated by ship repair
income, which is
seasonally stronger in 2H.
2. Contract rContract rContract rContract rescheduling escheduling escheduling escheduling and and and and
cancellations.cancellations.cancellations.cancellations. Update on
delivery schedule and
cancellation risks
especially Petrobras
projects.
3. Order win outlook.Order win outlook.Order win outlook.Order win outlook.
Enquiry levels and
guidance. YTD wins have
been slow at S$4.4bn (vs
over S$9bn for full year
2014)
Analysts have been trimming
forecasts for FY15-16,
factoring in deferments and
slow order wins.
More downside risks More downside risks More downside risks More downside risks as we
expect further project
deferments amid weak oil
prices; potential
reversals/provisions for
cancellations; prudent margin
recognition.
Downside could be limited by
attractive valuationsattractive valuationsattractive valuationsattractive valuations near GFC
lows and 5555----6% dividend yield6% dividend yield6% dividend yield6% dividend yieldssss.
We favour Sembcorp Industries Sembcorp Industries Sembcorp Industries Sembcorp Industries
as a safer proxy to ride O&G
recovery given current sector
volatility and uncertainty; the
other half of its business -
utilities - is expected to see
sequential improvement from
ramp-up of India power plant.
Source :DBS Bank, Bloomberg Finance L.P.
1.6
1.8
2.0
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
RigbuildersR igbuildersR igbuildersR igbuildersS$bn
Market Focus
Singapore Strategy
Page 8
What to look out for in 3Q
results
Sector Net Earnings : DBS vs
Consensus (S$bn)
Earnings Downside vs
Upside risks
Valuation / stock picks
Transport Paul YONG CFA +65 6682 3712 [email protected]
1. Transport operators Transport operators Transport operators Transport operators (airlines
and shipping) are expected
to post better earnings y-o-y
largely on lower fuel costs,
partially offset by lower
yields or rates
2. Infrastructure plays Infrastructure plays Infrastructure plays Infrastructure plays like
ports and toll roads are
projected to post only
modest improvements in
the top and bottom line,
due to tepid economic
growth
3.3.3.3. Among land transport land transport land transport land transport
names, ComfortDelgro is
projected to record stable
earnings though SMRT is
likely to see lower earnings
due to higher repair and
maintenance costs
We have generally cut
earnings over the last few
months, factoring in lower top
line growth on global
economic uncertainty
We expect some upside risk in
the short term as fuel prices
are below our assumptions.
However, longer term
downside risk exists if
economic growth continues
to be anaemic and keen
competition prevails.
We see Singapore AirlinesSingapore AirlinesSingapore AirlinesSingapore Airlines as a
proxy for low oil prices, and it
has potential to pay out better
than expected dividends given
its strong net cash position.
CMH (Pacific) CMH (Pacific) CMH (Pacific) CMH (Pacific) also offers an
attractive dividend yield of
8.4%, with good growth
prospects bolstered by
acquisitions
Telecommunications Sachin MITTAL +65 6682 3699 [email protected]
1.1.1.1. M1 launM1 launM1 launM1 launched much cheaper ched much cheaper ched much cheaper ched much cheaper
postpostpostpost----paid plans in July paid plans in July paid plans in July paid plans in July
(without handset subsidy) in
anticipation of fourth telco
entry – only S$37 per
month for 5GB data, 400
mins and 1000 SMSes.
SingTel and StarHub
followed. Need to check its
take up rate.
2.2.2.2. StarHub launched online StarHub launched online StarHub launched online StarHub launched online
sssstreaming service in August treaming service in August treaming service in August treaming service in August
in anticipation of entry of
players like Netflix which
offer much cheaper
content. Need to watch out
for cable TV ARPU trends.
Weak currencies (AUD –
down 11% and IDR – down
6% on annual basis) may
adversely impact earnings
contribution from overseas.
Downside risk to M1’s M1’s M1’s M1’s 3Q15
earnings as mobile revenue
comes under pressure due to
lower priced plans. StarHub’sStarHub’sStarHub’sStarHub’s
earnings may be in line due to
lower handset subsidy as
iPhone 6 sales slows down in
third quarter.
Mantain Fully Valued rating on
M1M1M1M1 as fourth telco may be
disruptive due to its low-cost
business model
Source :DBS Bank, Bloomberg Finance L.P.
4.0
4.5
5.0
5.5
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
TelecommunicationsTelecommunicationsTelecommunicationsTelecommunicationsS$bn
0.0
0.5
1.0
1.5
2.0
2.5
DBS FY15F
Cons. FY15F
DBS FY16F
Cons. FY16F
TransportTransportTransportTransportS$bn
Market Focus
Singapore Strategy
Page 9
Strategy Asia/emerging markets not out of the woods despite
current rebound
Asia and emerging markets rebounded strongly over the
past week as rate hike expectations were pushed back
following the weak US September job numbers. This led to
a rebound in regional currencies against the USD and
oil/commodity prices. In turn, a partial reversal of the funds
outflow that had weighed down on Asia and emerging
markets in recent months was triggered. Short covering and
bargain hunting on oversold stocks look to be the forces
behind the current strength. The rebound has been sharp,
with the MSCI Emerging Markets Index and MSCI South-
East Asia Index rising 6.2% and 10% respectively last week.
For now, “bad news is good news”. But there is a limit to
such an argument justifying the stock market rally in Asia.
The FED is pushing back, not doing away with normalising
interest rates. Not for now, but rate hike concerns will
return to haunt the markets at another date. Sooner or
later depends on incoming economic data.
Next, emerging market and China uncertainties were cited
as one of the reasons why the FED had withheld rate hikes.
Asia’s growth is slowing down and corporate earnings
continue to be on the decline.
While we do not see a repeat of last week’s feat and any
further upside over the next month or two should occur on
a much more gradual pace, any pullbacks should be above
the recent lows underpinned by the desire to bargain hunt
and possible year-end ‘window dressing’ activities.
Government stimuli around the region have also helped to
stabilise the sharp stock market downswing.
Government stimulus announced over the past 3 months
China • Yuan devaluation – Aug15 • Cut in lending, deposit and RRR • Cooling property measures including lowering down payment for second home
buyers, waived transaction tax for sellers after home ownership of two years, easier terms for borrowers
• Proactive fiscal policy e.g. increased infrastructure spending, more public private partnership investment, and faster reforms of areas such as taxation.
• Measures to boost stock market e.g. proposed a “circuit breaking mechanism”, scrap China’s dividend tax on investors who hold a stock for more than a year etc.
Malaysia RM28 bn stimulus package:- • RM20 bn for the stock market to support undervalued shares • RM4.5 bn for integrated development of hotel and theme park in Desaru
Coast • RM2 bn for small and medium enterprises • Balance for tourism sector, Domestic Investment Strategic Fund etc
Thailand 136 bn baht stimulus package (phase 1) :-
• 60 bn baht loan to low-income earners • 36 bn baht for small construction and repair projects that employ locals. • 40 bn baht to speed up existing and new small government projects.
206 bn baht stimulus package (phase 2) to support SME which includes a cut in the corporate income tax
Indonesia • First Stimulus package (announced early September): Aim to improve policies and regulations, accelerate infrastructure projects and government spending, and investments in property.
• Second Stimulus package (announced late September): include measures aim at streamlining regulations and processes to attract investments; tax incentives for exporters to keep their export proceed in Indonesia.
• Third Stimulus package (announced in October): Measures include relaxation of regulation for banks, lowering interest rates on loans and providing easier access, giving electricity tariff discounts and cutting fuel prices.
Source: DBS Bank
STI valuation - testing the upside
With reference to our previous Singapore strategy report
dated 31st August, the base-case range of 2750 to 3050
worked out very well thus far with the STI rebounding sharply
off the 2740 low in late September. Recap that the 3050
upside was based on 5% below our revised bottom-up 12-
month STI target of 3200.
Market volatility is in full swing, this time to the upside. While
an overshoot towards 3100 cannot be ruled out, we are
inclined to keep the 3050 cap. This is based on the 5% below
bottom-up STI target as well as 12.22x (-1SD) 12-mth forward
PE, given the likelihood that corporate earnings downgrade
trend has yet to end.
STI at various 12-mth fwd PE levels
----2sd 2sd 2sd 2sd
10.71x 10.71x 10.71x 10.71x
PEPEPEPE
----1.5sd 1.5sd 1.5sd 1.5sd
11.411.411.411.46x 6x 6x 6x
PEPEPEPE
----1 sd 1 sd 1 sd 1 sd
12.22x 12.22x 12.22x 12.22x
PEPEPEPE
----0.5 sd 0.5 sd 0.5 sd 0.5 sd
12.98x 12.98x 12.98x 12.98x
PEPEPEPE
Avg Avg Avg Avg
13.74x 13.74x 13.74x 13.74x
PEPEPEPE
FY16FY16FY16FY16 2,710 2,900 3,092 3,284 3,476
Avg 15 & 16Avg 15 & 16Avg 15 & 16Avg 15 & 16 2,6132,6132,6132,613 2,7962,7962,7962,796 2,9812,9812,9812,981 3,1673,1673,1673,167 3,3523,3523,3523,352
12121212----mth fwdmth fwdmth fwdmth fwd 2677267726772677 2865286528652865 3055305530553055 3245324532453245 3435343534353435
Source: DBS Bank
Market Focus
Singapore Strategy
Page 10
REITs offer temporary shelter The weakness in jobs data from the US prompted DBS economists to revise our forecast for the FED to postpone their rate lift-off to 1Q16 (from Dec’15) and subsequent hikes to be more modest (2 more in 2016 vs 4 previously). The 10-year UST and 10-year SG bonds have retreated by 30-40bps from year highs. This is a positive boost for S-REITs in the shorter term, benefitting big caps (like CapitaLand Mall TrustCapitaLand Mall TrustCapitaLand Mall TrustCapitaLand Mall Trust, , , , CapitaLand Commercial TrustCapitaLand Commercial TrustCapitaLand Commercial TrustCapitaLand Commercial Trust, , , , Mapletree Industrial TrustMapletree Industrial TrustMapletree Industrial TrustMapletree Industrial Trust, , , , Mapletree Commercial TrustMapletree Commercial TrustMapletree Commercial TrustMapletree Commercial Trust, , , , Keppel REITKeppel REITKeppel REITKeppel REIT, , , , Suntec REITSuntec REITSuntec REITSuntec REIT). S-REITs currently offer an average FY16F yield of 7.0% and with yield spreads of 4.7% at close to its – 1 SD range, we see a comfortable buffer for investors to add at current levels.
Prefer REITs with sustainable growthPrefer REITs with sustainable growthPrefer REITs with sustainable growthPrefer REITs with sustainable growth; picks : ; picks : ; picks : ; picks : Mapletree Mapletree Mapletree Mapletree Greater China Commercial TrustGreater China Commercial TrustGreater China Commercial TrustGreater China Commercial Trust, , , , Frasers Centrepoint TrustFrasers Centrepoint TrustFrasers Centrepoint TrustFrasers Centrepoint Trust and and and and CapitaLand Retail China TrustCapitaLand Retail China TrustCapitaLand Retail China TrustCapitaLand Retail China Trust.... While we expect operational headwinds and have cut back our growth assumptions, REITS are more resilient and offer better earnings growth at 6.2% vs -2% for STI components in 2015. Among the sub-sectors, retail REITS are likely to outperform given strong foot traffic and sustained tenant sales. In our view, hospitality REITS could face weakness in 3Q results with rising competition. We are selective and favour stocks with sustainable growth - MAMAMAMAGGGGIC IC IC IC and FCTFCTFCTFCT. We also believe that CRCTCRCTCRCTCRCT, trading at 7.9% forward yield, is attractive.
S-REIT yield sector and yield spread
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
(%)(%)(%)(%)
Yield Yield Spread vs 10-year bond Historical Mean Historical - 1 SD
Source: DBS Bank
S-REIT DPU Growth by Sectors (FY15-17F)
Source: Companies, DBS Bank
Earnings cut by subsectors in 2Q15
Source: Companies, DBS Bank
Oil and gas – Ride the bounce on depressed valuations
Sentiment for O&G sector took a sharp upturn last week
on the back of a weakening USD, accelerating rig count
decline, mounting geopolitical tension in the Middle East,
China stimulus hopes, and Russia’s statement that it is ready
to talk to OPEC (as well as non-OPEC oil producers) on the oil
market. We believe volatility prevails as we continue to see
mixed signals. With oil prices near its bottom (GFC low at
around US$40/bbl), the risk is on the upside as we approach a
seasonally stronger quarter on winter demand, while OPEC’s
meeting on Dec 4 is the wild card. Stock prices are highly
correlated to oil prices. A sustained bounce up to US$60/bbl
will lift oil and gas stocks, providing opportunities to trade as
the sector’s valuation has been stressed to close to GFC levels.
We expect oil prices to post a modest recovery, ranging
between US$55-65/bbl (average around US$60/bbl) in 2016. Oil price surged >10% in a week to over US$53/bbl
0
20
40
60
80
100
120
140
Brent WTI
Source: Bloomberg Finance L.P, DBS Bank
US and OPEC hold the keys. With price hedges expiring and
rig count falling off the cliff, US shale oil production will slow
down, offsetting the potential new supply from Iran next year.
OPEC’s production stance is a wild card. The current 2mmbpd
surplus could easily be bridged by production cuts should
OPEC decide to do so, though it is widely expected to stick
with its market share strategy in the upcoming OPEC meeting
on 4th Dec.
4.0%
2.5%
4.2%
2.1%2.3%
1.1%
3.2%
Office Retail Commercial Industrial Hospitality Healthcare S-REIT Average
-4%
-2%
-3%
-1%
-5%
0%
Office Retail Commercial Industrial Hospitality Healthcare
Market Focus
Singapore Strategy
Page 11
Knock on shipyards and service providers. We reiterate our
stance that the low oil price of US$50-65/bbl should continue to
propel investments into shallow water and developmental
projects, though inevitably putting halts on the deepwater front.
As a result, new orders for Singapore rigbuilders are expected to
fall from S$9bn to S$5-6bn p.a. as we continue to see orders for
production facilities (FPSOs, FLNG vessels, accommodation
platforms, etc) but demand for newbuild drilling rigs will wane
in the next 1-2 years. This will eventually translate into declining
earnings, more vividly from 2017 onwards. As exploration
activities slow down, rig utilisation has also fallen, resulting in
lower demand for offshore support vessels. Earnings risks prevail
for these service providers and we cannot rule out the possibility
that some uncompetitive players may go under in a prolonged
low oil price environment.
Stay with companies which passed our stress test –
Ezion and Pacific Radiance. The “survivability” and
“financial health” of O&G SMCs have come under close
scrutiny as many of them have geared up for expansion to
ride on the sector upturn but now that earnings have
plunged, there are mounting fears of defaults and
insolvencies. We stress tested the balance sheets of key
Singapore and Indonesia service providers. Ezra and Swiber
have the highest near-term refinancing requirements in 2015-
2016. Ezra has undergone a series of corporate actions –
asset sales, equity raising and partial divestment - resolving its
2015 refinancing needs. Both EzionEzionEzionEzion and PACRAPACRAPACRAPACRA have lower
near-term refinancing risks. We believe Ezion’s strong market
positioning and resilient demand for service rigs, and PACRA’s
superior management team and cost competitiveness are key
differentiators that will allow them to better navigate through
the downturn.
Ezra and Mermaid are trading at rock-bottom
valuations. Despite last week’s rally, valuations for O&G
stocks remain fairly depressed, having lost up to 85% of their
market capitalisation prior to this. We recently upgraded EzraEzraEzraEzra
to BUY following its divestment of its 50% stake in the
subsea business (EMAS AMC) to a Japanese strategic partner
– Chiyoda. We believe the elimination of the near-term
overhangs – rights issue and bond refinancing - should lift its
current distressed valuation of <0.2x P/BV as it alleviates its
insolvency concerns. MermaidMermaidMermaidMermaid is another bombed-out stock,
dragged by execution issues and earnings disappointments in
the past. However, trading at <0.3x P/BV seems unwarranted
in view of its strong 2Q15 results, relatively stable recurring
IRM business, decent orderbook, and low gearing.
Among the blue chips, SCISCISCISCI appears attractively priced at
below its GFC trough valuation and the steady utility business
should mitigate the weakness on the marine side.
SMC O&G service providers trading close to GFC low
0.0
0.5
1.0
1.5
2.0
2.5
2008 2009 2010 2011 2012 2013 2014 2015
(x) Small/Mid cap O&G playersSmall/Mid cap O&G playersSmall/Mid cap O&G playersSmall/Mid cap O&G players---- PBPBPBPB
Avg: 1x
+2sd: 1.8x
+1sd: 1.4x
-1sd: 0.6x
-2sd: 0.3x
Source: Bloomberg Finance L.P, DBS Bank
Implied GFC trough share price
GFC GFC GFC GFC TrougTrougTrougTrough PBh PBh PBh PB
FY15 FY15 FY15 FY15 BVPSBVPSBVPSBVPS
Implied Implied Implied Implied Share Px Share Px Share Px Share Px
Last Px @ Last Px @ Last Px @ Last Px @ 8888----OctOctOctOct
DBS DBS DBS DBS TPTPTPTP
DBS DBS DBS DBS RecRecRecRec
xxxx S$S$S$S$ S$S$S$S$
Keppel 1.1 6.04 6.34 6.89 7.50 HOLD
SMM 1.5 1.51 2.27 2.30 2.48 HOLD
SCI 1.1 3.40 3.74 3.53 4.00 BUY
Ezion nm 1.12 nm 0.72 1.00 BUY
Ezra 0.3 0.59 0.19 0.12 0.30 BUY
PACRA na 0.87 na 0.34 0.42 BUY
POSH na 0.96 na 0.33 0.35 HOLD
Mermaid 0.5 0.56 0.28 0.16 0.26 BUY
Nam Cheong
na 0.20 na 0.18 0.17 HOLD
Vard 1.8 0.62 1.11 0.43 0.39 HOLD
Cosco 1.3 0.61 0.79 0.38 0.42 HOLD
Yangzijiang 0.5 1.34 0.67 1.16 1.62 BUY
Source: Bloomberg Finance L.P, DBS Bank
Depressed asset and equity values trigger more
opportunities for M&A. The prolonged low oil prices is set
to fuel another wave of mergers and acquisitions, as major
players shed non-core assets and smaller companies merge in
an attempt to scale up and survive. We identify some
potential takeover targets to be EzionEzionEzionEzion, DynaDynaDynaDyna----MaMaMaMacccc and Ezra
Group companies like TriyardsTriyardsTriyardsTriyards and EMAS OffshoreEMAS OffshoreEMAS OffshoreEMAS Offshore.
Companies with high cash hoards such as Baker TechBaker TechBaker TechBaker Tech,
Tanjung Offshore Tanjung Offshore Tanjung Offshore Tanjung Offshore are good privatisation candidates. We do
not rule out M&A possibilities among Singapore shipyards to
boost competitiveness amid rising competition from Korea
and China in the long run.
Market Focus
Singapore Strategy
Page 12
Stock Picks
While the upcoming 3Q results may disappoint, we select
stocks with earnings visibility or potential upside in dividends –
Thai Bev, , Riverstone, Sheng Siong, Sembcorp Industries, ST
Engineering, Capitaland, Singapore Airlines, and Venture
Corporation.
CapitaLand (BUY; TP: S$3.73)
Capitaland, positioned mainly in Tier 1/2 cities in China,
expects a steady return of buyers and is looking to
launch close to c.7,600 units to capture the recovery in
price trend. With 45% of its assets in China, Capitaland
is a clear proxy to benefit from the easing monetary
policy in China. Management has highlighted
opportunities within its integrated developments across
its key markets of China and Singapore. Its ongoing
retail mall developments remain on track to complete
over 3 years, and will underpin a steady growth in
recurring earnings. We believe that 2015 is an
appropriate time for the company to look at asset
recycling of some of the stable assets (Westgate Mall,
CapitaGreen upon TOP and retail malls in China) in its
portfolio to its REITs to optimize capital values and lock
in gains. This should also help to close the gap between
share price and RNAV. The stock is undervalued, with
upside to its ROE from value unlocking and recycling.
Ezion (BUY; TP: S$1.00)
Ezion is one of the best and safest proxies to ride oil
price recovery. It is well-positioned to benefit from the
rising popularity of liftboats in this region, capitalising on
its first-mover advantage. We believe service rigs are in
an early growth phase, buoyed by the substitution effect
to replace typical work boats/barges. Ezion has taken
delivery of 25 service rigs and the fleet is expected to
grow to 33 units by end of 2015, and 37 units by 2016,
driving earnings growth in the next two years.
Frasers Centerpoint Trust (BUY, TP S$2.05)
Reversions outlook is underpinned by robust tenants
performance while occupancy cost remains low at
<16%, particularly at Causeway Point, a key driver to
topline at 41% of revenue. FCT is a resilient performer
even in times of uncertainty given high exposure to
necessity shopping. Its robust capital management
ensures minimal risk to earnings. At current level, FCT
offers investors a dividend yield of 6% and 11% total
return.
Mapletree Greater China Trust (BUY,TP S$1.12)
MAGIC offers visible organic growth and quality
portfolio assets. The Trust is trading at an attractive 19%
discount to NAV and offers FY16 yield of 7.6%. We see
upside from better than projected rents at Sandhill Plaza.
MAGIC should benefit from positive rental reversions
over the next 3-4 years as Sandhill Plaza’s rents are
below market.
Pacific Radiance (BUY; S$0.42)
Pacific Radiance is amongst the most cost competitive
OSV player. While earnings performance will be nothing
to shout about in the near term, we believe valuations of
0.4x P/BV do not fairly reflect the underlying asset
valuations nor the fact that the company fares quite well
on credit ratios, with no near-term solvency or liquidity
issues. If oil prices move up or even stabilise to an extent,
the stock should rebound faster than peers in our
opinion.
Riverstone Holdings (BUY; TP: S$2.15)
We’ve recently initiated coverage on Riverstone with a
BUY and target price of S$2.15. As a market leader in
high-end nitrile clean room gloves and a growing
healthcare glove player, we like Riverstone as a
beneficiary of the strong US$ vs Ringgit, low commodity
prices and most importantly, capacity expansion (double
from 2014 to 2018 to 8.2bn pieces per year) to expand
its business. We forecast EPS CAGR of 27% from 2014-
2017F, and our target price of S$2.15 is based on 18x
FY16 PE, which is represents c. 28% discount to its
larger peer average of 25x earnings.
Sheng Siong (BUY; TP: S$1.00)
We like SSG as earnings are firing on all cylinders. SSG is
on track towards its 50-store target, margin expansion
trend is performing to our expectations, and there is no
let up SSSG. The company is one of the most well run
grocery retailers in ASEAN, leading regional peers in
profitability, cashflow generation and working capital
management. SSG offers an attractive dividend yield of
about 4%, as it pays out 90% or more of its earnings as
dividends.
ST Engineering (BUY; TP: S$3.40)
ST Engineering is a proxy to recovery in the US and
Europe, as about 24% of total sales is derived from the
US. A stronger US dollar is beneficial to STE's earnings.
Orderbook inched up to S$12.4bn at end-2Q15 from
S$12.2bn as of end-1Q15 and covers close to two years
of revenue and secures visibility, going forward. Though
2Q15 headline numbers were unexciting as the
slowdown in commercial vehicle business continued to
bite, we expect a better 2H15. Share price decline of
16% from recent highs in April 2015 provides a good
entry point for the stock. Higher interim dividend of
5Scts (FY14: 4Scts) shows confidence in management’s
ability to deliver steady performance. Dividend yield of
4.5% at current price looks attractive.
Market Focus
Singapore Strategy
Page 13
Thai Beverage (BUY; TP: S$0.81)
We project growth for FY15F/16F to continue as
ThaiBev’s sales tend to be more resilient, given its wide
portfolio range, particularly in the Spirits segment.
Corporate restructuring could be a catalyst. With the
disposal of FNN’s stake in MBL to its JV partner,
Myanmar Economic Holdings Limited, this could possibly
pave the way for the eventual consolidation of FNN as a
subsidiary, coupled with the eventual monetisation of its
stake in Frasers Centrepoint Limited. In our view, this ties
in with the Group’s announced “Vision 2020” Strategic
Roadmap, in which one of the targets is to increase Non-
alcoholic beverages revenue contribution to over 50%.
Venture Corporation (BUY; TP: S$9.00)
Venture is a beneficiary of the strong US dollar and weak
ringgit. Almost 60% of staff costs are denominated in
MYR for Venture. According to our sensitivity analysis,
every 2% decline in MYR would have a 1.5% positive
impact on Venture’s profits. All of of Venture’s sales are
denominated in USD, about 50% of which go to US and
the balance 50% to EU and Asia. A strong USD can also
dampen demand from EU and Asia. Overall, we estimate
that a 1% rise in USD would have a 1% positive impact
on Venture’s profits. Venture’s strong balance sheet and
its net cash position should support the current dividend
payout of 50Scts, with a yield of c.6%.
SembCorp Industries (BUY; TP: S$4.00)
SCI is trading close to GFC low of 1.1x P/BV, pricing in
the weakness of its marine arm (through 61%-owned
SMM), competitive Singapore Power market and startup
losses of TPCIL's power plant in India. The TPCIL plant is
likely to breakeven this year and will contribute to SCI’s
bottomline from 2016 onwards with better economies
of scale after the second unit is operational towards the
end of 2015. This would mitigate earnings decline from
Singapore power plants. In addition, a total of 2,588MW
of power generation capacity (excluding the 660MW
TPCIL Unit 1 plant in India, already online since Apr-
2015), 140tph of steam capacity and 1.6million m3/day
of water treatment capacity is expected to be added
from now until 2017. This roughly translates to a 31%,
3% and 17% increase in power, steam and water
treatment capacities respectively, driving growth in the
next 2 years. We reiterate our BUY on SCI with 14%
upside potential to our SOTP-based TP S$4.00 (translates
to 1.25x P/BV), plus a 4% dividend yield.
Singapore Airlines (BUY; TP S$11.50)
We expect fuel cost savings for SIA to be more
substantial from 2H FY15 onwards, which should drive
better earnings recovery. We project SIA’s earnings to
nearly double to S$616m in FY16. Earnings risk is on the
upside if jet fuel stays below US$90/bbl for a sustained
period. Our S$11.50 target price is based on 1.1x FY16
P/BV, which is its historical mean and reflects SIA’s
improved earnings outlook. With net cash of c.S$3.40
per share, we see its current valuation of 0.9x FY16 P/BV
as an attractive entry level for investors.
Stock Picks
MktMktMktMkt Pri c ePri c ePri c ePri c e Ta rge tTa rge tTa rge tTa rge t
Compa nyCompa nyCompa nyCompa ny Ca pCa pCa pCa p (S$)(S$)(S$)(S$) Pric ePric ePric ePric e %%%%
(US$m)(US$m)(US$m)(US$m) 08-Oc t08-Oc t08-Oc t08-Oc t (S$ )(S$ )(S$ )(S$ ) Ups ideUps ideUps ideUps ide RcmdRcmdRcmdRcmd 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F
Capitaland 9,177 3.02 3.73 24% Buy 18.0x 16.9x 0.8x 0.7x 2.6% 2.6% (38%) 7%
Ezion 786 0.70 1.00 43% Buy 5.7x 3.3x 0.6x 0.5x 0.1% 0.1% (23%) 76%
Frasers Centrepoint Trust 1,276 1.955 2.05 5% Buy 15.7x 16.0x 1.1x 1.1x 6.0% 6.2% 6% 2%
Mapletree Greater China
Commercial Trust*
1,863 0.955 1.12 18% Buy 17.1x 15.6x 0.8x 0.8x 7.6% 8.3% 11% 9%
Pacific Radiance 190 0.370 0.42 14% Buy 9.1x 7.9x 0.4x 0.4x 3.0% 6.0% (69%) 15%
Riverstone Holdings 450 1.705 2.15 26% BUY 18.1x 14.0x 4.3x 3.6x 2.0% 2.6% 45% 29%
Sheng Siong 905 0.845 1.00 18% Buy 23.7x 21.2x 5.3x 5.1x 3.8% 4.2% 14% 12%
ST Engineering 6,982 3.16 3.40 8% Buy 18.5x 18.4x 4.5x 4.4x 4.7% 4.7% (0%) 1%
Thai Beverage 12,247 0.685 0.81 18% Buy 18.0x 16.7x 4.0x 3.7x 3.6% 3.8% 12% 8%
Venture Corporation 1,594 8.11 9.00 11% Buy 14.4x 12.8x 1.2x 1.2x 6.2% 6.2% 11% 12%
Sembcorp Industries 4,743 3.73 4.00 7% Buy 9.7x 9.3x 1.1x 1.0x 3.9% 3.8% (15%) 5%
Singapore Airlines* 8,828 10.65 11.50 8% Buy 21.0x 14.9x 0.9x 0.9x 3.3% 4.7% 79% 41%
EPS / DPUEPS / DPUEPS / DPUEPS / DPU
PE (x)PE (x)PE (x)PE (x) P/B (x)P/B (x)P/B (x)P/B (x) Div Yld Div Yld Div Yld Div Yld GrowthGrowthGrowthGrowth
Source: DBS Bank
* FY16 & 17 forecast
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Singapore Strategy
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DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUYSTRONG BUYSTRONG BUYSTRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY BUY BUY BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLDHOLDHOLDHOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUEDFULLY VALUEDFULLY VALUEDFULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL SELL SELL SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.
ANALANALANALANALYST CERTIFICATIONYST CERTIFICATIONYST CERTIFICATIONYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
COMPANYCOMPANYCOMPANYCOMPANY----SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES
1.1.1.1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Aug 2015 except CapitaLand, CapitaLand Commercial Trust, CapitaLand Mall Trust, CapitaLand Retail China Trust, City Development, Cosco Corporation, Ezion Holdings, Ezra Holdings, Frasers Centrepoint Trust, Keppel Corporation, Keppel REIT, M1, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Mapletree Industrial Trust, Neptune Orient Lines, OCBC, Sembcorp Industries, Sembcorp Marine, Singapore Airlines, SPH, ST Engineering, StarHub, Suntec REIT, Thai Beverage Public Company, Triyards Holdings, UOB, Venture Corporation , Wilmar International, Yangzijiang Shipbuilding
2.2.2.2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 Aug 2015.
Market Focus
Singapore Strategy
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3.3.3.3. Compensation for investment banking servicCompensation for investment banking servicCompensation for investment banking servicCompensation for investment banking services:es:es:es: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Keppel Corporation, Ezra Holdings.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTION
GeneralGeneralGeneralGeneral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
AustraliaAustraliaAustraliaAustralia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong KongHong KongHong KongHong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.
IndonesiaIndonesiaIndonesiaIndonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
MalaysiaMalaysiaMalaysiaMalaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
SingaporeSingaporeSingaporeSingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
ThaThaThaThailandilandilandiland This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United United United United KingdomKingdomKingdomKingdom
This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
DubaiDubaiDubaiDubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United StatesUnited StatesUnited StatesUnited States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other Other Other Other jurisdictionsjurisdictionsjurisdictionsjurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd.DBS Bank Ltd.DBS Bank Ltd.DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982 Tel. 65-6878 8888
Company Regn. No. 196800306E