Phillip Singapore Monthly December 2017: 4Q17 still looking good December 6, 2017 1626

Market:  STI maintained its momentum in November, climbing 1.8%. Our target is unchanged, at 3,450.  Macro indicators for 4Q17 remain on an uptrend globally. Industrial production, consumer confidence and PMIs are at multi-year highs, if not decade highs. There are some pockets of weakness, in particular, China losing some momentum. Another observation is the slower exports out of Korea and Taiwan. Nevertheless, we expect global growth to perform well in 4Q17. This makes us keep our overweight stance on cyclical sectors such as property, banks and electronics. Headlining the news cycle has been US tax cuts and Chinese bonds yields. Tax cuts appear to be a near certainty. This could give the market another leg up, as consensus earnings in the US do not appear to have incorporated them. The spike in China’s 10-year sovereign-bond yields together with the further clamp down of wealth-management products just weeks after the Party Congress, suggests the authorities are still looking to curb leverage in the financial system. Any deleveraging will understandably be weak for the economy. Interestingly, SHIBOR has been flat, implying wholesale funding remains open to banks.

Recommendation: Our overweights are unchanged, property, banks and electronics. Property is taking a breather especially after MAS warning of an overheated market. We still believe there is a trade on property stocks as supply remains tight and we expect encouraging take-up rates in new launches. Our target price for DBS has been upgraded after pricing in higher ROE. On electronics, the vibrant global environment will, at the minimum, propel another quarter of strong earning. Another sector enjoying spiralling earnings are SGX listed coal producers. Production is surging whilst prices have been stable as China curtail production. However, regulatory noises out of Indonesia has created unnecessary volatility in share prices. Stock that still offer attractive yield are AsianPay TV and Ascendas REIT. Our laggard overweight is consumer, as we are expecting the strong external pick-up to percolate to domestic consumption, through better wage growth and employment trends.

Sector: Data from the banking sector has been improving. Loan growth is re-accelerating and SIBOR surging to a 20-month high. Healthcare and construction demand have also started to rebound. Still disappointing is retail spending. Property demand is also softer in the primary market – or maybe just fewer launches – though secondary sales are holding up well.



Best performing sectors in Nov17 were REIT-Office, Finance and Transportation. The gains in REIT-Office were borad based, led by CapitaLand Commercial Trust (+8.9%) and Keppel REIT (+7.2%). Finance gains came from all 3 banks – DBS (+7.2%), UOB (+6.4%) and OCBC (+4.6%). Transportation due to SATS (+12.6%) and SIA (+4.6%). Under our coverage the biggest gainers were SATS (+12.6%), Micro-Mechanics (+23.8%), CapitaLand Commercial Trust (+8.9%) and DBS (+7.2%).

Worst performing sectors in Nov17 were Commodities, Shipping and Conglomerates/Utilities. Commodities suffered selling across all stocks, worst hit were Golden Energy (-14.9%), IndofoodAgri (-13.3%) and Geo Energy (-13.3%). Shipping fell due to SembCorp Marine (-4.1%). Conglomerates/Utilities weakness came from Yoma (-14.5%) and SembCorp Industries (-7.6%). Major decliners under our coverage include Golden Energy (-14.9%), Geo Energy (-13.3%) and Banyan Tree (-8.1%).







CNMC Goldmine (Target px: S$0.29 / NEUTRAL)

  • Carbon-in-leach plant was completed and entered into a trial run in Nov-17.
  • The group conducted ongoing exploration in respective Sokor, Pulai, and KelGold
  • Low ore grade issue protracted while gold price was flattish.

Golden Energy and Resources (Target px: S$0.59 / BUY)

  • The surge in production volume and coal price propelled the performance in 3Q17.
  • The growth of overhead costs faster than expected due to higher freight and marketing expenses.
  • The 14mn tonnes of coal sales in FY17 are still on track, and the sales target in FY18 will be more than 18mn tonnes.

Geo Energy Resources (Target px: S$0.44/ BUY)

  • Management revised down FY17 sales target from 10mn tonnes to 7 to 8mn tonnes.
  • The newly issued US$300mn senior note will enhance solvency and liquidity.
  • Higher cash costs suppressed margin in 3Q17.



Fraser and Neave (Target px: S$2.83 / Upgraded to ACCUMULATE)

  • Persistently challenging environment in Malaysia and Singapore.
  • Vinamilk to provide a further uplift to FY18e EBIT and cushion against the subdue Malaysia and Singapore markets.
  • Upgraded to ACCUMULATE with higher SOTP-derived TP of S$2.83 (previously S$2.52)

Thai Beverage (Target px: S$1.18 / Upgrade to BUY)

  • Gross margins improved across all segments.
  • Expect on-trade consumption to turnaround in FY18 after the mourning period in Thailand subside, and as a broader economic recovery takes effect in Thailand.
  • On acquisition spree: Acquired Grand Royal Group, Spice Asia Co., Ltd, and 252 KFC stores in Thailand in 4Q2017.
  • Upgraded to BUY with higher SOTP-derived TP of S$1.18 (previously S$1.05).

Old Chang Kee (Target px: S$0.98 / BUY)

  • 1H18 earnings missed on one-off integration cost.
  • The integration process is almost complete. New factory and equipment should provide new capacity to boost product innovations and margins from 3Q18 onwards.
  • Maintained BUY with unchanged DCF-derived TP of S$0.98.



DBS Group Holdings Ltd (Target px: S$29.30 / BUY)

  • The downside surprise came from lumpy accelerated provisions of S$815mn.
  • NII is driven by stronger growth in loans volume.
  • Strong momentum in WM and IB fee income.
  • Digibank India could outperform management’s expectation because of a multiple tailwinds: India’s demography is young and IT savvy, a mandatory Aadhaar system and banknote de-monetisation.

United Overseas Bank Ltd (Target px: S$25.22 / Upgrade to ACCUMULATE)

  • NII increased 14% YoY on the back of strong loans growth and higher NIM.
  • WM fee income grew 40% YoY on higher sales of treasury products and unit trusts.
  • Specific provisions are higher because of new NPA formation by an Oil & Gas company.



Health Management International (Target px: S$0.83 / BUY)

  • Both hospitals continued to gain traction with higher revenue intensity and increased patient load.
  • Financial position to improve: On track to pare down 50% of acquisition debt by Dec-17 and Heliconia Capital Management’s investment of S$11.0mn or 2.0% stake in HMI.
  • Expansion as planned to meet the increasing medical demand in the region. Both hospitals will add 34 operational beds each bringing total bed capacity to 500 by FY18.

Singapore O&G Ltd (Target px: S$0.62 / Downgrade to ACCUMULATE)

  • Slower O&G and Dermatology businesses were mitigated by strong performance from Cancer-related
  • New growth pillar, Paediatric segment, added its second clinic in Nov-17.
  • Signs of recovery in birth rate in Obstetrics and local patient load in Dermatology.
  • Downgraded to ACCUMULATE at lower TP of S$0.62 (previously S$0.65).



800 Super Holdings (Target px: S$1.43 / BUY)

  • Stable outlook, with possibility of positive surprise.
  • 800 Super had the lowest-priced bid for the Pasir Ris-Bedok Public Waste Collection contract.
  • Waste-to-energy plant obtained its Temporary Occupation Permit.

Cogent Holdings (Target px: S$1.12 / REJECT THE OFFER)

  • Earnings growth to come from the Jurong Island Container Depot project.
  • Offer Price is unjustifiably low.
  • Take partial profit and hold out for a failed delisting.

Nam Lee Pressed Metal (Target px: S$0.56 / BUY)

  • Stable to positive
  • 1.0-cent final and 1.0 cent special dividend, same as previous year.
  • Tone of management commentary is now more upbeat compared to previous quarters.



Banyan Tree Holding (Target px: S$0.71 / Downgrade to ACCUMULATE)

  • Sustained improvements in RevPARs for BTH’s biggest market Thailand.
  • Improved property sales with sales value jumping 2.5x YoY. 9M17 revenue recognised from segment made up 60% of our FY17e forecasts, we expect more recognition in 4Q17.
  • Increase in operating expenses hurt EBITDA margins.
  • Weakness in Maldives continues with 33% drop in RevPAR, but expected to ease in FY18.
  • Downgrade to ACCUMULATE with lowered target price of S$0.71 (from S$0.74).

CapitaLand (Target px: S$4.19 / ACCUMULATE)

  • Continued sales momentum for residential properties at the Group’s key markets Singapore, Vietnam. China launches to remain slow.
  • Office markets in Singapore and China show signs of improvement.
  • RevPAUs for serviced residences seeing recovery in key markets.
  • Tenant sales growth for Singapore malls (40% of total mall portfolio) remains muted.

Chip Eng Seng (Target px: S$1.21 / BUY)

  • Surge in revenue driven mainly by 3 Singapore residential projects.
  • Better performance from hospitality assets.
  • Cancellation of Melbourne Tower purchase contracts could enable Group to move on with other exit options. Australian residential sales remain slow – Potential launch of another South Melbourne project delayed.
  • Target price raised from S$0.90 as we narrow the discount to RNAV from 50% to 40% and incorporated construction business into our target price.

City Developments (Target px: S$12.10 / ACCUMULATE)

  • Strong momentum in Singapore residential property segment amid improvement in sentiment.
  • Broad-based recovery for Hotel Operations as global sentiment and tourism improves.
  • Strategic partnership with Vanke in China likely to boost asset sales for partnered assets and paves the way for future collaborations.
  • Slower residential sales in UK and
  • Main catalysts to come from successful launches of 4 residential projects in Singapore, mostly in 1H18.

Ho Bee Land (Target px: S$2.98 / ACCUMULATE)

  • ASPs for main China development projects maintained despite cooling measures.
  • Recurring income office portfolio remains stable.
  • Price and transaction volume pick up for residential properties in Core Central Region not yet translating to Sentosa condominium market.

Centurion Corporation Limited (Target px: S$0.59 / ACCUMULATE)

  • Revenue of S$32.3mn was below our estimate of S$35.9mn because Tuas dormitory’s rates were lower as its lease approaches expiration.
  • Revenue well supported by high occupancy at Woodlands and Papan of 99% and 100% respectively.
  • Occupancy at Malaysia’s dormitories is now at c.86% (c.74% in 1Q17).
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About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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