MARKET PULSE: UOB, OSIM, Starhill REIT, DBS
31 Oct 2014
KEY IDEA
UOB: 3Q exceeded expectations
UOB’s 3Q14 net earnings of S$866m came in higher than Bloomberg’s poll of S$736m. Better Fee and Other Incomes were partly mitigated by higher impairment charges. Overall group NPL has stabilized at 1.2%. Net Interest Margin (NIM) is likely to hold steady at 1.71%. Management is cautiously optimistic about its prospects, in particular on wealth management and fee income, while mindful of the slowdown in China and the rest of Asia. Taking into account the softer global outlook, we have revised our earnings projections and valuations, and lowering our fair value estimate for UOB from S$25.00 to S$24.20. With a dividend yield of 3.3% and medium term potential total return of 11%, we are retaining our BUY rating.
MORE REPORTS
OSIM International: Painful quarter; challenges ahead
OSIM International Ltd (OSIM) announced a set of disappointing 3Q14 results which fell short of ours and the street’s expectations. Revenue grew 3.4% YoY to S$158.2m but PATMI tumbled 27.8% to S$16.4m. Management attributed this to the general market weakness, coupled with higher start-up expenses and legal costs from TWG-Tea’s expansion. Looking ahead, we expect cost pressures to persist in the near future and slash our FY14 and FY15 PATMI forecasts by 15.4% and 19.9%, respectively. We also cut our fair value from S$3.21 to S$1.90 after rolling forward our valuations to 14x FY15F EPS (previously 20x blended FY14/15F EPS). Although OSIM’s share price has plunged 18.0% since it reported its results, we believe the weak sentiment and lack of near-term catalysts may cap its upside potential. Hence, we downgrade OSIM to HOLD.
Starhill Global REIT: Good performance, attractive valuations
Starhill Global REIT (SGREIT) reported a decent 5.0% YoY growth in its 3Q14 DPU and this was within our expectations. Its Singapore portfolio continued to gain good traction, as NPI in 3Q14 rose 3.8% YoY to S$26.0m. Office leasing demand continues to be healthy, and we expect this momentum to remain robust. There was also good growth emanating from Australia. China, however, remained a drag to SGREIT (NPI -20.4% YoY), given intense competition and the austerity drive by the government. Overall portfolio occupancy was 99.1% (-0.3 ppt QoQ). SGREIT’s financial position remains strong, with a gearing ratio of 29.1%. 100% of its debt has also been fixed/hedged. We tweak our assumptions following a change in analyst coverage, but our DDM-derived fair value estimate remains unchanged at S$0.90. Maintain BUYon SGREIT, as valuations remain attractive, with the stock trading at FY15F P/NAV of 0.86x and distribution yield of 6.6%.
DBS: 3Q earnings of S$1.01b exceeded market expectations
DBS followed the other two banks and posted 3Q earnings which were ahead of market expectations. 3Q14 net earnings came in at S$1.01b, up 17% YoY, and higher than Bloomberg’s poll of S$975m. Net Interest Margin (NIM) increased 8bp from a year ago to 1.68% in 3Q14, up from 1.60% in 3Q13 and 1.67% in 2Q14. This compared to NIM of 1.71% for UOB and 1.68% for OCBC in 3Q14. Loans grew 8% (from a year ago) to S$262b versus 11% to S$193b for UOB and 27% to S$203b for OCBC. Its better-than-expected performance was fairly across the board. Net Interest Income rose 14% YoY or 3% QoQ to S$1.60b in 3Q14. Non-interest Income improved 23% YoY or 21% QoQ to S$912m, giving total 3Q income of S$2.51b. For Fee Income, Investment Banking did well and more than doubled earnings YoY to S$94m, while Wealth Management jumped 39% YoY to S$142m. We currently have a BUY on DBS and will review our earnings and fair value estimate after the analysts’ briefing later in the morning.