SINGAPORE (May 19): Some 45% of the results announced in the 1Q17 reporting season so far have been in line with expectations, while the number of beats have fallen to 26%, from 32% a year ago, according to UOB Kay Hian.
Unsurprisingly, UOB says the remaining 29% that reported earnings misses came primarily from shipyards and oil services.
“Despite what appears to be another lacklustre reporting season, a key highlight is that in 1Q17, market EPS was revised upwards rather than downwards,” says UOB lead analyst Andrew Chow in a report on Wednesday. “After two years of earnings disappointments, we are seeing nascent signs of an earnings recovery.”
Post 1Q17, UOB has raised its FY17 EPS growth forecast to 7.9% y-o-y, from 5.6% y-o-y previously.
This was largely attributable to better-than-expected results from all three banks, which Chow describes as “the stars of 1Q17”.
“However, we are selective after the FSSTI’s outperformance, and are buying laggards and inexpensive blue chips,” says Chow.
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OCBC is one of the research house’s top 10 key picks, with a “buy” recommendation and a target price of $11.70.
Shares of OCBC closed 3 cents higher at $10.41 on Friday.
The bank saw its non-performing loans (NPL) ratio improve to 1.25%, and reported a 28.6% growth in fee income. In addition, OCBC’s fees from wealth management increased by 70% during the quarter.
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“For OCBC, our 2017-18 net profit forecasts were raised by 13.0% and 8.2% respectively due to a decline in specific provisions,” says Chow.
On the property front, UOB names CapitaLand as its favoured developer, after having exceeded estimates due to recognition of gains from the sale of 45 units at The Nassim.
UOB has a “buy” call on CapitaLand with a target price of $4.30.
Shares of CapitaLand closed 4 cents higher at $3.53 on Friday.
Meanwhile, Singapore real estate investment trusts saw results come in largely in line with expectations, with business parks rental holding up well while office rentals continue to see downward pressure.
UOB’s top picks among the S-REITs are Frasers Logistics & Industrial Trust, CapitaLand Commercial Trust, and Ascendas REIT.
FLT saw a 6.7% increase in distribution per unit (DPU) to 1.75 cents for the first quarter ended March. Gross revenue registered at A$40.9 million ($42.45 million) for the quarter, 1.6% above the forecast of A$40.3 million after the inclusion of straight lining rental adjustment.
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CCT recorded a 9.9% rise in distributable income for the quarter to $71.3 million, on the back of an increased ownership in CapitaGreen from 40% to 100% from Aug 31, 2016.
Meanwhile, A-REIT’s DPU grew 13% to 3.852 cents from a year ago, supported by higher net property income from new acquisitions and active cost management.
UOB has “buy” recommendations on FLT, CCT, and A-REIT, with target prices at $1.11, $1.75, and $2.75, respectively.
On Friday, units of FLT closed half a cent lower at 99 cents, units of CCT closed 5 cents higher at $1.68, and units of A-REIT closed 1 cent lower at $2.55.
While there were misses galore within the shipyards, UOB’s preferred exposure in the sector is Sembcorp Industries.
UOB has a “buy” call for Sembcorp Industries with a target price of $3.66.
Shares of Sembcorp Industries closed 1 cent higher at $3.14 on Friday.
While SCI’s first quarter came in below expectations due to core losses at Sembcorp Marine, Chow says its utilities segment was in line.
“Investors were more focused on SCI’s CEO Neil McGregor’s strategic review of the group as part of his on-boarding process as new CEO. All options will be considered and we see this as a prelude to a potential M&A or restructuring,” says Chow.
In addition, Chow highlights Venture Corp as a notable outperformer in 1Q17.
Venture posted a strong set of first quarter results that exceeded expectations, with revenue growing 34% y-o-y.
“We remain bullish and raise our 2017-19 net profit forecasts by 10-13%,” says Chow.
UOB is keeping its “buy call on Venture and raising its target price to $13.60, from $12.40 previously.
Shares of Venture closed 4 cents higher at $12.79 on Friday.
Meanwhile, Chow says that investors with an appetite for mid-caps and looking for alphas could consider China Aviation Oil, Keppel Telecommunications & Transportation, and CITIC Envirotech.
CAO, the largest physical jet fuel trader in the Asia Pacific region, reported a 4.7% increase in 1Q earnings to US$25.3 million ($35.4 million) from a year ago, supported by an increase in gross profit and higher share of results from the group’s associated companies.
Keppel T&T, however, posted a 13.1% drop earnings to $11.6 million on the back of lower revenue from both its logistics and data centre divisions.
But UOB expects Keppel T&T’s earnings to rebound in 2H17 driven by strong demand for its data centres, as it is the preferred vendor for cloud-enabled data centres in the region.
Membrane-based water treatment solutions provider CITIC posted a 41.2% growth in earnings to $17 million in the first quarter, driven by an increase in contributions from its engineering business.
UOB has “buy” ratings on CAO, Keppel T&T, and CITIC, with target prices of $2.26, $2.51, and $1.10, respectively.
On Friday, shares of CAO closed 1 cent higher at $1.70, shares of Keppel T&T closed half a cent higher at $1.75, and shares of CITIC closed half a cent higher at 75.5 cents.
“We are selective on the FSSTI after its 12% rise year-to-date,” says Chow. “We continue to favour reasonably-priced stocks with visible earnings outlooks and reasonable yields.”
