In the past two months, companies have been reporting their quarterly results. 4Q16 results continue to reaffirm the gloomy outlook for businesses as we look ahead into FY17. The number of companies that did not meet expectations in 4Q16 was comparable to 3Q16.
However, despite having 25 percent of companies failing to meet market expectations and market earnings continuing to trend downwards, there was still a pleasant surprise. UOBKH observed that there were more companies exceeding market expectations compared to 3Q16.
To sum up the 4Q16 performance of the Singapore market, here is a summary of five sectors and two notable stock mentions from 4Q16 from UOBKH:
DBS (SGX:D05) and OCBC (SGX:O39) banks reported a slight miss in its 4Q16 results as a result of the higher specific provisions for its oil & gas books. For DBS bank, the higher provision for O&G was offset by growing loans (+3.9 percent quarter-on-quarter), largely contributed by the regional corporate and Singapore housing areas.
For OCBC, loan growth rebounded by 5.5 percent quarter-on-quarter (QoQ) in 4Q16, mainly due to softened demands and lesser trade loans in 1H16.
While banks missed meeting market expectations by a slight margin, UOBKH recommends for investors to focus on asset quality and net interest margin (NIM) moving forward.
Among the three local telcos, Singtel (SGX:Z74) was the only company that delivered in 4Q16.
4Q16 was a poor quarter for Starhub as results fell below expectations. UOBKH believes that this was the result of larger mobile phone subsidies, fewer grants from Next Generation Nationwide Broadband Network (NGNBN) and a one-time restructuring provision. Because of this, Starhub (SGX:CC3) also cut its dividend for 4Q16.
In contrast, Singtel had a better quarter. Singtel’s consumer business in Singapore improved, particularly the broadband, pay-TV segments and cost containment.
Singtel’s regional mobile associates also delivered in 4Q16. Singtel’s subsidiary Telkomsel’s mobile subscribers expanded 14 percent year-on-year while data revenue grew 28 percent year-on-year.
For Singtel’s investors, there could be a special dividend of up to $0.175 per share should NetLink Trust IPO successfully in April.
According to UOBKH, developers managed to shine in 4Q16 as developers reported results that exceeded market consensus. This was largely due to stronger performance in the Chinese market.
City Development (SGX:C09) managed to come in ahead of expectations by seven percent thanks to higher-than-expected earnings contribution from property development in China. CapitaLand (SGX:C31) also exceeded market consensus estimates by 15 percent as its Chinese residential projects and shopping malls contributed more.
With the exception of CDL Hospitality Trust (SGX:J85), most S-REITs managed to barely meet market expectations in 4Q16. CDL Hospitality Trust was the only REIT that managed to exceed expectations due to “better-than-expected performances” in New Zealand and Japan. Nevertheless, domestic RevPAR continues to be soft as demand from the corporate sector is weakening.
5. Offshore & Marine
Offshore & Marine (O&M) companies generally performed better in 4Q16 despite the tough conditions in the O&M. One of the surprises among the O&M sector is Keppel Corp (SGX:BN4).
Keppel Corp managed to beat market estimates with an expansion in its O&M operating margins and impressive property earnings, despite a $227-million “impairment on its Offshore & Marine unit”.
Notable Mentions – Venture and Hock Lian Seng
UOBKH also highlighted two notable mentions that had particularly good quarters in 4Q16. Venture Corporation’s (SGX:V03) revenue and gross margin expanded but they did not announce a higher dividend-per-share (DPS). Nevertheless, UOBKH thinks that Venture is mention-worthy for the results.
Although there was no surprise in Hock Lian Seng’s FY16 core earnings, Hock Lian Seng announced a special dividend of $0.10 per share. With the special dividend announcement, Hock Lian Seng announced total DPS $0.125 per share. This implies a dividend yield of more than 20 percent, albeit possibly a one-off thing.
Investors Takeaway: Valuation Undemanding But Be Selective
While 4Q16 results were relatively better than 3Q16 for most companies, UOBKH warns that investors should remain selective on local stocks. That being said, UOBKH opines that there could be some limited downside to current price level as valuations are still “undemanding”.
In terms of investment preference, UOBKH continues to favour “laggard solid stocks with visible earnings and reasonable yield”.
UOBKH highlights stocks like OCBC, SingTel, Venture, CapitaLand, Frasers Logistics & Industrial Trust, A-REIT, Sembcorp Industries and CapitaCommercial Trust for its Blue-Chip preference. Investors with an appetite for mid-cap stocks can also consider China Aviation Oil, Hock Lian Seng and ISOTeam.
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