Asia Pacific Equity Research | Singapore

MARKET

PULSE

Morning Call 12 Jul 2018

Key Idea DBS: Eyes still on the ball Last week’s property cooling measures have weighed on property and banking stocks, but less for the latter. Based on 1Q18, housing loans accounted for 22% of DBS’s loans book versus 26% for OCBC and 28% for UOB. During the previous cooling measures, property stocks took a significantly longer period to recover, while banks were able to derive growth from other areas which helped to lessen the impact and resulted in share price outperformance. We believe DBS deserves a higher premium than its regional peers. We lowered our valuation to 1.7x book (in line with the decline in regional peers from 1.6x to 1.5x), dropping our fair value from S$34.60 to S$32.67. At current price, dividend yield is 4.6%. Maintain BUY. More reports  Singapore Press Holdings: In-line set of 3Q results

News Headlines  PACC Offshore Services Holdings Ltd has entered into a JV with Kerry TJ Logistics to provide an integrated solutions platform for offshore wind farm developers, EPCI contractors and wind turbine manufacturers in Taiwan.  Kencana Agri Limited has divested its entire equity stake in PT Sawit Alam Permai for a total cash consideration of IDR3.2b.  Interra Resources Limited has completed development well CHK 1210 in the Chauk oil field in Myanmar as an oil producer.  RH Petrogas Limited has signed new 20-year production sharing contracts for the Kepala Burung contract area and the Salawati Kepala Burung contract area in Indonesia.

Research Team (65) 6818 4815 e-mail: [email protected]

Sources: MasNet, Bloomberg, Business Times, Straits Times and other media

Please refer to important disclosures at the back of this document.

OCBC Investment Research Market Pulse 12 Jul 2018

DBS: Eyes still on the ball

Singapore Press Holdings: In-line set of 3Q results

 Less impacted by cooling measures  DBS deserves a premium  Fair value of S$32.67

SPH’s 3QFY18 results were broadly within expectations. Operating revenue fell 3.8% YoY to S$250.1m, brought about primarily by a 8.0% drop in media revenue. The YoY decline in print ad revenue continues to slow down over the course of sequential quarters. Revenue for the group’s property segment dipped 2.4% YoY to S$60.1m, while revenue from the other businesses rose S$6.1m YoY to S$22.0m. On a 9MFY18 basis, operating revenue of S$742.5m constituted 74.5% of our full-year estimates. PATMI for 3QFY18 rose 64.3% YoY to S$47.4m, on the back of lower impairment charges taken in the latest quarter. The group appears ready for expansion into the aged care space overseas, leveraging its Orange Valley brand in Singapore. While there are some positives to be taken away from the latest quarter, the recent Singapore property cooling measures could be a potential headwind for the group’s joint project with Kajima Development, The Woodleigh Residences. Pending further details from an analyst briefing today, we maintain our HOLD rating but place our fair value estimate of S$2.52 under review. (Joseph Ng)

Party pooper in the form of harsh cooling measures Last week, the Singapore authorities unexpectedly announced more property cooling measures. This is reminiscent of the cooling measures introduced in Jan 2013, which led to a 4.5 years decline in residential property prices in Singapore. This round, there is an increase in additional buyer’s stamp duty (ABSD) and the loan-to-value ratio was brought down by 5% across the board. Will the impact last more than 4.5 years? From Jan 2013 to the trough in 2016, the Real Estate index shed 28.4% before staging a recovery starting in early 2017. From early 2017 to October 2017, the index gained 33% touching a new 5-year high. Unfortunately, with the latest round of cooling measures, the resultant sharp sell-down brought the index down 13.2% YTD. Key real estate developer stocks bore the brunt of the uncertainty and fell sharply. Based on historical trends from 2013, the impact is more severe for property stocks than banking stocks. Outlook still healthy Based on 1Q18, housing loans accounted for 22% of DBS’s loans book versus 26% for OCBC and 28% for UOB. Together with last Thursday’s (5 Jul 2018) bumper sales of >1000 units during the four hours post the announcement of the cooling measures, we expect this to lessen the impact of slower new loans growth this quarter. However, the longer term potential drop in transaction volumes could impact loans growth. With the new set of measures, we expect the pace of consumers switching banks for mortgage loans to also come off. The recent regional selldown has brought valuations lower, but we still believe DBS deserves a higher premium than its peers in this region. We have dropped our valuation to 1.7x book (in line with the decline in regional peers from 1.6x to 1.5x), dropping our fair value from S$34.60 to S$32.67. At current price, dividend yield is 4.6%. (Carmen Lee)

2

OCBC Investment Research Market Pulse 12 Jul 2018

Calendar of key events 9-Jul-18

10-Jul-18

11-Jul-18

12-Jul-18

13-Jul-18

CN Jun Foreign Reserves

SPHREIT SP 3Q18

SPH SP 3Q18

US Jun CPI

CN Jun Money Supply (10 Jul - 15 Jul)

SG Jun Foreign Reserves (4 Jul - 9 Jul)

CN Jun PPI

US Jun PPI Final Demand

SG May Retail Sales

CN Jun Trade Balance

CN Jun CPI

US May Wholesale Inventories

CN Jun Exports CN Jun Imports SG 2Q18 GDP (9 Jul - 13 Jul)

16-Jul-18

17-Jul-18

18-Jul-18

19-Jul-18

20-Jul-18

SBREIT SP 2Q18

FIRT SP 2Q18

US Jun Housing Starts

KEP SP 2Q18

CT SP 2Q18

US Jun Retail Sales Advance

US Jun Industrial Production

SATS SP 1Q19

SMM SP 2Q18

CN 2Q18 GDP

SG Jun Non-oil Domestic Exports

CN Jun Retail Sales CN Jun Industrial Production

23-Jul-18

24-Jul-18

25-Jul-18

26-Jul-18

27-Jul-18

MLT SP 1Q19

ART SP 2Q18

SUN SP 2Q18

SIA SP 2Q18

M1 SP 2Q18

US Jun Existing Home Sales

MINT SP 1Q19

US Jun New Home Sales

US Jun Wholesale Inventories

SGX SP 4Q18

SG Jun CPI

US May FHFA House Price Index

US Jun Durable Goods Orders

US 2Q18 GDP Annualised

US Jul Manufacturing PMI

SG Jun Industrial Production

30-Jul-18

31-Jul-18

1-Aug-18

2-Aug-18

3-Aug-18

MAGIC SP 1Q19

CACHE SP 1Q19

US Jun Construction Spending

US Aug FOMC Rate Decision

UOB / SCI / VMS SP 2Q18

CN Jul Non-manufacturing PMI

US Jul Manufacturing PMI

US Jun Factory Orders

US Jul Change in Nonfarm Payrolls

CN Jul Manufacturing PMI

US Jul ISM Manufacturing

US Jun Durable Goods

US Jun Trade Balance

SG Jun Money Supply

CN Jul PMI Mfg

SG Jul Purchasing Managers Index

US Jul Unemployment Rate US Jul ISM Non-manf. Composite

6-Aug-18

Notes:

7-Aug-18

8-Aug-18

9-Aug-18

10-Aug-18

CIT SP 2Q18

US Jul PPI Final Demand

CD SP 2Q18

CN Jul Trade Balance

US JunWholesale Inventories

US Jul CPI

CN Jul Exports

CN Jul PPI

CN Jul Imports

CN Jul CPI

Sourced from Bloomberg All US Tech results dates have been adjusted to Singapore dates. US Initial jobless claims are released every Friday. MBA mortgage applications are released every Wednesday.

3

OCBC Investment Research Market Pulse 12 Jul 2018

ANALYST DECLARATION: For analysts’ shareholding disclosure on individual companies, please refer to the latest reports of these companies.

DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without the written consent of OCBC Investment Research Private Limited (“OIR” or “we”). This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein or to participate in any particular trading or investment strategy. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. In the event that you choose not to seek advice from a financial adviser, you should consider whether investment in securities and the securities mentioned herein is suitable for you. OverseaChinese Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited (“BOS”), OIR, OCBC Securities Private Limited (“OSPL”) and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. The information provided herein may contain projections or other forward looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Privileged / confidential information may be contained in this report. If you are not the addressee indicated in the message enclosing the report (or responsible for delivery of the message to such person), you may not copy or deliver the message and/or report to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Bank, BOS, OIR, OSPL and their respective connected and associated corporations shall be understood as neither given nor endorsed.

RATINGS AND RECOMMENDATIONS: - OIR’s technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total expected return in excess of 10% based on the current price; a HOLD rating indicates total expected returns within +10% and -5%; a SELL rating indicates total expected returns less than -5%. - For companies with market capitalisation of S$150m and below, OIR’s BUY rating indicates a total expected return in excess of 30%; a HOLD rating indicates total expected returns within a +/-30% range; a SELL rating indicates total expected returns less than -30%.

Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Private Limited

Published by OCBC Investment Research Private Limited

Important4disclosures

market pulse -

6 days ago - e-mail: OIR.info@ocbc.com. Sources: MasNet, Bloomberg, Business ... headwind for the group's joint project with. Kajima Development, The ...

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