DBS GROUP | OUTPERFORM
TARGET PRICE: $23.30
SEPT 20 CLOSE: $20.52
Daiwa, Sept 20
DBS shares have outperformed for most of the year (up 18 per cent YTD versus a 12 per cent YTD rise for the STI), though slipping slightly from the recent peak in late July 2017.
Despite its good run, DBS shares are still trading below the sector average on price-to-earnings ratio and price-to-book ratio, yet we also expect the company to achieve the strongest earnings per share (EPS) growth for 2017-2019, based on our forecasts. Hence, we believe its investment merits have not diminished.
Moreover, we are lifting our EPS by about 1-2 per cent for 2017-2019 after fine-tuning our core assumptions.
We lower our net-interest margin forecasts by 4-5 basis points for 2017-2019 and raise our credit-cost assumptions from 27-28 basis points to 30-32 basis points on a more protracted asset-quality recovery for its exposure to the oil and gas services segment, with the most vulnerable exposure of $5.4 billion representing less than 2 per cent of total loans.
However, these downward adjustments are offset entirely by higher fee income (driven by solid underlying business momentum YTD) and our lower operating expense assumptions.
DBS is probably ahead of the curve versus its peers in making the required investments in its systems (to reduce channel and distribution costs) and in the overall area of digitalisation.
These investments have already been paying off since H216 in its leaner cost/income ratio.
The tight control of operating expenses, even including integration costs from the ongoing ANZ Bank acquisition (in several stages), has been a further positive surprise in H1 2017.
Correspondingly, we are nudging up our 12-month target price, derived from a warranted equity method valuation (a form of the Gordon-growth model), to $23.30 (from $23).
HOSPITALITY REITS | OVERWEIGHT
RHB Securities, Sept 20
We reiterate our positive stance on the hospitality sector and expect 2018 to be a turnaround year, with growth drivers falling into place.
Key demand boosters include the opening of a new airport terminal, increase in corporate travel and more calendar events in 2018.
Hoteliers are also set to benefit from a slowdown in supply, which should increase pricing power.
Overall, we expect revenue per available room to bounce back by 3-7 per cent during 2018-2019, after falling about 15 per cent from its 2012 peak.
Year-to-date, hospitality Reits are up 16.4 per cent, outperforming S-Reit's 13.6 per cent and STI's 11.8 per cent.
Despite the outperformance, hospitality Reits' average forward yields of 6.2 per cent and yield spread of 4.1 per cent are the highest among sub-sectors.
Our picks are CDL Hospitality Trust and OUE Hospitality Trust.
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