DBS GROUP HOLDINGS
TARGET PRICE: $27
MARCH 15 CLOSE: $28.61
RHB Research, March 15
Three indicators point to more Sibor (Singapore interbank offered rate) upside.
The market is expecting the FFR (federal funds rate) to be hiked three to four times this year. Currently, the spread of the London inter-bank offered rate over Sibor is 73 basis points - sharply wider than the 47 basis points historical average over 15 years. If we assume a reversion to mean, there is scope for the three-month Sibor to trend up further.
Third, the Monetary Authority of Singapore's April monetary policy statement will likely keep monetary stance unchanged.
This means that Sibor is likely to trend up, in line with the FFR hikes. We are forecasting DBS' NIM (net interest margin) for 2018, 2019 and 2020 at 1.82 per cent, 1.88 per cent and 1.96 per cent respectively. This is an uptrend versus last year's 1.75 per cent. The trend of rising Sibor would contribute to this uptrend.
Given the likelihood of a more aggressive tightening of US monetary policy, we raised our DBS average return on equity assumption over the next few years to 12.7 per cent from 12.1 per cent previously.
Our cost of equity assumption remains at 10 per cent. This yields a target FY18F price to book value of 1.39 times - higher than the five-year historical average of 1.15 times. Correspondingly, our target price is raised to $27 (from $25) on an ex-dividend (on May 3) basis. Although DBS is likely to gain from Sibor increases, we believe the positives have largely been priced in.
This is evident from the 50 per cent plus share price rise over the past 12 months. Downside risks to our forecasts include higher-than-expected impairment charges and weaker-than-expected NIMs. The converse represents upside risks.
CGS CIMB Research, March 14
Our preferred picks for the growing media/entertainment business regionally are MM2 Asia and Cityneon Holdings.
l MM2 - Apart from increasing production budget and higher contribution from its cinema and concert segments, we believe its post-production segment is primed for the next growth phase, after securing the Train To Busan intellectual property (IP) right to develop into touring shows.
Its current market valuation (excluding Unusual and the $230 million price tag for Cathay cinemas) appears to be pricing its core production business at only eight times CY18F price earnings, which is at a discount of almost 60 per cent to regional movie/TV production peers. Key near-term catalyst is potential spin-off of Vividthree Productions.
l Cityneon - With a portfolio of three IP rights and an expanding creative team, Cityneon is on stronger footing now and remain positive on its travelling show pipeline. Its traditional business could gain from more theme park and event opportunities.
Current 12 times FY18F price earnings valuation is attractive, given three-year earnings per share compound annual growth rate of 20.4 per cent (our estimates) versus industry average of 17 times and 20.6 per cent (Bloomberg consensus). Winning its fourth IP - the company is on the lookout for this - and stronger uptake of travelling sets could cause the stock to re-rate.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
Compiled by Anita Gabriel