Brokers’ take

Compiled by Anita Gabriel

SINGAPORE BANKS

OCBC Investment Research,

June 13

Banking stocks have performed well this year, up some 9 per cent year-to-date at the high, as measured by the FTSE ST Financials Index.

While share prices have come off and the index is now off the year's high of 1,112.15 last month, we believe most of the positive drivers are intact despite current equity market softness.

The outlook is improving as the banking sector saw several quarters of improvement as allowances declined, non-performing loans plateaued and margins started to reverse up.

In general, quarterly profitability trends have also shown good improvements in the past few quarters. For DBS Bank, 1Q18 was also a record quarter for the group. This was similarly the case for the other banks, stripping out exceptional items.

In terms of pre-tax profits, the three banks reported combined profits of $4.4 billion, the highest level historically.

Net interest margins moved up to a range of 1.67 per cent to 1.84 per cent in 1Q18. On average, this was the fifth quarter of improvement. Dividend payout trend has also been edging up in the last decade.

At this year's high, DBS was up 23 per cent year-to-date, OCBC Bank was up 13 per cent and United Overseas Bank was up 13 per cent, which brought the three stocks to all-time highs. Since then, together with market softness, the banking stocks have fallen in tandem.

We think the recent price weakness could also be an opportune time to accumulate. Our top pick in the sector is DBS.

UOL GROUP | ADD

TARGET PRICE: $9.65

JUNE 13 CLOSE: $7.92

CGS-CIMB Research, June 12

We visited UOL's Amber 45 showflat and found its take-up rate had continued to improve, rising from 55 per cent to 60 per cent (of the total 139 units) during the initial launch in mid-May to 65 per cent at present, indicating continued buyer interest. The project is slated to be completed in 2021.

Following this success, UOL plans to release The Tre Ver (former Raintree Gardens collective sale site) in 3Q18. We estimate a breakeven cost of around $1,200 per sq foot. Based on an estimated selling price of $1,400 psf, UOL should generate a healthy pre-tax profit of 15 per cent. This will continue to extend UOL's residential income visibility.

UOL has been acquiring UIC shares in the open market and has increased its stake to 49.985 per cent as at June 12. This would likely expand its exposure to the rising office leasing market in Singapore as well as build up its recurrent income base.

Overall, UOL (plus UIC) owns 5.6 million sq ft of office and retail investment properties, making it one of the larger landlords in Singapore.

UOL's share price has declined in recent weeks, in tandem with other property peers.

At the current 34 per cent discount to revalued net asset value, UOL is trading slightly above long-term average discount trend. Hence, we maintain our "Add" rating with an unchanged target price of $9.65.

Given its strong balance sheet and net-debt-to-equity of 0.21 times, UOL can deploy more capital into new investments, which could catalyse its stock price. Downside risks to our call include slower-than-expected pace of sales for new launches.

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.