How Did SG Stocks Fare For 4Q17?

With the 4Q17 earnings season just ending two weeks ago, how did each of the sectors fare in compared to consensus expectations?

Overall, 31 percent of companies missed earnings expectations against a higher number of companies that did. There were also some positive surprises as DBS, City Development, CapitaLand, Memtech, Sunningdale and Raffles Medical raised their dividends more-than-expected.

Investors Takeaway: 4Q17 Results Review

Banks: Surpassed Expectations With More Positive Upside To Come

The banking sector surpassed expectations as DBS and OCBC grew more than expected. Furthermore, both banks have also guided for loan growth in the high single digits in FY18. UOBKH also foresees net interest margin expansion for the banks to continue into 2018. Right now, DBS and OCBC are well capitalised to safeguard it against adverse market conditions. UOBKH’s preferred pick in the banking sector is OCBC given that it is on the verge of an IPO or trade sale of its 30 percent stake in Great Eastern Life Malaysia.

Performance Rating: A+

Telcos: Largely Disappointing Quarter

Overall, the telco sector didn’t have the best of quarter in 4Q17. While M1 delivered results that were in-line with consensus in FY17, Singtel and Starhub underperformed. Singtel’s performance disappointed as results was weighed by lower contributions from its regional associates Telkomsel and Bharti Airtel. On the other hand, Starhub continued to face mounting pressure on its mobile and pay-TV businesses, as EBITDA margin contracted to 16.9 percent from hefty handset subsidies and one-off provisions.

Performance Rating: C-

Property: No Surprises

4Q17 was a largely flat quarter for the property sector. There were no major surprises from City Development and CapitaLand as both reported results that were broadly within UOBKH’s expectations. UOBKH notes that City Development remains optimistic on prospects for the Singapore residential property segment as it expects minimal impact from the increased buyer’s stamp duty.

Performance Rating: B

REITs: A Mixed Bag

S-REITs reported a mixed bag of performance. Both Keppel REIT and CapitaCom Trust missed expectations, with the former seeing a lower-than-expected rental reversion in the Singapore office space which led to lower than expected earnings. For CapitaCom Trust, the divestment of One George Street, Golden Shoe carpark and Wilkie Edge led to the REIT’s earnings miss. However, CapitaMall Trust outperformed as it saw higher occupancies at Bugis Junction and The Atrium@Orchard in 4Q17. While despite the mixed performance, UOBKH believes that investors should still be overweight on REITs in the upcycle environment. UOBKH’s key REIT picks include CapitaCom Trust, CDL Hospitality Trusts and Ascendas REIT.

Performance Rating: B-

Shipyards: Missing Estimates

As a whole, shipyards missed consensus expectations. Sembcorp Marine completely underperformed while Sembcorp Industries missed consensus estimates due to its underperforming India and marine assets. In its strategic review, Sembcorp Industries decided to shift its focus towards its utilities operations, including the target divestment of $0.5 billion over the next two years. Moving forward, Keppel Corp remains UOBKH’s top pick for a gradual recovery of the O&M sector and asset reflation play.

Performance Rating: D

Aviation: Standout Performance From SIA

Within the aviation sector, ST Engineering’s 4Q17 earnings was in line with UOBKH’s estimates while SATS’ results were marginally below estimates due to joint venture earnings falling short of expectations. A surprising outperformer was SIA that beat market consensus.

SIA’s 9M18 headline net profit exceeded consensus’ full-year estimate of $593 million by 20 percent. The strong performance was underpinned by SIA Cargo and Scoot, with SIA Cargo’s yield rising by 12 percent compared to UOBKH’s estimate of 5.1 percent. Scoot also enjoyed a 48 percent year-on-year rise in operating profit.

Performance Rating: A-