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Investors’ Corner (United Overseas Bank, Venture Corporation, Sembcorp Industries, Starhub)

Jimmy Ng

United Overseas Bank
Price – $24.76
Target – $25.22

United Overseas Bank’s (UOB) 3Q17 loans growth was 7.7% higher y-o-y driven by strong double digit loans growth from manufacturing and financial institutional loans coupled with a 6.6% increase of housing loans growth. Net interest margin (NIM) expanded 4bps q-o-q to 1.79%. Meanwhile, wealth management fee income also saw strong momentum growing 40% y-o-y. Non-performing loans inched up 10bps higher to 1.6% q-o-q, because of elevated specific provisions arising from exposure to an O&G company. Nevertheless, we are impressed with 3Q17 net interest income growth of 14% especially when 3Q16 was not an exceptionally weak quarter to compare with. We expect FY17E NIM to improve to 1.76%, and revise FY17E PATMI growth estimate to 10% based on the higher NIM outlook. Upgrade to ACCUMULATE. Phillip Securities (6 Nov)

Venture Corporation
Price – $19.30
Target – $23.00

Venture Corporation’s (VCL) results surprised on the upside as 3Q17 PATMI surged 135% on the back of a strong 50.5% growth in revenue to $1.1b. The higher revenue was driven by a diversified revenue base, continuing strong execution of customers’ programmes and deepening of collaborative partnership with strategic customers. For 9M17, revenue and PATMI rose 44.5% and 81.5% respectively, achieving 88.2% of our FY17 forecasts. We believe that VCL’s margins expansion is sustainable as it continues to create value by collaborating with customers through R&D support, and 4Q earnings tend to be the strongest quarter based on historical track record. Hence, we are raising our FY17 – FY21 PATMI forecasts by 15% – 20% and increase FV estimate to $23. Reiterate BUY. OCBC Investments (6 Nov)

Sembcorp Industries
Price – $3.38
Target – $4.20

Sembcorp Industries’ (SCI) headline net profit in 3Q17 came in below expectation declining 39% q-o-q, dragged by a $56.3m impairment charge from the utilities segment apart from the Marine’s weakness. Management is concluding its strategic review soon and the outcome detailing the change in strategies for various business segments will be announced in due course. The potential spin-off of its marine arm could lead to re-rating of SCI’s undervalued utilities business that is currently overshadowed by a weak marine outlook. Having made recent forays into key emerging markets including India, Bangladesh and Myanmar, the long-term growth prospects of SCI’s utilities arm with its expanded global footprint seem optimistic. We continue to like SCI as it offers a unique value proposition as a proxy to ride the cyclical O&M upturn, and is supported by a defensive utilities business. Maintain BUY. DBS Vickers (3 Nov)

Starhub
Price – $2.64
Target – $2.70

Starhub’s 3Q17 core earnings fell 11% q-o-q on lower revenue and higher depreciation, with 9M17 core EBITDA largely within expectation forming 80.3% of our estimates. We foresee subscriber acquisition cost in 4Q17 to surge ahead of the launch of the new iPhone 8/10, and estimate 4Q EBITDA margin to compress to 10 – 15%. Enterprise revenue growth accelerated to 10% underpinned by contribution from Accel Systems & Technologies and stronger billings. Meanwhile, the response to Starhub’s new unlimited weekend data plans has been positive, as average postpaid data usage improved further to 4.5GB per subscriber per month in 3Q17. The stock has de-rated by 21% over the past 12 months on concerns over threat posed by new entrants. Trading at negative one standard deviation of its historical EV/EBITDA mean, we believe that elevated risk premiums of the sector have been priced in. Moreover, decent dividend yields of over 4% should likely provide further downside support. Maintain NEUTRAL. RHB Research (3 Nov)