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Shopping For Catalysts In Sheng Siong And UOB
The STI has slowly been edging up in the last few days but with no real conviction or promise. Trading volumes have been low as traders shake off CNY celebrations and look for themes for the year ahead.
Most markets have gotten back in the green zone on the back of Janet Yellen’s comments, where she pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps”.
In Singapore this week, United Overseas Bank (UOB), which commands a significant weightage on the blue chip index (STI) is set to release its results where it should see high-single digit growth to low teens loan growth.
Is it worth shopping for Sheng Siong?
Sheng Siong Group (SSG) has kicked off its e-commerce business in limited areas. The group is waiting for the pilot phase to be successfully completed before expanding to cover the whole of Singapore. This could be a prudent move as it shows how SSG makes calculated risks.
SSG’s 90 per cent payout ratio dividend policy expires in FY14, and questions remain over its continuation. Should the payout ratio be decreased, SSG would lose some of its attractiveness as a yield play which would possibly affect the share price. In 2013, unfavourable rental markets saw SSG reluctantly attempting to acquire properties. This includes the Yishun Junction 9 which is awaiting final authority approval.
Yishun is a mature estate but is set to benefit from URA’s plan to rejuvenate the area. Another 40,000 homes will be added over the next decade to the existing 131,000 homes. The store’s location in the upcoming Junction 9 itself sees captive shoppers in the form of the 186 residential units on the higher floors. Also, the decent car park size of 136 lots and its proximity to the Yishun ring road should provide strong traffic flow. OCBC says the acquisition price does appear to be on the high end with an implied capital value of $2,968 psf and yield of 2.8 percent.
OCBC maintains its buy call with a target price of $0.70. CIMB maintains its outperform call with a target price of $0.74. It sees catalysts coming from earnings delivery from new stores. The average uplift expected among analysts is for a 24.4 percent rise in the share price.
Banking on UOB
UOB will be in the news later this week when it announces its 4Q13 results. Since the previous results season, its share price has increased. Management had hinted at high single-digit to low teens loans growth in FY14 and expects credit quality to remain benign.
UOB is attractive for its stable earnings profile and strong fees, and commission growth projections. The bank has also been focusing on its regional franchising, particularly on larger SMEs seeking solutions for intra-regional trades and growth. UOB’s ability to offer value-added services to this target group through strong cross-selling capabilities and setting up of foreign direct investment (FDI) units is also a positive.
Phillip Securities expects UOB’s credit costs to remain benign as management predicts customer selections to remain rigorous and conservative through lower loan-to-value ratios. However, there is caution over ASEAN countries like Thailand and Indonesia which might affect UOB in the near term. The slowdown of mortgage originations as guided by management to be 30 percent – 40 percent, will create some drag on loans growth in FY14. UOB’s housing loans book make up 28 percent of total loans, which is higher compared to its peers, but overseas corporate loans growth could help mitigate this.
Phillip Securities continues to be positive on UOB’s overall resilient earnings and maintains its accumulate call, with a revised target price of $23.03. The average uplift expected among analysts is for a 16.8 percent rise in the share price.
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