Leaning on stronger capital
■ We think the implications of a pause in US rate hikes have been priced into bank valuations. Absence of asset quality pressure should prevent de-rating.
■ 2019F could see weaker loan growth momentum in ASEAN markets due to slowing China growth. Resolution of US-China trade conflict is a key catalyst.
■ DBS is our preferred pick for the sector due to its demonstrated execution in raising asset yields, strong CASA funding base, and visibility on dividends.
■ Maintain Overweight. The sector trades below mean at 1.2x CY19F P/BV. Stronger CET-1 of c.14% underlines sustained dividend yields in 2019F.
STRATEGY – SINGAPORE
4Q18 Results Wrap-up – Another Weak Quarter
4Q18 results recorded continued weakness, where 35% of the companies missed expectations vs 36% in 3Q18. Post results, we further reduced our 2019F EPS by 2.2%. We recommend investors stick to a select group of large caps and small caps with a strong economic moat and earnings visibility.
Banyan Tree Holdings Limited
Gathering momentum in management contracts
SINGAPORE | REAL ESTATE (HOSPITALITY) | FY18 RESULTS
PATMI met expectations excluding the surge in effective tax due to higher withholding tax and under provision of taxes in prior years.
Sizable uptick in property salesfrom Phuket. Secured a record 28 new hotel management contracts in 2018, with a pipeline of 53 hotel openings from 2019 to 2022.
Hotel investments segment took a hit from Thailand underperformance and Seychelles deconsolidation effect. Decline in forward bookings, dragged down largely by Thailand.
Long-term growth catalysts remain intact. Focus would be the continued build-up in fee-based income and property sales.
Maintain ACCUMULATE with adjusted target price of S$0.76 (prev. S$0.73).
Singtel: Recapitalisation exercise at Airtel
Following Bharti Airtel’s (Airtel) upcoming US$3.5b rights issuance, Singtel has announced that it will be subscribing fully to its rights entitlement for its direct stake of 15% in Airtel, or ~US$525m. Airtel will also be looking to issue ~US$1b in perpetual bonds, which Singtel will not be participating in. Management remains cautiously optimistic of Airtel’s prospects in India, given the significant consolidation, as well as Airtel’s 4% QoQ growth in mobile ARPU after 9 consecutive quarters of decline. Assuming that no further than US$525m of contribution is required of Singtel, we believe that FY20 should see net debt to EBITDA (including associates) rise from 1.59x to 1.70x. Maintain BUY with unchanged FV of S$3.79.
Check out our compilation of Target Prices