|MAYBANK KIM ENG||
United Overseas Bank (UOB SP)
Overseas growth will drive earnings, share price Concerns of weak earnings growth in Singapore are to blame for UOB’s 6% YTD underperformance vs. DBS, we believe. This is the wrong place to look. Increasingly, UOB’s growth is generated overseas – from SE Asia and Greater China – not Singapore. In 2019E, we estimate almost half of the group’s loan mix should be in higher growth overseas markets. Separately, UOB’s NIMs have lagged DBS in the past 3-quarters. This will change in 1Q19, following upward mortgage rate resets since late-2018. These drivers will provide the catalysts necessary for the gap to close vis-a-vis DBS. From a share price performance perspective, UOB’s 50-dma is already very close to crossing its 200-dma. In the past 5-years, such crosses have resulted in absolute returns of 20-65%. Maintain BUY.
Singtel, Bharti Airtel (Airtel) and Warburg Pincus are in talks to acquire a 61% stake in pay-TV operator, Dish TV (DTV), the largest pay-TV provider in India. The deal, which would involve making an offer for another 26% stake in the company, is likely to complete in two months with due diligence ongoing.
Post completion, the combined Airtel-Dish TV would be the world’s largest TV distribution company with over 38m subs or a 61% share of India’s direct-to-home (DTH) market.
The bulk of the investments are likely to be at the Singtel and Warburg Pincus levels so as not to burden Airtel’s balance sheet, which is highly geared.
Based on the reported offer price of INR50 per DTV share, the total consideration works out to be some INR80bn (87% stake). Including DTV’s debt of INR22.5bn, this translates into an enterprise value (EV) of INR114bn or FY20 EV/EBITDA of 5.1x.
We view the deal positively should it materialise, given the significant market share gains (largest pay-TV operator in India) and potential synergies in revenue, content as well as marketing and distribution.
Airtel’s Digital TV (ATV) business has 15m subs and is focused on urban centres while DTV is strong in rural areas. This acquisition would further enhance Airtel’s triple play proposition and competitive advantage, allowing it to go one up against rival Reliance Jio (RJIO)’s own triple play pursuit.
Creating Value By Recycling Capital
ART has been disciplined with recycling capital. It sold Ascott Raffles Place at an attractive price of S$353m (exit yield 2%), realising a divestment gain of S$134m. Proceeds from the divestment were re-deployed for the acquisition of Felix Hotel in Australia (EBITDA yield at above 6%) and its maiden development project lyf one-north in Singapore (yield-on-cost for development at 6%). We upgrade ART to BUY on valuation grounds. Target price: S$1.46.
Yanlord Land Group: Don’t leave me behind
We see Yanlord Land Group Limited (Yanlord) as a beneficiary of improved sentiment within the Chinese property market, and this is apparent in the recovery seen in industry contracted sales growth for Mar following a soft 2M19. According to data from CRIC, Yanlord’s 1Q19 contracted sales more than doubled YoY to RMB7.06b (gross basis). Yanlord recently announced that its Riverbay Gardens project in Suzhou had achieved an impressive 100% sell-out on the first day of its latest launch. Although Yanlord’s share price has rebounded 20.5% YTD, this still pales in comparison to the average 43.2% YTD share price appreciation of the A/H shares-listed Chinese developers which we track. We see Yanlord as a potential laggard play given the right mix of its quality land bank and strong fundamentals. It is trading at a cheap FY19F P/E ratio of 4.2x, which is approximately 1.4 standard deviations below its 8-year average forward P/E of 7.6x. Maintain BUY with an unchanged fair value of S$1.75.
Check out our compilation of Target Prices