Published:
CIMB strategist says Q1 earnings "lousy"
Their view is there are too many disappointments and too little earnings growth and thats why they have moved the STI from overweight to neutral.
| Downgrade Singapore to Neutral from Overweight. Our FSSTI target isunchanged at 3,560, bottom up. The 1Q11 season was disappointing. Headwinds are looming from rising costs while sales growth is losing traction. Our earnings estimates have been downgraded recently. Globally, US growth appears to have gone into a soft patch while EU debt concerns are resurfacing. Singapore is an open market and will not do well when global growth slows. Also, the recent General Election outcome suggeststhat any new policies are likely to be further drags on corporate profitability. We deem it timely to pare down our 2-year-old. Overweight position on Singapore. Our last upgrade was in Apr 09. |
And the bad news doesn't end there. It has been a lousy quarter
| The 1Q11 season for Singapore was lousy. There were more negative surprises than positives. Our positive-negative surprise ratio slipped back to 0.6x (4Q10: 1.3x) with higher costs, slower revenue recognition emerging as key negatives. Among the larger-cap stocks, six companies beat expectations and eight missed. Key surprises came from DBS, Genting, Golden Agri, and NOL. On the reverse, CapitaLand, ComfortDelgro, Cosco, SCI, SembMarine, SIA, SPH and StarHub disappointed. |
The only bright spot according to CIMB was the banks, with DBS being top pick
| Financials: DBS the only one to stand out. 1Q11 results generally did not disappoint. DBS was the only one that soundly beat expectations, at 23% above our expectation. Its strong showing could be credited to: 1) NIMs inching up marginally, contrary to expectations; 2) treasury rebounding to 1Q-3Q10 levels, proving that 4Q10 weakness was probably seasonal; and 3) improving earnings from regional markets. OCBC’s and UOB’s fee income growth complemented their strong loan-volume growth. OCBC’s margins contracted 6bp, though. SGX’s results were within expectations as derivatives clearing revenue was able to offset weak securities clearing revenues and higher costs. Against our 6% GDP growth forecast for this year, we believe business loans should take over the reins of growth for banks. As businesses expand and invest, economic multipliers would come into play. A higher mix of business loans can help shore up margins by the end of the year, in all probability. Maintain Overweight; banks are building up revenue-growth drivers. Singapore banks trade between 1.3x and 1.5x CY11 P/BV, vs. the FSSTI’s 1.7x P/BV. Singapore banks fall below 1x P/BV only when crises strike; with a benign credit environment, tight property lending policies, they are fairly well insulated for now. Downside risks are low at current valuations. The sector’s 12.1x CY11 P/E is also below the index’s 14.4x. Such valuations reflect expectations of no growth for banks. But we note that while there could be difficulties forging topline growth amid low interest rates, each bank is planting its seeds of growth. They are exploring ways of: 1) benefiting from regional growth; 2) tackling Rmb internalisation and its knock-on effects; and 3) profiting from Singapore as a wealth-management hub. UOB stands to benefit from buoyant ASEAN trade flows. OCBC is banking on its wealth-management engines and extending the BOS web beyond Asia. DBS has the Rmb driver as its tailwind while it invests in both its Treasury and Markets capabilities and Private Banking franchise. Supporting the development of the financial industry will be the launch of SGX’s high-speed trading platform in August, plus the continuous additions of products to maintain Singapore’s relevance as one of the major fhubs in Asia. Our top pick in the sector is DBS, our top short is UOB. |
Read Here
Advertise
Sign Up
