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3Q Report Card – How Did SG Market Fare?

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Singapore listed companies crossed the 3Q18 finishing line with a subpar performance. Among the companies covered by UOBKH, 36 percent of them missed consensus estimates. According to UOBKH, 37 percent of companies reported results that fell below expectations, the highest rate of disappointment since 2Q16. Only 17 percent of companies reported better-than-expected results. Here is a breakdown of the most interesting sectors and how they fared in 3Q18.

Investors Takeaway: Hits And Misses Of 3Q18

Banks: Delivering In 3Q18 Amidst Volatile Environment

The banking sector was one of the few sectors that delivered in 3Q18. All three Singapore banks met UOBKH’s earnings expectations. Both DBS and OCBC achieved net interest margin (NIM) expansion and strong growth in net trading income. OCBC’s CET-1 capital adequacy ratio improved substantially by 0.4ppt quarter-on-quarter to 13.7 percent and has caught up with that of its peers in 3Q18.

Moving forward, UOBKH recommends OCBC as its top sector pick due to its potential to catch up in NIM expansion and dividend payout. From a valuation perspective, OCBC is trading at more than one standard deviation below its long-term mean price-to-book value.

Telecommunications: Miss, Miss, And More Misses

The performance of telcos in 3Q18 was a misses galore. Both Singtel and StarHub missed expectations with Singtel suffering from losses at its subsidiary (Bharti) and depreciation of the Aussie dollar, Indonesian rupiah and Indian rupee. Starhub’s net profit was dragged down by a one-off adjustment to traffic expenses of $5 million. Going forward, Starhub’s mobile business is expected to be impacted by intense competition whereas its pay-TV is facing a secular decline. That being said, UOBKH continues to recommend BUY calls for Singtel and Starhub, citing undervaluation as a prime reason to invest in them.

Shipyards: A Mixed Season

The shipyard sector had a mixed quarter of hits and misses with Yangzijiang starring for the quarter. Yangzijiang’s 9M18 results exceeded consensus expectations thanks to a combination of better-than-expected shipbuilding core margin (20 percent), higher revenue from shipbuilding trading revenue and its investment segment.

The two other giants in the shipyard sector, i.e. Sembcorp Marine and Sembcorp Industries, both managed to scrape through the quarter with in-line results. For Sembcorp Industries, its utilities segment performed well with better-than-expected performances in Singapore, China and the UK. Although Sembcorp Gayatri Power posted larger losses, write-backs at Sembcorp Green Infra helped India to keep its India profitable. Sembcorp Industries remains as UOBKH’s top pick in the sector.

Notable Results: Venture Corporation, Japfa

Venture Corp disappointed with its 3Q18 results by posting a net profit of $81 million. This was 27 percent lower than its year-on-year results and 17 percent off its 2Q18 earnings. UOBKH noted that Venture Corp’s revenue fell on the back of order delays and new product launches with IQOS’ production cuts being the main reasons for Venture Corp’s underperformance. As such, UOBKH has given a SELL recommendation for Venture Corp.

On the other hand, Japfa starred in the quarter as its 3Q18 core net profit exceeded the street-high 2018 forecast significantly. Japfa’s core net profit soared 141 percent year-on-year in 3Q18 due to strong performances in three key segments: Vietnam swine business, Indonesia poultry, and dairy business.

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