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Investors’ Corner (Starhub, Capitaland, CDL Hospitality Trusts, DBS Group Holdings)

Withdrawable trading bonus

StarHub

Price – $1.58

Target – $1.72

StarHub’s 1Q19 core earnings fell 14.3% mainly due to cyber-security losses, lower mobile service revenue and higher depreciation. Overall growth continues to be driven by the enterprise business but offset by weaker performances across the mobile, pay-TV and broadband segments. 1Q19 dividend of $0.0225 was declared in line with the variable payout policy implemented earlier. Enterprise business scaled up by 14.1% driven by the expansion of cyber-security business. However, Ensign recorded losses of $9m at the net profit levels arising from higher operating expenses in particular headcount and depreciation. Management mentioned that it will continue to invest for growth which suggests that the cyber-security business would remain earnings-dilutive in the medium term. Nevertheless, we believed that the sharp share price underperformance had factored in the downside risks from competition and concerns over the cyber-security losses. Maintain NEUTRAL. RHB Research (6 May)

CapitaLand

Price – $3.53

Target – $3.56

CapitaLand’s 1Q19 net profit was down 7.4% due to lower residential income from Singapore, Vietnam and China. The group handed over $33m of residential sales in Vietnam and Rmb1.2b in China in 1Q19. However, it is scheduled to hand over another Rmb10.3b and $227m of residential units in China and Vietnam respectively towards end-FY19. Meanwhile, CapitaLand is also planning to launch the 774-unit Pearl Bank Apartments in 2Q19 and the Sengkang Central integrated development in 3Q19 which should lift the residential contributions going forward. Retail properties in China, Japan and Singapore continued to enjoy higher shopper traffic and tenant sales and the recent opening of Jewel and Funan in mid-2019 could boost rental income further. CapitaLand made $760m worth of new investments and divested $485m of assets in 1Q19. The group is committed and well on track to meet its $3b asset recycling target this year. Maintain ADD. CIMB Research (2 May)

CDL Hospitality Trusts

Price – $1.60

Target – $1.80

CDL Hospitality Trusts’ hotel revenues and Net Property Income (NPI) in Singapore were weak falling 8% and 6.8% respectively, in line with a softer corporate event calendar this year and the ongoing Assets Enhancement Initiatives at Orchard Hotel. RevPAR declined 2.4% but occupancy remained stable at 87.3%. NPIs across the group’s overseas markets were also weaker dropping between 5.9% – 11.4% except in Germany where it jumped 21.9% y-o-y. Management continues to see favourable yield-spreads in Europe which suggests potential acquisition growth upside. Meanwhile, we expect a recovery in Singapore driven by an easing supply of 1.3% over the 2018-2022 period. Hence, we see potential upside to DPU as the sector recovers after a four-year down-cycle and from a low base. Maintain BUY. Maybank Kim Eng (2 May)

DBS Group Holdings      

Price – $28.40

Target – $29.18

DBS Group Holdings (DBS) posted 1Q19 net profit of $1.7b rising 9% and exceeding consensus expectations. The strong set of results came on the back of a sharp increase in non-interest income which benefited from a 93% jump in net trading income. Allowances came down from $205m in 4Q18 to $76m in 1Q19 while net interest margin (NIM) improved to 1.88%. Moving forward, DBS has also announced that it will pay quarterly instead of semi-annual dividends to provide shareholders with a more regular income. Management is positive that NIM will improve this year as last year’s rate increases have not fully flow through into FY19. In addition, management is retaining its full year guidance for mid-single digit loans growth. In spite of this, the strong outperformance coupled with stellar 1-day gain of 3.6% on 29 Apr-19 have brought the share price closer to our revised fair value target of $29.18. Hence, we downgrade the stock to HOLD and will be buyers at $27.50 or lower. Downgrade to HOLD. OCBC Investment (30 Apr)

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