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Investors’ Corner (United Overseas Bank, Venture Corp, Sembcorp Industries, Frasers Property)

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United Overseas Bank

Price – $25.58

Target – $28.30

United Overseas Bank (UOB) reported 4Q18 net profit of $916m bringing full year earnings to $4,008m, just slightly below Bloomberg consensus of $4,038m. 4Q18 net interest income rose 10% y-o-y but non-interest income was down 21%. UOB declared a final dividend of $0.50 and special dividend of $0.20 bringing full year payout to $1.20 versus $1.00 in FY17. Management remains fairly positive on the longer term growth prospects in Asia despite the challenging regional operating environment, and is confident of growing its loans by mid-single-digit in 2019. There is also room for net interest margin to improve largely due to the re-pricing of mortgage loans this year. We moderated our earnings estimates for FY19 believing that the operating environment will remain volatile, with a DPS estimate of $1.30 based on a 42% payout ratio. Maintain BUY. OCBC Investment (25 Feb)

Venture Corporation

Price – $16.12

Target – $19.23

Venture Corporation’s (VMS) 4Q18 revenue and net profit climbed 18% and 33% respectively q-o-q driven by new product introductions, and the sequential recovery may continue for another one to two quarters. 4Q18 net margin of 11.9% was the sixth consecutive quarter of net margins greater than 9%, attributable to strong value-add, prudent cost management as well as lower effective tax rate. While management believes that this new level of profitability is sustainable, it also highlighted that some fluctuations could be expected. VMS announced a final DPS of $0.50 bringing the full-year payout to $0.70, representing a payout ratio of 54%. We raised our target price to $19.23 based on 2.2 times FY19E price-to-book reflecting our increased confidence that VMS’ higher level of profitability can be sustained in the longer term. Reiterate BUY. Maybank Kim Eng (25 Feb)

Sembcorp Industries

Price – $2.66

Target – $3.41

Sembcorp Industries (SCI) reported FY18 net profit of $347m beating our forecast of $288m, lifted mainly by unexpected profit from the marine segment as well as one-off gains in India. Excluding one-offs, Sembcorp Energy India (SEIL) turned in a loss of $7m as plant load factor dropped to 52% with the shutdown of turbine 1 way below the breakeven level of 75-80%, but is making gradual progress in resolving the turbine shutdowns. Meanwhile, UK Power Reserve was affected by the recent ruling by the European Court Justice to suspend capacity market payment after Tempus Energy’s appeal on the auction process. This means that the UK government cannot issue capacity market payments to gencos or hold auctions to secure additional power capacity for the winter of 2019/2020 and 2022/2023. At 0.6 times FY19 price-to-book ratio, SCI is currently trading below one standard deviation from its 5-year mean. Maintain ADD. CIMB Research (22 Feb)

Frasers Property

Price – $1.70

Target – $1.98

Frasers Property (FPL) announced the acquisition of a 17.8% stake in PGIM Real Estate AsiaRetail Fund, the largest non-listed retail mall fund in Singapore, for a consideration of $356m. The purchase price implies a valuation of one times price-to-book and an annualised dividend yield of 3.7%. The fund owns and manages six retail malls and an office property in Singapore, as well as four retail malls in Malaysia. Based on Asia Malls’ website, the Singapore properties are worth around $3b while the Malaysian properties are worth $400m. We are of the view that the acquisition gives FPL access to some of the prized suburban malls in Singapore and offers an opportunity for the group to grow its presence in the retail sector in Singapore. These properties may also form an attractive future acquisition pipeline for Frasers Centrepoint Trust. Maintain BUY. DBS Vickers (19 Feb)

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