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UOBKH 2019 Investment Theme: Solid Blue-Chip Anchors (Part 2)

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We continue to highlight the stocks that UOBKH has identified in its ‘Solid Blue-Chip Anchors’ investment theme.

Investors Takeaway: 3 Solid Blue-Chip Anchors

  1. DBS

DBS finished 3Q18 with a net profit of $1.4 billion. One of the key reasons for its record net profit is loan growth from its business segments. DBS saw its loan books grow by 8.2 percent year-on-year with Hong Kong, India and Indonesia growing at double-digit rate. Net interest margin expansion was also another driving factor for the net profit improvement as its Singapore and Hong Kong business both saw net interest margin expansion.

DBS’ management expects the loan growth momentum to continue in 2019. They have guided for mid-single digit loan growth and continued net interest margin expansion. While non-trade corporate loans are expected to slow, it is still expected to be around 6-7 percent. Overall, DBS’ management sees a sustainable path towards an return-on-equity of 13 percent over the longer term.

BUY, TP $29.50; Current share price $23.51

  1. SATS

SATS fell marginally below consensus expectations in its quarterly earnings due to higher-than-expected opex and weak associate earnings. Utilities cost rose by 11 percent, partly due to a 30 percent increase in price of water (since July) and higher fuel costs. PT CASS and food solutions associate Brahim dragged down earnings due to forex losses and higher concession fees.

However, Malaysian GTR and Air India SATS managed to make incremental contributions to SATS earnings. TFK also fared well with 11 percent revenue growth, thanks to higher Chinese visitor arrivals and new contracts from Air Canada and Air India. Heading into 2019, SATS foresees the trend to continue. Stronger gateway operations from Singapore due to the cruise business will also help to improve SATS’ outlook for 2019.

BUY, TP $6.10; Current share price $4.61

  1. ST Engineering

ST Engineering did not have the best of quarter in 3Q18 as net profit growth was slightly below expectation. The disappointment in net profit growth came from losses at US subsidiary VT Miltope. The Marine division’s net profit also continued to decline as ST Engineering indicated that conditions remained challenging.

However, the slightly weaker 3Q18 earnings does not mean that investors should avoid ST Engineering. On the contrary, UOBKH thinks that investors should stay vested in ST Engineering in the long-run.

Firstly, UOBKH is highly positive on ST Engineering’s acquisition of MRAS. UOBKH expects MRAS to be earnings accretive and self-funding. After the acquisition, there will be scope for ST Engineering to work closer with General Electric on aircraft leasing or aircraft MRO.

Secondly, ST Engineering should see improvement in its Marine division as it is expected to deliver a 2nd container roll-on roll-off vessel (ConRo) and a sixth littoral mission vessel in 4Q18. In addition, ST Engineering also announced S431M worth of contracts and announced the charter of Roll-On/Roll-off (Ropax) vessel for the next 24 months.

Thirdly, ST Engineering is focused on reducing the losses at VT Miltope, which produces rugged computers and Wi-Fi connectivity on board commercial aircraft. VT Miltope’s new CEO, John F. Haley is a retired US Army general. ST Engineering’s management is confident that he will drive growth by identifying new markets for VT Miltope’s rugged electronics.

BUY, TP $4.06; Current share price $3.45

Related Article:

Investment Strategies For 2019: Solid Blue-Chip Anchors (Part 1)

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