Earnings growth to follow multiple expansion
■ We believe FY18F NII would be driven by both asset volumes and yield spreads, with broad-based loan growth. A stronger US$ could lead to higher NIMs, in our view.
■ Positive performance of wealth management and cards is likely to sustain in FY18F for the three banks. Given the focus on digitalisation, we expect CIRs to trend down.
■ We think OCBC and UOB would follow in DBS’s footsteps and clean up their books in 4QFY17F. Hence, we expect credit costs and NPL ratios to peak in 4QFY17F.
■ Given RWA optimisation and clarity on Basel IV, we see upside risk to dividends.
■ Reiterate sector Overweight, with macroeconomic growth on a firmer path of recovery. DBS is our top pick in the sector.
Inflation Stays Soft with S&CC Rebates
Both headline and core inflation remained unchanged with the former weighed down by the distribution of S&CC rebates. Headline inflation came in at +0.4% in Oct-17 from a year ago, recording the same pace for three consecutive months. Core inflation (excl. accommodation & private transport) stayed steady at +1.5% in Oct as services inflation (+1.5%) remained stable.
PACIFIC STAR DEVELOPMENT (PSTAR SP)
Riding On The Rising Affluence Of ASEAN
Pacific Star Development (PSD) started trading on the Singapore Exchange’s Catalist board, after the completion of its reverse takeover of LH Group on 15 Feb 17. PSD’s experienced management team has historically been originating deals, identifying prime projects for investment and development, and securing off-market prime land for future new pipeline projects. Through the reverse takeover, PSD also inherited its aluminium division. PSD is trading at a trailing 0.7x 2016F P/B, in line with peers.
Telecom Sector: Muted outlook as space gets crowded
Singapore’s telecom sector reported lower earnings in 3QCY17 with all three telecommunications service providers (telcos) reporting decline in earnings, each one impacted by different reasons. Looking ahead, we expect competition in the Singapore mobile market to intensify with the impending entry of TPG and potentially MyRepublic. The increasingly competitive landscape will impact Starhub and M1 more significantly than Singtel due to higher exposure to the market. Hence, on aforementioned reasons, we expect sector outlook to stay muted and continue to project ARPU to decline 14-20% over the next five years. At current share prices, we believe M1 [HOLD; FV: S$1.65] is fairly valued but see further downside for Starhub [SELL; FV: S$2.30], pending further clarity over the ramp up of its enterprise business. We remain positive over Singtel’s long-term outlook given its growing presence in the digital space, and reiterate Singtel [BUY; FV: S$4.19] as our sector top pick. All considered, we maintain NEUTRAL on the Telecom sector.
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