|UOB KAYHIAN||DBS VICKERS|
Sembcorp Industries (SCI SP)
Well Positioned For Recovery In 2021
We believe SCI is well positioned for recovery in 2021. This comes as news of successful vaccine trials has led to higher certainty that the global economic recovery may be swifter than expected, thus positively impacting energy demand. The company currently trades at 0.7x 2021F P/B, which is undemanding in our view. Maintain BUY with higher target price of S$2.02 (previously S$1.66).
Share price to see support
Inexpensive valuation; ongoing provisioning provides buffer.
OCBC’s share price has gained >10% since early November, when it was trading near trough valuations. We believe there is further room for OCBC’s share price to re-rate amidst expectations of a gradual pick-up in long-end yields, as OCBC is seen as a proxy to economic recovery. OCBC’s strong NPA coverage of 109% (2Q20: 101%) and ongoing provisioning of S$1.8bn as of 9M20 will limit downside risks. While there may be further NIM headwinds into 4Q20 as OCBC’s loan book continues to reprice, we believe its strength in non-interest income franchise should continue to contribute positively, providing some income support for FY21F.
Ongoing provisioning is a buffer
Inexpensive valuation; ongoing provisioning is a buffer.
Even after share price gaining >10% since early November, we believe there is further room to re-rate amid expectations of a gradual pick up in long-end yields. We see UOB as a proxy to economic recovery. It’s strong non-performing asset (NPA) coverage of 111% (2Q20: 96%) and ongoing provisioning (management guides for S$2-3bn through FY20-21F) will limit downside risks. Management has guided for better-than-expected asset quality outlook during 3Q20 results briefing.
The path to recovery is not a straight line
■ The postponement of the SIN-HKG travel bubble is disappointing but is likely part of a series of stops and starts on the arduous road to recovery.
■ Patient investors with a 1-year horizon should be able to reap the rewards of upcoming Covid-19 vaccinations; we recommend to buy on any dips.
■ Reiterate Add and TP of S$4.57, based on a target P/BV multiple of 0.94x (mean since 2011) against the end-FY22F adjusted BVPS.
Check out our compilation of Target Prices