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MayBank Kim Eng Innovalues (IP SP) In for a Penny, in for a Pound Opportunity for longer-term entry The stock has retreated since it hit a high of SGD1.11 in July, but we remain positive. Improving revenue growth and margin expansion on current valuations still support our positive view. The M&A process has been ongoing since April and we believe impatient investors who bought the stock hoping for a quick conclusion may finally be throwing in the towel. This opens up room for longer-term holders to get in. We maintain BUY with a Street-high TP of SGD1.15 (13.5x FY17 P/E, 10% below peers).
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OCBC Securities Banks: Challenges ahead; valuations are decent Challenging environment Loans growth projected at 1.5% Share price has captured most of the negatives With the Singapore economy heading to slower growth, coupled with slow loans growth and low interest rates, domestic banking stocks have underperformed the STI. Loans growth is likely to be in the low single-digit level for this year and GDP growth is likely to come in below 2%. Together with the local banks’ exposure to the Oil & Gas, Commodity, Property, Chinese and European loans, this has weakened the outlook for the local banks. With the correction in share prices, we believe most of the negatives have been priced in. DBS is down 7.7% YTD, while UOB is down 3.9% and OCBC is down 1.1%. We have a BUY on DBS and our fair value estimate remains at S$16.68 with current estimated dividend yield of 3.9%.
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UOB Kayhian Offshore & Marine – Singapore Chasing The Mirage of A Recovery Improved sentiment in oil prices has seen a lift in OSV stock prices despite minimal change in fundamentals. Oil majors are likely to keep 2017 capex flat, leading to no earnings improvement until 2018. However, we recognise there are trading opportunities and see a possible rebound to the -1SD level. Trawling through our O&M universe, we peg trading bands for stocks based on -2SD to -1SD 1-year forward P/B. Maintain UNDERWEIGHT.
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DBS Vickers SPH Reit Potential influx of new traffic to Paragon Stock is fairly priced. We currently have a HOLD recommendation, with TP of S$1.00. SPH REIT's dividend yield of 5.7% reflects the strength of its assets and stability of earnings. However, at this point we believe that comparable retail S-REITs offer more attractive yields. Paragon to continue to drive earnings growth. We believe that Paragon will continue to outperform the rest of Orchard Road for both retail and office assets, due to its (a) location and frontage in the prime Orchard Road shopping district, as well as (b) proximity to the Mount Elizabeth medical cluster. As such, we assume reversions of 3.5-4.0% for Paragon. A linkbridge connecting Cairnhill redevelopment and Paragon, to be opened in November/December 2016, may draw new traffic to the mall. At Clementi Mall, more than 50% lease expirations in FY17 could set a new base for rent.
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