OUE Limited: Expanding into healthcare real estate
OUE reported that its FY16 PATMI dipped 7.7% YoY to S$144.4m mainly due to lower share of results of equityaccounted investees and higher finance expenses, partially offset by reversal of impairment losses on OUE Twin Peaks. Accounting for one-time items, we judge this quarter’s numbers to be broadly in line with expectations. Management reports that the asset enhancement works at OUE Downtown is expected to be completed in 2Q17 while a total of 384 units (out of 462 units) at OUE Twin Peaks have been sold. OUE continues to actively seek opportunistic acquisitions and recently launched a mandatory unconditional cash offer for International Healthway Corporation Ltd (IHC) at S$0.106 per share. The group currently owns a 57.6% aggregate stake in IHC, which makes its offer unconditional, and management intends to expand into healthcare real estate which will be a strategic fit to its existing asset portfolio. A final cash dividend of 2.0 S-cents per share is proposed. Maintain BUY with an unchanged fair value estimate of S$2.17.
Industrial sub-sector: Possibility of rents bottoming this year
Lower yoy sector-wide occupancy and rental; qoq improvement in occupancy
Sector's Rental Index has fallen below 2012 levels, with rental reversions likely to maintain at negative high single-digit to negative low double-digit
Multiple-User Factory and Warehouse rental reversions maintained at negative double-digit from previous quarter and likely to be maintained in 2017 Factory space was the hardest hit in 4Q 2016 with an onslaught of new supply
Supply pressure in 2017 for Warehouse space is going to be worse than 2016
Expect reversions for Business Parks to be flat
We believe rents could bottom in 2017, but emphasize that negative rental reversions to persist
Upgrade Industrial sub-sector to "Equal Weight" on optimism of bottoming of rents
Maintaining our "Underweight" view on the overall S-REITs sector
Bank Relative outperformer
■ 4Q16 net profit of S$742m in line, thanks to a large writeback in general provisions (GP). FY16 net profit at 101% of our and Bloomberg consensus forecasts.
■ Fees had a good quarter despite seasonal challenges, as credit cards, wealth management (WM) and loan-related fees did well. NIM was stable qoq at 1.69%.
■ NPL ratio fell to 1.5% (3Q16: 1.6%) as recoveries and write-offs more than offset new NPA formation. Upstream oil & gas loans rose to S$5.3bn (3Q16: S$4bn).
■ Maintain Hold, with higher GGM-based target price of S$20.37 (1.02x CY17F P/BV) as we tweak our FY17-19F EPS to account for higher NII, fees and lower provisions.
Downgrade to HOLD. Earnings for FY17F are expected to be flat as the push towards broadening the range and depth of investment products and services, though is an investment for the future, has affected iFAST’s short-term profitability. Operating expenses are expected to be high, especially in China as it is still in the start-up phase. With no near-term catalysts in sight, coupled with high operating expenses and lack of earnings growth, we downgrade iFAST to HOLD.
Banking – Singapore
4Q16 Round-up: Limited Downside From O&G, Upside From Rate Hikes
The banking sector still faces headwinds from the O&G sector in 4Q16. However, the outlook is brighter for 2017 as we believe banks have already recognised the larger troubled accounts as NPLs. Interest rates are also on an upcycle due to the pick-up in inflation, and banks are natural beneficiaries. Maintain BUY for DBS and OCBC. Maintain OVERWEIGHT.
Check out our compilation of Target Prices