Brokers' Take
Published February 18, 2006
BT
DBS Group Holdings
Feb 17 close: $16.30
CAZENOVE, Feb 17
HEADLINE Q4 2005 net profit (before exceptionals and goodwill) of $384 million (-14 per cent quarter on quarter or q-o-q) came in 13.7 per cent below our forecasts. This was largely due to higher expenses and higher provisioning expenses in the quarter.
If we include the goodwill charge of $1,128 million and exceptional gain on sale of building of $303 million, Q4 2005 net profit would have resulted in a nett loss of -$441 million.
Total revenue of $1,114 million is well in line with our expectations ($1,098 million) but operating expenses of $551 million is 8 per cent higher for the quarter (due to higher all round costs, no surprises here). This translated into operating profit which came in 5 per cent lower than our expectations.
Key negative surprise was the provision expense of $55 million in which non-performing loans (NPLs) worsen from 2 per cent to 2.1 per cent, which were driven by both Singapore (76 per cent of Q4 provisions) and Hong Kong (24 per cent).
This contrasts with our expectation of nett write-back (in line with management's bullish guidance during Q3 2005 results briefing).
Goodwill charge was due to its Hong Kong subsidiary; it amounted to $1,128 million whereby the carrying value of Dao Heng was written down from $10.8 billion to $9.6 billion. This strongly suggests that the operating outlook for DBS in Hong Kong may not be as bullish as previously thought.
DBS posted +0.9 per cent gross loans growth q-o-q. For FY2005, loans growth came in +14 per cent. However, the slowing momentum in Q4 is in line with our view that its prior nine months of strong +17 per cent annualised loans growth was unsustainable.
More worrying, its Q4 results showed q-o-q contraction in lending to key segments of housing loans (-1.7 per cent), general commerce (-1.8 per cent) and individuals (-0.6 per cent). Coupled with the above observation that its net interest spreads have barely moved, we think DBS faces a tough FY2006 ahead.
Non-interest income for the quarter (excluding exceptional items) was down 22 per cent year-on-year, largely on the back of lower trading profits.
Overall, we think there is a high chance that consensus is likely to downgrade the stock, especially with the slowing momentum on the lending front as well as the implied slower growth environment for DBS in Hong Kong.
The counter currently trades at 1.4x P/Book FY06 and we reiterate our 'underperform' on DBS.
UNDERPERFORM
CapitaLand
Feb 17 close: $4.10
MERRILL LYNCH, Feb 16
CAPITALAND has reported FY05 earnings with net profit up 146 per cent to $751 million versus $306 million in FY04. The result was distorted from asset write-downs and from the sale of Premas and the Raffles Hotel operations.
Reported earnings before asset write-downs was $830 million versus $348 million in FY04, and reported earnings from continuing operations was $388 million versus $333 million in FY04. A full-year dividend of $0.18 per share has been declared including a special dividend of $0.12 per share (flowing from the special dividend paid by Raffles Holdings).
The anti-speculative measures introduced by the Chinese government during 2005 have resulted in a cooling in market sales and this has become evident in CapitaLand's results. China residential revenue was down 19 per cent in FY05 and earnings before interest and tax was down 31 per cent. The company remains committed to China long term.
We maintain our 'buy' recommendation on CapitaLand and have upgraded our 12-month price objective to $4.53 per share from $3.58 previously.
BUY
Singapore Press Holdings Ltd
Feb 17 close: $4.32
MERRILL LYNCH, Feb 17
REINSTATING coverage of SPH with 'buy' rating: Our sum-of-the-parts price objective of $4.90 would imply a return of 19 per cent in a 12-month period, including a 5.2 per cent dividend yield. We see SPH as a laggard play, as its price has underperformed the Singapore market by 14 per cent in the past year.
Upside surprise of GDP growth fuels stronger ad spending: A broader ad market recovery would be supported by robust nominal GDP growth in 2006 (Merrill Lynch estimate : 8.8 per cent; consensus: 6-7 per cent). We see SPH as the main beneficiary of ad spending increases in finance, property and retail, and project ad revenue growth of 5.7 per cent in FY06 (7 per cent excluding Streats).
Market overly concerned about competition: TV no longer looks excessively cheap versus newspapers, as TV ad rates have reverted to previous levels. During FY02-04, TV rates were depressed because of MediaCorp's pre-emptive pricing strategy.
We do not believe the tabloid Today and the Internet will significantly threaten SPH's print franchise in the near term.
Special returns from divestment of non-core assets: In FY01-05, the group paid back $1.9 billion in cash to shareholders. We see the possibility of further special cash returns from:
its strong free cash flow; divestment of other non-core assets - Times Industrial Building, the 14 per cent M1 stake and Paragon - if carried out, would free up cash equivalent to a 20 per cent dividend yield, by our estimates.
With limited growth prospects domestically, overseas or cross-media investment could present execution risks. Longer term, we also flag the loss of future earnings streams if SPH sells its non-core assets.
BUY
- Compiled by SIOW LI SEN
BT
DBS Group Holdings
Feb 17 close: $16.30
CAZENOVE, Feb 17
HEADLINE Q4 2005 net profit (before exceptionals and goodwill) of $384 million (-14 per cent quarter on quarter or q-o-q) came in 13.7 per cent below our forecasts. This was largely due to higher expenses and higher provisioning expenses in the quarter.
If we include the goodwill charge of $1,128 million and exceptional gain on sale of building of $303 million, Q4 2005 net profit would have resulted in a nett loss of -$441 million.
Total revenue of $1,114 million is well in line with our expectations ($1,098 million) but operating expenses of $551 million is 8 per cent higher for the quarter (due to higher all round costs, no surprises here). This translated into operating profit which came in 5 per cent lower than our expectations.
Key negative surprise was the provision expense of $55 million in which non-performing loans (NPLs) worsen from 2 per cent to 2.1 per cent, which were driven by both Singapore (76 per cent of Q4 provisions) and Hong Kong (24 per cent).
This contrasts with our expectation of nett write-back (in line with management's bullish guidance during Q3 2005 results briefing).
Goodwill charge was due to its Hong Kong subsidiary; it amounted to $1,128 million whereby the carrying value of Dao Heng was written down from $10.8 billion to $9.6 billion. This strongly suggests that the operating outlook for DBS in Hong Kong may not be as bullish as previously thought.
DBS posted +0.9 per cent gross loans growth q-o-q. For FY2005, loans growth came in +14 per cent. However, the slowing momentum in Q4 is in line with our view that its prior nine months of strong +17 per cent annualised loans growth was unsustainable.
More worrying, its Q4 results showed q-o-q contraction in lending to key segments of housing loans (-1.7 per cent), general commerce (-1.8 per cent) and individuals (-0.6 per cent). Coupled with the above observation that its net interest spreads have barely moved, we think DBS faces a tough FY2006 ahead.
Non-interest income for the quarter (excluding exceptional items) was down 22 per cent year-on-year, largely on the back of lower trading profits.
Overall, we think there is a high chance that consensus is likely to downgrade the stock, especially with the slowing momentum on the lending front as well as the implied slower growth environment for DBS in Hong Kong.
The counter currently trades at 1.4x P/Book FY06 and we reiterate our 'underperform' on DBS.
UNDERPERFORM
CapitaLand
Feb 17 close: $4.10
MERRILL LYNCH, Feb 16
CAPITALAND has reported FY05 earnings with net profit up 146 per cent to $751 million versus $306 million in FY04. The result was distorted from asset write-downs and from the sale of Premas and the Raffles Hotel operations.
Reported earnings before asset write-downs was $830 million versus $348 million in FY04, and reported earnings from continuing operations was $388 million versus $333 million in FY04. A full-year dividend of $0.18 per share has been declared including a special dividend of $0.12 per share (flowing from the special dividend paid by Raffles Holdings).
The anti-speculative measures introduced by the Chinese government during 2005 have resulted in a cooling in market sales and this has become evident in CapitaLand's results. China residential revenue was down 19 per cent in FY05 and earnings before interest and tax was down 31 per cent. The company remains committed to China long term.
We maintain our 'buy' recommendation on CapitaLand and have upgraded our 12-month price objective to $4.53 per share from $3.58 previously.
BUY
Singapore Press Holdings Ltd
Feb 17 close: $4.32
MERRILL LYNCH, Feb 17
REINSTATING coverage of SPH with 'buy' rating: Our sum-of-the-parts price objective of $4.90 would imply a return of 19 per cent in a 12-month period, including a 5.2 per cent dividend yield. We see SPH as a laggard play, as its price has underperformed the Singapore market by 14 per cent in the past year.
Upside surprise of GDP growth fuels stronger ad spending: A broader ad market recovery would be supported by robust nominal GDP growth in 2006 (Merrill Lynch estimate : 8.8 per cent; consensus: 6-7 per cent). We see SPH as the main beneficiary of ad spending increases in finance, property and retail, and project ad revenue growth of 5.7 per cent in FY06 (7 per cent excluding Streats).
Market overly concerned about competition: TV no longer looks excessively cheap versus newspapers, as TV ad rates have reverted to previous levels. During FY02-04, TV rates were depressed because of MediaCorp's pre-emptive pricing strategy.
We do not believe the tabloid Today and the Internet will significantly threaten SPH's print franchise in the near term.
Special returns from divestment of non-core assets: In FY01-05, the group paid back $1.9 billion in cash to shareholders. We see the possibility of further special cash returns from:
its strong free cash flow; divestment of other non-core assets - Times Industrial Building, the 14 per cent M1 stake and Paragon - if carried out, would free up cash equivalent to a 20 per cent dividend yield, by our estimates.
With limited growth prospects domestically, overseas or cross-media investment could present execution risks. Longer term, we also flag the loss of future earnings streams if SPH sells its non-core assets.
BUY
- Compiled by SIOW LI SEN
posted by SmartYInvestor at 7:22 AM
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