SG Market (30 Oct 15)

Singapore shares are likely to stay muted following uninspiring 3Q results from SCI, GLP and UOB, and little catalyst from Wall Street as investors weighed propsects for higher interest rates this year.

Regional bourses are trading lower this morning in Seoul (-0.1%) and Sydney (-0.9%), but higher in Tokyo (+0.2%). BoJ is aniticpated to expand stimulus at its Oct meeting today.

From a chart perspective, the market is technically overbought. Resistance for the STI is capped at 3,120 with downside support at 2,980.

Stocks to watch:
*UOB: 3Q15 net profit of $858m (-1.0% y/y, +12.6% q/q) was at the upper end of estimates, led by higher net interest income which grew 6.9% y/y to $1.2b, due to loan growth of 3.6% and higher NIM of 1.77% (+6bps) which benefitted from rising interbank and swap offer rates. Fee income of $485m (+2.1%) was led by higher contributions from credit card and wealth management income, while trading and investment income advanced 7.1% to $365m, bolstered by one-off gains from the sale of investment securities, partly offset by lower net trading income. Provision was muted at $160m, while NPL ratio was stable at 1.3%. Tier-1 CAR slipped to 13.6% (- 0.4ppt). Interim DPS of $0.20 (3Q14: nil). NAV/share rose 5.9% to $17.49.

*GLP: 2QFY16 results missed estimates, with headline net profit of US$114m (+27.4% y/y), boosted by FX gains, lower borrowing costs from the syndication of GLP Brazil Income Partners II portfolio, as well as the absence of reclassification losses for its Japan and Brazil operations in 2QFY15. Revenue slipped 1.9% to US$189.3m from the deconsolidation in Brazil, the sale of 14 properties in Japan to GLP J-REIT and the weaker JPY/USD. Bottom line was weighed by higher expenses due to the inclusion of the US asset management platform, increased impairment loss on trade and other receivables, and higher staff and business costs arising from an increased property portfolio. NAV/share at US$1.77.

*Sembcorp Industries: 3Q15 results were slightly below expectations as net profit slumped 37.8% y/y to $122.3m on a 21.8% decline in revenue to $2.4b. The decline in revenue was broad based with both its utilities (-11.3% to $1.2b) and marine (-34% to $1.1b) businesses tumbling. Gross margin improved by 0.9ppt to 12.1%. Finance costs soared more than 5x to $64.9m due to the consolidation of Green Infra, commencement of operations at Thermal Powertech (India) as well as Sembcorp Marine’s higher bank borrowings. NAV/share at $3.64.

*AusGroup: 1QFY16 net profit crashed 87.7% to A$0.3m, while revenue inched higher by 1.7% to A$132.7m as improved maintenance services and access services revenue were offset by poor performance of the fabrication business. Gross margin was up 1.4ppt to 11.4%. Nevertheless, an overall increase in costs and a reduction in other operating income brought bottom line into the red. NAV/share at $0.34.

*Tuan Sing: 3Q15 net profit slid 7.7% y/y to $16.2m due largely to an impairment loss of $7.7m on its China development project. Stripping that out, net profit would have grown 36.4% to $23.9m on an 84.6% jump in revenue to $184.3m attributable to higher contributions from its properties in Singapore and hotel investments in Australia. Bottom line was weighed by a jump in admin expenses (+43.6%), finance costs (+373.9%), reduced associate profit (-64.7%) due to the GHG consolidation as well as lower contribution from 44.5% owned GulTech. NAV/share at $0.72.

*GP Hotels: 3Q15 net profit sank 30.1% to $3.6m on a surge in finance costs to $2.7m (+22.7%). Revenue slipped 5.3% to $16.3m with lower contributions from two hotels which were undergoing AEIs. This was mitigated by stronger contribution from Fragrance Hotel-Rose after its AEI was completed in 1H15. Operationally, average occupancy rate declined 1.5ppt to 85.9% while RevPAR retreated 3.6% to $89.50. NAV/share at $0.69.

*MTQ: Continued its sequential losses with 2QFY16 net loss of $0.5m (2QFY15: $5.3m) on lower revenue of $57.8m (-28% y/y) due to weak demand for its oilfield engineering business especially in Singapore. Gross margin trimmed 6.76ppt to 26%. The negative bottom line was partially mitigated by lower staff costs (-22.4%) as well as a $1.8m gain on disposal of scrap. NAV/share at $0.80.

*Eurosports: 1HFY16 net loss narrowed 47.1% to $1.7m, as revenue doubled to $32m, on the back of improved automobile sales and after-sales service revenue. Gross margin narrowed 0.5ppt to 13.9%. Increases in other income were offset by increased admin expenses. NAV at 8.79¢/share.

*Soilbuild Construction: Won a $16.4m contract to construct an industrial development by KH Roberts. Construction is expected to start in Nov ‘15 and end by Dec ‘16.