SG Market (07 May 18)

MARKET OVERVIEW
- The market could advance this morning after US stocks rose the most in almost 4 weeks on Friday as the country's jobless rate hit an 18-year low. Oil-linked counters may be in play following higher oil futures as traders braced for a re-imposition of some US sanctions on Iran.

- While still stuck in a downward trend, STI could recover on strong US market. Immediate support for the key index is at 3,555 with topside resistance at 3,640.

CORPORATE RESULTS
*OCBC Group
- 1Q18 net profit of $1.11b (+29%) missed expectations at 23% of consensus.
- Net interest income grew 11% to $1.42b from $1.27b a year ago, underscored by strong asset growth (+4% q/q, +10% y/y) but NIM remains flat q/q at 1.67% (+5bps y/y), offset by higher cost of funding.
- Non-interest income of $918m (-24% q/q, +8% y/y) as Fee and commission income increased 11% to $536mn, led by a 19% rise in wealth management fee income but offset by the decline in net trading income of $94m (-5% q/q; -41% y/y). The decline q/q was partly due to GE's profits from life assurance which fell 38% q/q.
- Operating expenses rose 6% to $1.03b, largely driven by a rise in staff costs. The Group's cost-to-income ratio fell from 45.9% to 44.2%, as a result of strong income growth and effective cost management.
- Overall, the NPL ratio fell to 1.4% from 1.5% q/q but higher compared to 1.3% a year ago while annualised ROE improved to 11.8% from 9.6% in 1Q17. CET1 capital position remained stable at 13.1% (4Q17: 13.1%), but this is lower than peers at 14-14.9%.
- Trades at 1.4x P/B. MKE last had a buy with TP of $14.83

*Chip Eng Seng
- 1Q18 net profit slumped 30% to $6.1m, meeting only 15% of full year estimates.
- Revenue jumped 22.3% to $204.3m as stronger contributions from property development (+52.3%) and hospitality (+147.4%) businesses outweighed weakness in construction (-29.4%).
- Gross margin widened 2.4ppt to 21.8%.
- Bottom line was eroded by higher admin costs (+42.6%) and effective tax rate of 32.8% (1Q17: 20.5%), as well as higher share of profit attributed to non-controlling shareholders (+18%).
- Construction order book rose to $524.6m (4Q18: $403.6m) after it secured a HDB design and build contract
- Trading at 15.5x FY18 P/E and 0.75x P/B.

*Nam Lee Metal
- 1H18 net profit up 2.9% to $5.5m (1H17: $5.4m) on higher revenues offset by FX and fair value derivative losses
- Revenue increased 27.6% to $85.8 (1H17: $67.2m) due to higher contribution from aluminium segment
- Consequently, gross profit grew 22% to $15.5m (1H17: $12.7m) while gross margin dipped 0.8ppt to 18.1%
- Trades at 8.4x trailing P/E and 0.68x P/B

POSITIVE NEWS
*Sunpower
- Secured Rmb80m worth of contracts from a subsidiary of Shanghai listed TBEA Co. Ltd, a provider of systematic solutions for the global energy industry.
- The deal involves the supply of fluidized bed reactors and heat exchangers, to be delivered in 2018.
- Expected to contribute positively to FY18 financial results.
- Trades at 11.2x trailing P/E

*Spackman
- The Board has approved the spin-off of the Group's 51%-owned subsidiary, Novus Mediacorp ("Novus Medicorp") and the Group's wholly-owned subsidiary, Frame Pictures Co., Ltd. ("Frame Pictures") ("Proposed Spin-off"), for the combined entity to seek listing on the Catalist Board.
- The Company has appointed RHT Capital as the financial adviser in relation to the Proposed Spin-off and the issue manager and full sponsor in relation to the Proposed Listing.
- The Company believes that the Proposed Spin-off and Proposed Listing shall allow the combined entity of Novus Mediacorp and Frame Pictures to independently raise the capital necessary to unlock the full potential of its operations and projects, and to capitalize on the rapidly growing post-theatrical and camera equipment leasing markets.

NEUTRAL NEWS
*Sembcorp Industries
- North-West Power Generation Company (NWPGC), a state-owned power generation company of the government of Bangladesh, has injected US$12.8m in equity into Sembcorp North-West Power Company, Sembcorp's project company that is developing the Sirajganj Unit 4 power project in Bangladesh.
- Following this equity injection and receipt of relevant local regulatory approvals, NWPGC has taken up a 17% stake in Sembcorp North-West Power Company, with the remaining 83% effectively owned by Sembcorp.
- The cash proceeds would go towards funding the ongoing construction of the Sirajganj Unit 4 power plant.
- NWPGC plans to make further equity injection(s) by the end of this year, which will result in Sembcorp North-West Power Company being 71% owned by Sembcorp and 29% by NWPGC.
- Trades at 16x P/E and 0.8x P/B