Few takings:
DBS Group Holdings
In the past 2-3 years DBS has started to leverage its Hong Kong franchise as it taps into demand for inexpensive offshore US dollar-linked funding from Chinese corporates. As a result,
its China loan book has trebled in three years and now represents around 19% of total loans (China contributed 35-40% of all net new lending in the past three years). This has meant
strong growth in trade finance business, which has been one of the key drivers of revenue growth. But, coupled with the impact of a prolonged period of abnormally low interest rates
in Hong Kong and Singapore, this has led to a period of loan yield compression and NIM pressure (the gross loan yield is now 2.6%). We believe DBS is the most levered of the big three
Singapore banks to rising US rates as it is more skewed towards Hong Kong/Singapore than Singapore/Malaysia/Indonesia. At end-Q313, 83% of its deposit base was denominated in
US, Hong Kong and Singapore dollars.
Keppel Corp
We expect offshore & marine to contribute 65% of Keppel’s 2013 net profit, property about 20% and infrastructure 15%. 2014 earnings visibility is high, in our view, and visibility on
Keppel‘s offshore revenue is strong. The offshore order book is around S$15bn including Transocean’s US$1.1bn order for five jack ups; and around S$6.4bn of new orders have been
secured year to date. Meanwhile, we believe a turnaround is likely in the infrastructure division, which incurred heavy losses in 2010-12. In our view, Keppel provides good earnings
visibility and growth potential through its strong order books and dividend yield of 4%.
Noble Group
Noble provides exposure to an underlying global cyclical recovery, in our view. We believe its earnings are leveraged to underlying commodity prices, and we expect underlying prices to
stabilise and rise steadily over the coming 12-18 months. We also believe low commodity price volatility benefits commodity trading companies; our commodity team expects less
underlying commodity price volatility over the coming months, which should support Noble's earnings. In the short term, we expect a rebound in sugar pricing to provide earnings
support for Noble's agricultural division, and we have a Buy rating on the stock.
OSIM
OSIM's businesses should benefit from the structurally increasing disposable income in Asia. We forecast 15% earnings growth over the next three years, driven by: 1) recent launches
and a strong pipeline of new products; 2) store expansion in China and franchise stores; 3) continued focus on profitability; and 4) TWG expansion. With a strong balance sheet (net
cash) and healthy free cash flow, further special dividends cannot be ruled out. Valuations are undemanding. We see potential for a further re-rating, and the valuation gap to the sector
should narrow given good execution demonstrated by management.
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