Money Talk: DBS, OCBC, Singapore Reits

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. DBS

Broker: OCBC

DBS' Q1 net profit came in at $1.23 billion, up 30 per cent year-on-year mostly due to a one-time $223 million gain from a stake sale of the Bank of Philippine Islands.

Excluding one-time items, Q1 net profit of $1.033 billion is up 9 per cent year-on-year and constitutes 27.3 per cent of our full year forecast; we judge this set of results to be above consensus and our expectations.

Q1 net interest income increased 12 per cent year-on-year to $1.49 billion, while non-interest income declined 3 per cent to $963 million. The decline in non-interest income was mostly caused by lower contributions from stockbroking, investment banking and net trading income.

Customer loans grew 2 per cent quarter-on-quarter to $253.3 billion as at the end of Q1 and net interest margin increased to 1.66 per cent versus 1.61 per cent in Q4 2013. Maintain Buy with an unchanged fair value of $18.08.


Broker: CIMB

OCBC's Q1 core net profit of $867 million exceeded expectations, at 29 per cent of our 2014 forecast and 30 per cent of consensus.

The outperformance came from: 1) stronger-than-expected fees, as wealth-management fees surprisingly held up in a quiet quarter; 2) strong trading income; 3) strong contributions from Great Eastern Holdings; 4) controlled cost growth; and 5) lower-than-expected provisions.

Net interest margin expanded by 0.06 percentage points quarter-on-quarter to 1.70 per cent, the first noticeable improvement in four quarters. This was made possible by improved loan spreads, higher income from money-market activities, and gapping opportunities.

With this strong set of results, we think that there is room for upside to our estimates. For now, our earnings per share, Hold rating and target price are unchanged pending the results briefing later on Wednesday.

3. Singapore Reits (S-Reits)

Broker: OSK-DMG

Q1 results were largely below par with the 11 real estate investment trusts (Reits) under our coverage averaging -5 per cent against our estimates. However, ongoing renewals, completion of asset enhancement initiatives (AEI) and recent acquisitions should lift earnings in the second half of this year.

While S-Reits have outperformed the wider Straits Times Index by 4 per cent so far this year, we remain selective in our picks, preferring the likes of commercial office, industrial and retail Reits. We remain Neutral on hospitality.

We upgrade our call on CapitaCommercial Trust and Frasers Commercial Trust. The limited supply in new Grade A office space over the next 18 months is likely to exert upwards rental pressure on Grade B office. Keppel Reit remains our top pick.

New supply of industrial space is expected to add 13 per cent to the existing stock. However, with 67 per cent already pre-leased, sub-sectors like business and science parks and logistics and distribution centres are expected to continue enjoying positive rental reversions over the next two years. Cache Logistics Trust is our top industrial pick.

We are upgrading our call on CapitaMall Trust and Frasers Centrepoint Trust to Buy. Singapore's retail sales index appears to have recovered strongly in 2014, with January figures posting a 9.2 per cent year-on-year growth after a 5.5 per cent contraction the year before.