Money Talk: OCBC Bank, Sembcorp Marine, SMRT

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. OCBC Bank

Broker: CIMB

OCBC's Q2 profit ($921 million) beat our ($805 million) and consensus expectations ($804 million) due to strong non-interest income.

Its H1 2014 profit was above expectations at 55 per cent of our full-year and 58 per cent of consensus. Insurance did well while trading was better than peers.

Smaller positives include: 1) fee incomes that managed to stay flat quarter-on-quarter, 2) flat margins, and 3) low provisions that still benefited from recoveries. OCBC is our non-consensus top pick of the sector. We deem the results as better vs. peers.

We maintain our Add rating and $11.01 target price. Potential catalysts stem from strong fee income.

2. Sembcorp Marine (SembMarine)

Broker: OSK-DMG

SembMarine delivered Q2 net profit of $131.6 million (up 7.4 per cent quarter-on-quarter, up 5.4 per cent year-on-year).

It met 43.6 per cent of our FY2014 estimate, as reported operating margin ticked up 0.4 percentage points quarter-on-quarter to 11.5 per cent.

We continue to expect a stronger H2 2014 as higher revenue recognition and better margins should buoy its bottomline. Its first drillship to Brazil is on track for Q2 2015 delivery and we see a potential writeback of overprovision then.

Maintain Buy with a $5.00 target price.

3. SMRT

Broker: Maybank Kim Eng

SMRT's Q1 net income made up 33 per cent of FY2015 forecasts. The losses at its fare-based business narrowed to $1.1 million, helped by recent fare hikes and strong cost control.

Non-fare operating profit improved to $29.9 million (up 17 per cent year-on-year), aided by rate uplift from taxi rental renewals, higher rentals for retail space and increased advertising.

Management remains confident of prospects with impending regulatory changes but no details or timeline were provided for the long-awaited rail transition.

The treatment of SMRT's asset purchase obligations under the current licensing regime remains the biggest hurdle to transition, in our view. LTA's recent comments on SMRT's financial obligations worth $2 billion and the "wide gap between SMRT's expectations and LTA's position" on rail transition highlight the challenges.

Details remain scarce and the stock's 60 per cent year-to-date rally may have factored in the positives. In our base-case scenario of its valuation post-transition, we assume that: 1) its rail and bus operating assets will be sold to the regulators for $1 billion; 2) contractual agreements under the previous regime will be written off; and 3) bus and rail (including rental profits) margins will be 10 per cent post-transition.

Maintain Hold with unchanged base-case target price of $1.36.