How Did SG Blue Chips Perform In Q2? (Part 2)

In part two of this two-part series, we single out the performance of DBS, UOB, CapitaLand, Sembcorp Industries and UOL to review how they did in the recent quarterly earnings call.

1. DBS Holdings Group Limited

DBS had a strong quarter for its wealth management segment to help offset weaker retail income from its consumer banking segment.

While DBS reported a decent net profit that was in line with analysts’ expectations, DBS disappointed as its net interest margin fell below expectations. DBS managed to grow its net interest income as it grew its loan volume by 6.6% year-on-year.

That was supported by a strong pick up in resale and refinancing mortgage activities in 2Q17, given DBS’s 28.7% market share in Singapore housing mortgage. However, lower net interest margin offset the growth in loan volume.

DBS continues to be troubled by the O&G sector in Q2. DBS’s specific provisioning charges rose 56% quarter-on-quarter as O&G collateral values fell.
DBS management guided that further non-performing loans could surface from the O&G sector in upcoming quarters, especially smaller non-state-owned shipyards.

Q2 Performance Rating: B

2. United Overseas Bank Limited

UOB managed to deliver a steady quarter in Q2, which was slightly above consensus estimates. UOB reported a net profit of $845 million for 2Q17 (+5.5% year-on-year) and ten percent above consensus’ estimate of $768 million.

Unlike DBS, UOB saw its net interest margin widen in Q2. That led to an expansion of net interest income despite marginal contraction in loans in Q2. Moving forward, analysts expect UOB’s net interest margin to continue expanding in anticipation of The Fed’s rate hike.

Q2 was also a good quarter for UOB as it managed to increase its common equity tier 1 capital adequacy ratio to record high. Overall, UOB achieved a return on equity of 10.3% in Q2 and declared an interim dividend of $0.35 to shareholders.

Q2 Performance Rating: B+

3. CapitaLand Limited

CapitaLand had a strong quarter in Q2 supported by various factors, including higher revaluation gains from investment properties in Singapore and China and higher portfolio gains from divestments of Innov Tower in China and 18 rental housing properties in Japan.

Another key contributing factor to CapitaLand’s strong Q2 results was the increase in contributions from development projects in China, and newly acquired properties in Japan.

The US. CapitaLand’s performance in China continues to be the pillar of strength for the group as it managed to sell 3,084 units in China’s residential market in Q2, on top of the 5,146 units sold in Q1.

The uptick in homes sold led to an improvement in unbilled sales worth CNY11.7 billion, which represents 94% of launched units in China. As a result, CapitaLand saw a 97% year-on-year increase in net profit in Q2, which exceeded consensus expectations.

Q2 Performance Rating: A

4. Sembcorp Industries

After a four-year earnings decline, Sembcorp Industries managed to produce positive results for Q2. Sembcorp Industries had a decent quarter as it beat consensus expectations, thanks to contribution from its utilities business in Singapore.

Profits from Singapore grew 45% year-on-year and 22% quarter-on-quarter as demand for centralised utilities from Jurong Aromatics Corporation plant increased. Better optimisation of its gas portfolio also contributed to the decent quarter for Sembcorp Industries.

However, net profit in other regions were down for Q2, namely China and UK/Americas. In China, higher coal prices caused Chong Qing to be in a slight loss.

The absence of earnings contribution from the Yangcheng joint venture also caused earnings to decline. But moving forward, CIMB Research believes that improvement should be seen in 2H17.

The fall in net profits in UK/Americas was largely due to the planned shutdown of the Wilton 10 biomass plant as well as a gas turbine, which are expected to resume operation in Q3.

Q2 Performance Rating: B+

5. UOL Group Limited

UOL managed to grow its Q2 net profit by 59% year-on-year thanks to higher associate contributions from UIC and stronger property development income.

Property development income was driven by Principal Garden as the project was 71.8 percent sold at the end of Q2. Another two projects, Riverbank @ Fernvale and Botanique at Bartley, were almost fully sold, which added to UOL’s property development income.

Although 2Q rental revenue grew slightly (2.0% year-on-year), occupancy remained at a high 90%. Occupancy for One KM Mall was also maintained at a high level despite new upcoming supply in the Paya Lebar area.

Despite weaker outlook for its rental properties, UOL’s outlook is buoyed by the improving property market sentiments. CIMB Research believes that UOL is still a good buy for its diversified business model with strong cashflow generation.

Its debt to equity ratio is healthy at 24%, which puts the group in a strong position to deploy capital for growth.

Q2 Performance Rating: A-

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