Daily Morning Note – 19 February 2019


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Singapore unveiled its 2019 budget on Monday, announcing tighter restrictions on foreign workers, a boost in spending on health care for its aging population and a tax rebate for some citizens ahead of an election that could come as early as this year. Authorities are trying to strike a careful balance: bolstering an economy that’s been hit by weaker global demand, providing more support for elderly citizens, while still sticking to a tradition of fiscal prudence. The budget comes against the backdrop of a weakening economy, with growth being hit by global trade worries. Here are this year’s budget winners and losers.

Stocks in Asia looked set to drift Tuesday with little direction from the U.S.with markets on holiday and a mixed session in Europe. The dollar steadied while the yen ticked lower. Futures in the region were little changed with global trade remaining foremost in investors minds. European shares edged higher. A gauge of commodities climbed the most since December, with WTI oil futures rising to around $56 a barrel. The euro strengthened despite dovish comments from a European Central Bank governing council member, while the pound strengthened after seven members of the U.K. Parliament said they’ll stand as independents after quitting the main opposition Labour Party over issues including Brexit and antisemitism.


DBS Group Holdings Ltd – Stellar ROE supported by recurrent interest income

Recommendation: BUY (Maintained), Last Done price: S$25.2

Target Price: S$29.0, Analyst: Tin Min Ying

– FY18 Revenue and PATMI met our estimates.

– FY18 NIM expanded 13 bps YoY to 1.85% (FY17: 1.75%). 4Q18 NIM rose 1 bps QoQ to 1.87%
(3Q18: 1.86%).

– Loans grew 6.7% YoY, driven by non-trade corporate loans across the region.

– Allowances declined 71.0% YoY due to accelerated provisions made for weak oil and gas
support service last year. NPL ratio improved to 1.6% (4Q17: 1.7%).

– Full-year ROE rose 2.4% to 12.1%, the highest since FY2007.

– A proposed final dividend of $0.60/share, bringing full-year dividend to $1.20/share.

– Maintain BUY at an unchanged target price of S$29.00.

Thai Beverage PLC – A spirited recovery

Recommendation: NEUTRAL (Upgraded), Last Done price: S$0.82

Target Price: S$0.81, Analyst: Paul Chew

– Revenue and EBITDA were above expectations but was offset by higher than expected
interest expense and weaker earnings from Sabeco.

– Recovery in spirits volume was better than expected despite moderate improvement in
farm income. Thailand rice aid scheme has boosted farm incomes.

– Upgrade to NEUTRAL and increased our SOTP-derived TP to S$0.81 (previously S$0.57). Our
aggressive upgrade in share price is due to: (i) We raised our earnings by 7% as we expect
demand to remain vibrant over the next few quarters; (ii) We raised our SOTP valuation to
the middle (from lower) EV/EBITDA band of global peers.


PSR brief comment on Budget 2019: Ongoing effort by the government to restructure the economy as our working population ages and deepen the capabilities businesses and workforce. More funds set aside to build an ecosystem for start-ups to flourish and scale. New initiatives launched such as Scale-up SG programme, Innovation Agents programme and SME Co-Investment Fund III.There is minimal near-term impact on the stocks under our coverage. However, sectors most affected include:

1. Healthcare sector will benefit the most as there will be more allocation of funds for the medical needs of the elderly plus higher insurance coverage. The S$8bn Merdeka package is mainly in the form of “medical bills” such as Medisave top-ups, CHAS subsidies, MediShield Life premium subsidy and incentive to join the new CareShield Life. Non-Merdeka package will be S$3.1bn for CareShield Life subsidies and ElderFund.

2. The dependency ratio for the services industry will be lowered 5% points to 35% by 2021. This is to reduce reliance on foreign worker. Most impacted will be restaurants, hotels and supermarkets.

3. Construction and marine sector no change to their dependency ratio ceiling.

4. Higher spending on defence will be supportive for ST Engineering. Defence expenditure will rise 5% to S$15.5bn.

5. Supermarkets will benefit marginally from lower duty-free allowance and lower value of goods granted GST relief for travellers outside Singapore.

6. Consumer sector, in general, will get some boost from the S$1.1bn Bicentennial Bonus via $300 GST Voucher, $100 Workfare Income Bonus, $200 personal income tax rebate and $150 Edusave top-up.

7. No changes to the planned GST rise from 7% to 9% from 2021 to 2025.

Singapore unveiled its 2019 budget on Monday, announcing – among other items – a S$1.1bn Bicentennial Bonus, a doubling of diesel tax and lower GST import relief for some travellers, tighter restrictions on foreign workers, a boost in spending on health care for its aging population and a tax rebate for some citizens ahead of an election that could come as early as this year.

DBS Group Holdings reported a 10 per cent increase in net profit after one-off items to $1.32 billion for the fourth quarter, up from $1.19 billion the year before. While business momentum remained healthy with “sustained loan growth and net interest margin progression”, results were “dampened” by weakness in treasury markets income.

SoftBank has provided half the money for a $400 million fund that will allow Abu Dhabi’s state investment firm to invest in European start-ups.

Best World International requested a halt in the trading of its shares with immediate effect on Monday morning at 11.23am, pending an announcement.

IX Biopharmahas entered into an agreement with independent third party Eurofins Australia New Zealand Holding for the proposed disposal of its entire stake in its wholly owned subsidiary, Chemical Analysis, for A$12.5 million (S$12 million) in cash.

Frasers Property has entered into an agreement to acquire a 17.8 per cent stake in PGIM Real Estate Asia Retail Fund Ltd (PGIM Real Estate) for S$356.4 million – subject to determination of the dividend amount payable in respect of the sale shares for Q4 2018.

KOH Teck Chuan, formerly chief executive at Hongkong Land subsidiary MCL Land, has been appointed chief executive of Frasers Hospitality, effective Feb 19.

Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, PSR

Clients of Phillip Securities can keep updated with Country Strategy and Singapore Sector Reports by logging into: www.poems.com.sg > STOCKS > Research

Read the research report(s), available through the link(s) above, for complete information including important disclosures

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