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Business Times
17 hours ago
- Business
- Business Times
CGSI downgrades UOB to ‘hold' following softer loans growth expectation; near-term outlook ‘uncertain'
[SINGAPORE] CGS International (CGSI) analysts Tay Wee Kuang and Lim Siew Khee on Friday (Aug 8) downgraded local bank UOB to a 'hold' call from a prior 'add' rating on the back of 'earnings uncertainty' in H2 FY2025, with a lowered target price of S$38.30 from S$38.60. On Thursday, UOB had stated its net interest margin (NIM) expectations for FY2025 to come in at between 1.85 and 1.9 per cent, a decrease from its earlier forecast of around 2 per cent. Additionally, it expects loan growth to be in the low single digits, The Business Times reported previously. This lower guidance comes on the back of restricted growth in Asean in light of recent US tariffs, noted UOB deputy chairman and chief executive officer Wee Ee Cheong at the bank's Q2 results briefing. As such, Tay and Lim have lowered their FY2025 to FY2027 forward earnings per share by 2.5 to 5.8 per cent to account for lower loans growth, as well as lower NIMs to factor in the time lag for funding cost savings to pass through. On fee income, UOB is also guiding for high single-digit growth compared to a double-digit growth rate, with management observing that customers are shifting to more conservative wealth solutions that are likely less profitable, said the analysts. That said, the analysts expect UOB's NIM to rebound in the second half of this year. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'This comes after the bank initiated two interest rate cuts on its flagship high-interest savings account, the UOB One Account, with effect from May 25 and Aug 25, respectively,' they explained. The CGSI analysts also noted that continued investments in IT infrastructure suggest that UOB's cost-to-income ratio for FY2025 could trend higher than its previously guided at around 42 per cent. Possible SP easing in H2: analysts Additionally, UOB recorded S$279 million in total allowances for the second quarter, translating to total credit cost of 32 basis points (bps), with a majority of it entailing specific provisions (SP). Management has retained its FY2025 forward guidance of net credit costs at 25 to 30 bps, with an inclination to top up UOB's general provision buffer. This suggests SP could ease in the second half of this year, with the potential writeback of a single US commercial real estate account that had seen bidders for its assets, write the analysts. 'Management also highlighted that its credit quality in Thailand has improved, having observed an uptick in business volumes across sectors apart from mortgage loans,' they also noted. The analysts therefore keep their elevated credit cost expectations of 35 bps for FY2025 forward for this in mind, in view of excess buffers undertaken by management, before tapering down to 25 bps in FY2026 forward.
Business Times
11-07-2025
- Business
- Business Times
‘Defensive play benefiting from volatility': Analysts positive on SGX earnings, raise target prices
[SINGAPORE] Analysts are positive on Singapore Exchange (SGX), amid the recent months' rise in trading volumes and volatility. SGX can be considered a 'defensive play benefiting from volatility', said CGS International analyst Tay Wee Kuang. 'Given the variety of measures by the government to spur trading volumes alongside volatility amid global macroeconomic uncertainty, we think the current guided revenue growth per annum over FY2025 to FY2027 forward is possible,' he wrote in his Tuesday (Jul 8) note. He has upgraded his rating on the counter to 'add' from 'hold', and raised its target price to S$18.30 from S$13.20. Over the past year, SGX shares have jumped 60 per cent from just under S$6. SGX data indicates that derivatives traded volume rose 17 per cent year on year in the past month to 26.1 million contracts, as its daily average volume (DAV) gained 9 per cent year on year to 1.3 million contracts. As for FY2025 (July 2024 to June 2025), total volume climbed 17 per cent to 315.8 million contracts. Its securities market turnover increased 23 per cent year on year for the month to S$26 billion, while securities daily average value (SDAV) rose 12 per cent year on year to S$1.2 billion. For FY2025, the aforementioned turnover gained 28 per cent to S$336.4 billion, with SDAV up 27 per cent at S$1.3 billion. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up At the group's H1 FY2025 results briefing in February, it had provided the market its medium-term guidance for its financial performance, and guided for 6 to 8 per cent growth per annum for revenue, excluding treasury income. Tay expects the strong volume growth to be a 'good proxy' for SGX's over-the-counter foreign exchange product sales in the second half of FY2025, and estimates net revenue to rise 6 per cent year on year, offsetting seasonally higher operational expenditure. Citibank analyst Tan Yong Hong, also noting the higher trading volumes created by elevated volatility, said he expects 'robust' FY2025 earnings for SGX. He raised the price target for the stock to S$13.10 from S$11.90. However, Citi reiterated its 'sell' rating, saying that market optimism in the review measures is likely to be faced with initial disappointment. The Monetary Authority of Singapore (MAS) announced in February the S$5 billion Equity Market Development Programme to spur the local equities market, and adjustments to the Global Investor Programme. However, Tan stressed that investors are well positioned to gain from the stock. 'We have a valuation at around 25 times its P/E ratio, as compared to the historical 19-to-25 time range, due to MAS review measures in August this year and the bourse's rotation out of Singapore banks,' he wrote. SGX is drawing a few new listings this year, such as that of cloud-based software provider Info-Tech Systems, which closed its first trading day on Jul 4 at S$0.91, around 4.6 per cent above its initial public offering (IPO) price. Automotive group Vin's Holdings made its SGX debut on Apr 15, becoming the first IPO on the bourse in 2025. NTT DC real estate investment trust (Reit) launched its IPO on Jul 7 – the largest in the S-Reit space in ove a decade. It is expected to begin trading at 2 pm on Jul 14. Hong Kong-listed China Medical System is seeking a secondary listing on SGX's mainboard, having slated its listing ceremony for Jul 15. Tay from CGS International warned, however, that interest rate cuts would crimp treasury income, which could be a drag on group revenue for SGX. Tay is also forecasting a year-on-year revenue growth of 4.7 per cent for FY2026, and 5.6 per cent for FY2027. Dividend levels could improve: RHB That said, RHB Group Research analyst Shekhar Jaiswal, who lowered SGX's target price to S$15.90 from S$16, said that the stock's year-to-date gains are likely to have been already priced in, despite the government initiatives announced in February and overall optimism in the market. Jaiswal has kept his 'neutral' call on SGX in his Thursday report, with his earnings forecasts unchanged, though he does raise his dividend expectations on the counter. 'The payout ratio (of SGX) was above 85 per cent in FY2015 to FY2019, above 75 per cent in FY2021 to FY2022, but fell to 69 per cent in FY2020 during the Covid-19 period; it has remained around 61 per cent since,' he said. For FY2025, the RHB analyst expects the payout ratio to stay flat. 'However, with rising cash balances, solid earnings and no major mergers and acquisitions announced, we see room for improvement,' he said. He forecasts the payout ratio to rise gradually to 75 per cent by FY2027. 'But even so, the FY2027 yield would be just 3.4 per cent, still below the market average,' he noted. Citibank's Tan estimates the total potential shareholder return to be under 4 per cent of market value. 'We expect new quarterly dividends per share of S$0.09 (at an approximate annualised 2 per cent yield), with a key risk to our view being share buyback.' SGX is scheduled to announce its FY2025 results on Aug 8, and Jaiswal expects positive updates on dividends. 'Unless SGX prioritises building a cash buffer, we believe it could distribute more to shareholders,' he added.
Business Times
22-05-2025
- Business
- Business Times
CGSI downgrades Delfi, cuts target price as high cocoa prices sour sentiment
[SINGAPORE] CGS International (CGSI) has downgraded its recommendation on chocolate confectioner Delfi to 'hold', from 'add' previously, and slashed its target price by more than 19 per cent to S$0.71. 'We think weaker consumer sentiment, coupled with elevated cocoa prices and a weaker Indonesian rupiah against the US dollar, could pressure profitability in the near term,' said CGSI analysts Tay Wee Kuang and Tan Jie Hui in a report on Wednesday (May 21). The analysts have trimmed their revenue expectations, and cut their earnings per share (EPS) forecasts for FY2025 to FY2027 by 15.5 to 17.4 per cent. The new target price – lowered from S$0.88 previously – is still pegged to a price-to-earnings ratio of 11 times for FY2026, which is at 0.5 standard deviation below the mean due to expectations of weaker profitability. This also accounts for a negative translation impact from the weakening greenback against the Singapore dollar. Despite the gloomier outlook as Delfi braces for 'macroeconomic headwinds', the analysts noted that its revenue for the first quarter ended March was largely in line with consensus estimates. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Delfi's Q1 revenue dipped 0.5 per cent year on year to US$149.8 million, from US$150.7 million previously. Revenue from Indonesia fell 4 per cent to US$99.3 million. However, on a constant currency basis, excluding the impact of a weaker rupiah against the US dollar, net sales would have been flat. Delfi attributed the resilient sales in Indonesia to better sales for its own brands as a result of its increased promotional spending. This helped offset decreased sales of its agency brands, where they saw a cut in promotional spending from agency partners. Earnings before interest, taxes, depreciation and amortisation dropped 27 per cent to US$17 million in Q1. This suggests, the analysts said, 'an increase in operating expenses that resulted in poorer operating leverage'. Despite the declining profitability, the research house noted that Delfi's cash flow generation still remained healthy. In the first quarter, the chocolate confectionery generated a free cash flow of US$34.4 million, up from US$23.1 million in the same year-ago period. It also saw an improvement in its cash balance to US$70.4 million. As at 2.30 pm on Thursday, shares of Delfi are trading flat at S$0.715.
