Brokers' take

Compiled by Navin Sregantan

DBS GROUP HOLDINGS | BUY (UPGRADED)

JUNE 19 CLOSE: $25.43
FAIR VALUE: $29.18

OCBC Investment Research, June 19

From a recent high ($28.64) to a recent low ($24.01), the DBS share price has come off by some 16.2 per cent over a period of five weeks.

While the trade tension between the US and China was cited as one of the main reasons, the other reason was the recent decline in interest rates.

The three-month Singapore interbank offered rate was relatively flat from 2009-2014 at below 0.5 per cent, but started to move up from 2015 to the current level of about 2 per cent.

In the last 10 years, DBS' net earnings have grown by a compounded annual growth rate (CAGR) of 10.6 per cent from $2.04 billion in FY2009 to $5.58 billion in FY2018.

Dividend payout grew by a CAGR of 7.9 per cent during the same period from 56 cents to $1.20 currently.

With $1.20 dividend a share or 30 cents a quarter, DBS has some real estate investment trust-like traits.

Based on the Tuesday closing price of $24.80, dividend yield is 4.8 per cent. In our company report dated April 30, we stated that we will turn buyers at $27.50 or lower. At the current price, it is an opportune time to accumulate the stock.

SINGAPORE AIRLINES | HOLD (MAINTAINED)

JUNE 19 CLOSE: $9.28
TARGET PRICE: $9.50

UOB Kay Hian, June 19

Singapore Airline's May traffic data showed nine consecutive months of decline in cargo, with a 3.2 per cent dip, though the pace of decline narrowed in the last month.

SIA's May data stands in contrast to the 15.9 per cent year-on-year decline in non-oil domestic exports and a 31.4 per cent fall in electronics exports over the same period.

Given the steep fall in electronics exports, we believe that air cargo yields would also have been soft.

Passenger traffic was surprisingly strong with a 9.5 per cent year-on-year rise for May.

The stronger traffic could have been due to an additional day off for Vesak Day this year compared to 2018, and to a smaller extent, due to SIA taking on some of Silk Air's shorter haul routes that were previously served by the grounded Boeing 737 Max aircraft.

SIA recorded strong load factors to Europe, South West Pacific and West Asia.

We maintain our "hold" recommendation, but we lower our fair value target price to $9.50.

We continue to value SIA on a sum-of-the-parts basis, with the airline operations valued at 0.75 time book value and SIA Engineering valued at $2.55.

Suggested entry price for SIA remains at $8.60.

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