Brokers’ take

Compiled by Navin Sregantan

SINGAPORE AVIATION | MARKET WEIGHT (MAINTAINED)

UOB KAY HIAN, OCT 1

We like ST Engineering as we believe recent acquisitions help strengthen its value propositions.

The renewed defence pact between Singapore and the US could provide it with stronger earnings visibility.

ST Engineering is trading at 20 times FY2019F price-to-earnings (PE), in line with the five-year average. We reckon ST Engineering deserves to trade at a higher PE valuation.

Despite headwinds, we are optimistic of Sats' long-term growth prospects given its strong balance sheet and cash flow generation abilities.

We remain neutral on Singapore Airlines (SIA) and SIA Engineering Company (SIAEC). For SIA, the earnings outlook is likely to be clouded by weakness in the cargo business, potential demand destruction from Brexit and erosion of demand for business class travel.

For SIAEC, competition from regional maintenance centres does not bode well for long-term growth prospects. Competition is likely to be compounded by Airbus' plan to expand its hangar operations in Malaysia.

SINGAPORE BANKS | POSITIVE (UNCHANGED)

MAYBANK KIM ENG, SEPT 30

According to the Monetary Authority of Singapore, August's system loan growth was 5.1 per cent year-on-year - the strongest in eight months.

As in July, momentum was driven by Asian currency unit (ACU) business lending. Climbing ACU loans to manufacturing, building and construction and holding companies point to an ongoing relocation of production capacity from China to Asean.

Given long cycle times for the full deployment of new production assets, we think ACU loan growth may remain strong in the medium term.

Despite negative macro-readings, domestic lending rose at its fastest 2.2 per cent year-on-year in five months.

This growth was similarly led by business loans, while consumer lending contracted 1.1 per cent year-on-year. The latter reflected lower mortgage demand.

System deposits increased 8.1 per cent year-on-year, as FX deposits rose 51 per cent year-on-year.

As the start of this escalation dovetailed with volatility in Hong Kong, this may signify safe-haven fund flows into Singapore. Banks with strong private banking franchises - DBS Bank and OCBC Bank - may see upside from liability products and fee-income.

Stronger loan growth may produce earnings upside in the third quarter, especially for United Overseas Bank and OCBC.

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