Top Equity Ideas

November 2016
Equity Ideas to Grow Your Wealth

We only share with you stock ideas that we are convinced of ourselves.

What you are about to see in this publication is a distillation of the top equity calls from the research teams at OCBC Group, comprising 16 highly experienced equity analysts.

Our equity analysts offer independent research views on a wide range of equities through regular company visits and management meetings.

With good access to listed companies and key industry sources, the research team conducts fundamental, technical and quantitative analyses on companies, while regularly reviewing the stocks covered.

As you can see, we’re going to great lengths to help you grow your wealth. And we hope you will find the insights we offer in this publication useful.

Amgen Inc.
Uncertainty post-Trump unlikely to cause major fair value changes

While Trump has been clear on the desire to repeal the Affordable Care Act (ACA), there is less clarity on healthcare policies. A repeal of the ACA would create some changes to healthcare fair values, but until there is greater clarity, we will proceed with existing fair value estimates. Amgen's pipeline hadn't been productive since the launch of Prolia/Xgeva, but several launches in 2015 as well as innovative earlier-stage programmes have revived our enthusiasm for the firm's research engine. Amgen's acquisition of Decode gives the firm the ability to identify potential new drug targets, validated by human genetics. Its improved manufacturing efficiency will not only benefit gross margins, but could also give the firm a cost advantage in the nascent biosimilar market, where it plans to launch five products by 2019. Amgen's biologics are vulnerable to biosimilars because of their age and ease of manufacturing, and innovative branded drugs are also stealing share. Amgen has invested heavily in more efficient manufacturing and has undertaken a massive cost-cutting programme, both poised to improve margins.

Our 12-month forecasts
Potential Upside:
32.5%
Target Price:
US$194.00
About the company
Current Price
US$146.42
Market Capitalisation
US$108.9b
Average Daily Volume (30 Days)
4.4m
Bloomberg Ticker
AMGN US

Source: Bloomberg as at 14 November 2016

 

Amgen Inc. is an independent biotechnology medicines company that discovers, develops, manufactures and markets medicines for grievous illnesses. The Company focuses solely on human therapeutics and concentrates on innovating novel medicines based on advances in cellular and molecular biology.

52-Week Price Movement
52-Week Price Movement

52-Week High: US$175.6200

52-Week Low: US$135.2200

Source: Bloomberg as at 14 November 2016

Key financial highlights
 
2013
2014
2015
Revenue (US$m)
18,676
20,063
21,662
Net Income (US$m)
5,081
5,158
6,939
EPS (US$)
6.64
6.70
9.06
PER (X)
22.1
21.9
16.2
Return on Equity (%)
24.7
21.6
25.8

For the Financial Year ended 31 December

 

The contents in this page are a summary of the investment ideas and recommendations set out in the Morningstar Equity Analyst Report.

Lowe's Companies Inc.
Housing fundamentals remain favourable barring uncertainties

Lowe's is the second-largest home-improvement retailer in the world and has over the past decade established itself as a solid operator. Its scale enables consolidated purchasing power, leading to a low-cost position, while an automated distribution network puts vendors, distribution centres, and stores on one IT platform, driving operational efficiency. The business has been built on customer service, knowledge, and innovation. Lowe’s logistics system permits large-scale purchase orders at a discount, giving it a low-cost edge. The firm retains some of the cost savings and passes the remainder on to its customers in the form of low everyday prices. These competitive advantages generate positive economic returns. An improving housing market, rising household formations, and lower oil prices, will lead consumers to spend more in the home improvement category, driving operating margin expansion through pricing and increased demand, leveraging expenses. However, higher interest rate, flat housing price growth, or tighter lending standards could postpone home improvement projects and hinder Lowe's sales.

Our 12-month forecasts
Potential Upside:
21.4%
Target Price:
US$85.00
About the company
Current Price
US$70.01
Market Capitalisation
US$61.2b
Average Daily Volume (30 Days)
6.2m
Bloomberg Ticker
LOW US

Source: Bloomberg as at 14 November 2016

 

Lowe's Companies, Inc. is a home improvement retailer that distributes building materials and supplies through stores in the United States. The company offers a complete line of products and services for home decorating, maintenance, repair, remodelling and property maintenance.

52-Week Price Movement
52-Week Price Movement

52-Week High: US$82.9400

52-Week Low: US$63.4000

Source: Bloomberg as at 14 November 2016

Key financial highlights
 
2014
2015
2016
Revenue (US$m)
53,417
56,223
59,074
Net Income (US$m)
2,286
2,698
2,546
EPS (US$)
2.14
2.71
2.73
PER (x)
32.7
25.8
25.6
Return on Equity (%)
17.8
24.6
28.8

For the Financial Year ended 31 December

 

The contents in this page are a summary of the investment ideas and recommendations set out in the Morningstar Equity Analyst Report

Ping An Insurance (Group) Company of China Limited
Solid 3Q2016 results; strong execution on all fronts

Ping An’s fundamentals remain strong, with earnings defensiveness amid challenging macro headwinds driven by its strong agency focus and a diversified business model. There’s potential value to be unlocked in the listing of its fintech and securities businesses. Ping An reported strong 3Q2016 results, with net profit up 15 per cent year-on-year to RMB16bn. For 9M2016, net profit of RMB56.5bn accounted 96 per cent of consensus FY2016E estimate, implying potential earnings upgrade. Life insurance momentum accelerated, with new business value up 61 per cent year-on-year in 3Q2016, from 43 per cent in 1H2016, led by margin expansion from product mix improvement and agent productivity. Solvency ratios remained strong, with life solvency at 229 per cent and P&C 300 per cent, up 8 per cent and 11 per cent quarter on quarter respectively. In fintech, strong operating trends bode well for Lufax’s eventual spin-off with 9M2016 transaction volumes surging 3.6 times year-on-year to RM4.3tn while retail AUM rose 56 per cent YTD to RMB339bn. Higher than expected claims/loss ratio and worse than expected bank results could depress the group’s earnings though.

Our 12-month forecasts
Potential Upside:
31.7%
Target Price:
HK$53.00
Dividend:
HKS$0.53/Share
Dividend Yield:
1.32%
About the company
Current Price
HK$40.25
Market Capitalisation
HK$728.7 b
Average Daily Volume (30 Days)
25.5 m
Bloomberg Ticker
2318 HK

Source: Bloomberg as at 14 November 2016

 

Ping An Insurance (Group) Company of China Limited provides a variety of insurance service in China. The company writes property, casualty, and life insurance. Ping An Insurance also offers financial services.

52-Week Price Movement
52-Week Price Movement

52-Week High: HK$44.7500

52-Week Low: HK$30.6000

Source: Bloomberg as at 14 November 2016

Key financial highlights
 
2015
2016E
2017E
Net Premiums Earned (RMB b)
349.8
407.8
465.7
Total Revenue (RMB b)
628.5
679.4
765.0
Total Claims (RMB b)
535.1
589.4
668.9
Net Profit (RMB b)
65.2
62.8
67.0
EPS (Rmb)
2.98
2.87
3.07

^ For the Financial Year ended 31 December

 

Singapore Telecommunications Limited
Singtel’s long-term prospects remain attractive

Singtel’s 1HFY17 revenue fell 4.8 per cent year-on-year (YoY) to S$7994.2m, impacted by the decline in mobile termination rates in Australia, higher mobile service credits from device repayment plans, and lower equipment sales. However, with an increase in associates post-tax underlying profit contributions of 15 per cent, core NPAT rose 3.4 per cent YoY to S$1933m and met 48.8 per cent of the street’s estimates. Going forward, Singtel expects FY17 consolidated revenue to decline on expectations of heightened competition in Australia, especially in the lower-end prepaid market pressured by mobile virtual network operators (MVNOs). A fourth telco entry in Singapore is also a highly probable scenario but we do not think the impact will be material on Singtel’s earnings as only ~26 per cent of its EBITDA for 1HFY17 was derived from Singapore, and out of this, only ~32 per cent of it was derived from the consumer segment in Singapore, which includes its pay TV and broadband businesses. Hence, we do not think losing 2-3 per cent revenue share over the next five years will materially affect its dividend payout. We continue to like its diversified portfolio and long-term prospects through its exposure in developing economies and strong presence in enterprise segment.

Our 12-month forecasts
Potential Upside:
19.6%
Target Price:
S$4.40
Dividend:
S$0.175/Share
Dividend Yield:
4.76%
About the company
Current Price
S$3.68
Market Capitalisation
S$58.7 b
Average Daily Volume (30 Days)
19.5m
Bloomberg Ticker
ST SP

Source: Bloomberg as at 14 November 2016

 

Singapore Telecommunications Limited is a communications group. The Group provides a diverse range of communication services and solutions, including fixed, mobile, data, Internet, info-communications technology, satellite and pay television. Singapore Telecom has a network of offices in multiple countries and territories throughout Asia Pacific, in Europe and the United States.

52-Week Price Movement
52-Week Price Movement

52-Week High: S$4.3200

52-Week Low: S$3.3900

Source: Bloomberg as at 14 November 2016

Key financial highlights
 
FY16
FY17F
FY18F
Revenue (US$m)
16,961.2
16,505.4
16,573.1
Operating Profit (S$ m)
2,819.1
2,891.9
2,938.2
EPS (S¢)
24.3
23.1
23.8
PER (X)
15.1
15.9
15.5
Net Gearing (%)
36.7
35.6
34.6

^ For the Financial Year ended 31 December

 

The Walt Disney Co.
Powered by dominant cable networks and branded franchises

Walt Disney posted weaker-than-expected fiscal fourth-quarter results due to declines at media networks and consumer products but it may offer an attractive entry point for those with a longer-term investment horizon. ESPN network is the dominant player in U.S. sports entertainment, empowered to charge the highest subscriber fees of any cable network, to generate sustainable profits. The media network component also includes the Disney Channel, one of two dominant cable networks for children. Disney has mastered the process of monetizing its world-renowned characters and franchises across multiple platforms, like the Pixar and Marvel franchises that have helped to create new opportunities with adults that may have previously outgrown their attraction to the company's traditional characters. The recent acquisition of Lucasfilm added another avenue to remain engaged with children and adults. Although making movies is a hit-or-miss business, Disney's large library of content with popular franchises and characters reduces this volatility over time, as it uses film success to only to drive DVD sales, but also to create new experiences at its parks and resorts, merchandising, TV programming, and even Broadway shows.

Our 12-month forecasts
Potential Upside:
36.8%
Target Price:
US$134.00
About the company
Current Price
US$97.92
Market Capitalisation
US$157.4b
Average Daily Volume (30 Days)
7.79m
Bloomberg Ticker
DIS US

Source: Bloomberg as at 14 November 2016

 

The Walt Disney Company is an entertainment company that conducts operations in media networks, studio entertainment, theme parks and resorts, consumer products, and interactive media. The company produces motion pictures, television programs, and musical recordings, as well as books and magazines.

52-Week Price Movement
52-Week Price Movement

52-Week High: US$120.0700

52-Week Low: US$88.8500

Source: Bloomberg as at 14 November 2016

Key financial highlights
 
2013
2014
2015
Revenue (US$m)
45,041
48,813
52,4652
Net Income (US$m)
6,136
7,501
8,382
EPS (US$)
3.38
4.26
4.90
PER (X)
29.0
23.0
20.0
Return on Equity (%)
14.4
18.8
16.7

^ For the Financial Year ended 31 December

 

The contents in this page are a summary of the investment ideas and recommendations set out in the Morningstar Equity Analyst Report.

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