Top Equity Ideas

December 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.

Singapore Telecommunications Limited
A good, defensive yield stock in times of economic uncertainties

As investors weigh the impact of monetary tightening amid a fragile economic recovery, market sentiment remains cautious in the wake of Donald Trump’s victory and pro-protectionist stance. Amid the uncertainty, we believe investors should allocate Singtel a strategic position in their portfolio, given its position as a good quality, defensive yield stock, with non-cyclical earnings and strong cash generation ability. We are positive on its long term prospects due to its entrenched exposure to regional dominant telecom operators in India, Indonesia, Thailand and Philippines. It has a growing presence in the cyber security space, where demand is expected to grow as more important transactions get performed over the internet. It is also witnessing a turnaround in its digital marketing arm on the back of growing demand for such services. Addressing concerns over a fourth telco entry in Singapore, we reiterate our view that the impact on Singtel as a group is not significant mainly due to its limited exposure to the Singapore consumer mobile market. We believe investors should position for bargain hunting opportunities during pullbacks, and therefore reiterate our Buy call with forecasts largely unchanged.

Our 12-month forecasts
Potential Upside:
12.1%
Target Price:
S$4.27
Dividend:
S$0.175/Share
Dividend Yield:
4.59%
About the company
Current Price
S$3.81
Market Capitalisation
S$62.21 b
Average Daily Volume (30 Days)
26.4m
Bloomberg Ticker
ST SP

Source: Bloomberg as at 12 December 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 12 December 2016

Key financial highlights
 
FY16
FY17F
FY18F
Revenue (S$ m)
16,961.2
16,505.4
16,573.1
Operating Profit (S$ m)
2,819.1
2,891.9
2,972.4
EPS (S¢)
24.3
23.2
24.0
PER (X)
15.7
16.4
15.9
Net Gearing (%)
36.7
36.2
35.1

For the Financial Year ended 31 March

 

Tencent Holdings Limited
Advertising turning into a source of revenue growth

A leading provider of Internet value added services in China, Tencent reported solid revenue growth even as margins came under pressure due to higher headcount and content cost. For Q32016, online advertising revenue rose grew an impressive 51 per cent year on year (YoY), driven by increasing performance based ad revenues from Weixin Moments and Official accounts. Smart phone games and social performance advertising businesses reported above-industry YoY revenue growth rates and continued to generate healthy margins. Meanwhile, its ecosystem infrastructure services, such as online payment and cloud-based services, saw significant progress in adoption and usage. Looking ahead into 2017, we expect margins to continue to see some pressures on the back of rising content cost and higher sales and marketing expenses particularly on games, payment and the cloud. However, we believe that the diverse nature and scale of Tencent’s ecosystem offers significant operating leverage and revenue growth in other areas can offset the increased spend on content and marketing. We believe the recent weakness due to concerns over margin pressures presents a buying opportunity for investors.

Our 12-month forecasts
Potential Upside:
22.6%
Target Price:
HK$227.00
Dividend:
HK$0.55/Share
Dividend Yield:
0.30%
About the company
Current Price
HK$185.10
Market Capitalisation
HK$1.75 t
Average Daily Volume (30 Days)
20.2 m
Bloomberg Ticker
700 HK

Source: Bloomberg as at 12 December 2016

 

Tencent Holdings Limited, an investment holding company, provides Internet and mobile value-added services (VAS), online advertising services, and e-commerce transactions services to users in the People's Republic of China, the United States, Europe, and internationally.

52-Week Price Movement
52-Week Price Movement

52-Week High: HK$218.2000

52-Week Low: HK$133.1000

Source: Bloomberg as at 12 December 2016

Key financial highlights
 
2015
2016E
2017E
Revenue (RMB m)
102,863
153,908
213,545
Gross Profit (RMB m)
61,232
88,076
113,137
Operating Profit (RMB m)
40,627
59,141
69,360
Net Profit (RMB m)
28,806
41,746
49,505

For the Financial Year ended 31 March

 

Visa Inc.
Future looks bright in the face of growing e-payment market

In a world in which the number of digital payment transaction is constantly growing, Visa accounts for about half of all credit card transactions and roughly three fourths of debit card transactions in recent years, according to the Nilson Report. Income comes from fees based on the volume of payments made under the Visa brand and the number of transactions processed through its network. It is poised for the competition even as the next five years bring on rapid changes in the nature of the payment business. Cards are being replaced by electronic payment methods, which present an opportunity for Visa in the form of volume growth tailwinds, but also a threat as new competitors attempt to manage the payment process and develop new ways to authenticate payments. The increasing use of mobile technologies will usher in a new payment paradigm at some point but we think Visa is on track to ensure that its connections in the virtual world are as plentiful and secure as they are in the physical, and competitors will have a tough time replicating the network's offering. Few competitors can match the investments in technology, security, and marketing that Visa makes, limiting possible alternatives in the payment space.

Our forecasts
Potential Upside:
32.5%
Target Price:
US$104.00
About the company
Current Price
US$78.50
Market Capitalisation
US$182.66 b
Average Daily Volume (30 Days)
11.8m
Bloomberg Ticker
V US

Source: Bloomberg as at 12 December 2016

 

Visa Inc. operates a retail electronic payments network and manages global financial services. The company also offers global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities.

52-Week Price Movement
52-Week Price Movement

52-Week High: US$83.3600

52-Week Low: US$67.7700

Source: Bloomberg as at 12 December 2016

Key financial highlights
 
2014
2015
2016
Revenue (US$ m)
12,702
13,880
15,082
Net Income (US$ m)
6,328
5,438
5,991
Earnings Per Share (US$)
2.58
2.16
2.48
PER (X)
30.4
36.3
31.7
Return on Equity (%)
22.1
20.0
21.0

For the Financial Year ended 31 March

 

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

The Walt Disney Co.
Strong networks, brands help reinforce its leadership position

Walt Disney is in the best position to survive and flourish in the evolving television ecosystem, with its combination of strong networks, production studios, and well-loved characters. Disney’s media networks segment and its collection of Disney-branded businesses have demonstrated strong pricing power through the years. The ESPN network is the dominant player in the American sports entertainment section. Its position and brand strength empower it to charge the highest subscriber fees of any cable network, which in turn generate sustainable profits. ESPN uses these profits to reinforce its position by acquiring long-term sports programming rights. The business model for the media networks depends on the continued growth of retransmission and reverse compensation fees. Any slowdown in the growth of these fees would hurt the profitability of this segment. Which is why acquisitions like Lucasfilm is an added avenue to be engaged with children and adults. Disney uses the success of its filmed entertainment not only to drive DVD sales, but also to create new experiences at its parks and resorts, merchandising, TV programming, and even Broadway shows. Each new franchise deepens the Disney library, which will continue to generate value over the years.

Our 12-month forecasts
Potential Upside:
28.8%
Target Price:
US$134.00
About the company
Current Price
US$104.06
Market Capitalisation
US$165.61b
Average Daily Volume (30 Days)
9.471m
Bloomberg Ticker
DIS US

Source: Bloomberg as at 12 December 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$113.7900

52-Week Low: US$88.8500

Source: Bloomberg as at 12 December 2016

Key financial highlights
 
2014
2015
2016
Revenue (US$m)
48,813
52,465
55,632
Net Income (US$m)
7,501
8,382
9,391
EPS (US$)
4.26
4.90
5.73
PER (X)
24.4
21.2
18.2
Return on Equity (%)
16.6
18.7
21.4

For the Financial Year ended 31 March

 

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