Market Overview and Key Indices
The financial markets are displaying mixed trends across regions. The FSSTI Index closed at 3,915.9 – marking a slight 0.3% decline on a one-day basis, yet showing positive gains on a month-to-date (MTD) and year-to-date (YTD) basis of 1.6% and 3.4% respectively. Major indices such as the SPX, CCMP, UKX, NKY, HSI, and SHCOMP also reflected varied performances, with equity market volatility captured by the VIX Index at 19.4.
Global fixed income markets are under close scrutiny as well. The 3-month SGD SIBOR remains stable at 3.3%, while the SG and US 10-year bond yields are at 2.8% and 4.3% respectively, signifying a cautious approach by investors amid mixed economic signals.
OCBC – Comprehensive Deep Dive Analysis
OCBC is in the spotlight as the research report highlights its strong annual performance despite minor market disappointments relative to expectations. OCBC’s net profit for FY24 reached S\$7.59 billion, an 8% increase over the previous year’s S\$7.02 billion. However, the market had hoped for higher results.
With a strong capital position and sustained earnings growth, OCBC’s Board has set forth a comprehensive plan to return S\$2.5 billion of capital to shareholders over two years. This will be executed through a strategic mix of special dividends and a share buyback scheme. In detail, the capital return strategy involves special dividends amounting to 10% of group net profit in FY24 and FY25, with the balance delivered via share buybacks subject to market conditions and regulatory review.
Additionally, OCBC is targeting a total dividend payout of 60% annually by combining its target ordinary dividend payout of 50% with the special dividend allocation. For FY24, the Board has proposed a final ordinary dividend of 41 cents per share, thus raising the total ordinary dividend to 85 cents per share. Furthermore, a special dividend of 16 cents per share is on the agenda for the upcoming 2025 Annual General Meeting – pushing the overall payout ratio for FY24 to 60% of net profit.
The report further examines OCBC’s performance:
Year-on-Year Performance (4Q24) – Group net profit grew by 4% to S\$1.69 billion compared to S\$1.62 billion a year ago. Although net interest income remained steady at S\$2.46 billion due to a 6% increase in average assets, a tightening of loan yields and an associated contraction in the net interest margin (NIM) to 2.15% were noted. Non-interest income surged 18% to S\$961 million, bolstered by improved fee, trading, and insurance income. However, operating expenses increased by 19% primarily due to higher staff costs.
Quarter-on-Quarter Performance – The quarterly figures indicate a 15% decline in group net profit compared to the previous quarter, partly attributed to lower insurance income caused by changes in the medical insurance environment in key markets. Meanwhile, net interest income saw a marginal rise of 1% primarily due to increased assets offsetting a slight decline in NIM.
Looking forward, OCBC remains cautiously optimistic about the regional growth prospects. The management expressed confidence in navigating the geopolitical landscape and a volatile macroeconomic environment, reaffirming their commitment to deliver long-term value while rewarding shareholders. With strong fundamentals including a well-established franchise, prudent risk management, and robust capital, the report concludes that investors should “Accumulate on Weakness” when it comes to OCBC’s shares. Trading at \$17.60 – with an attractive normalized dividend yield of 4.8% (rising to 5.7% on a special dividend basis), along with a price-to-book ratio of 1.4x and consensus target price of \$17.80 – the broker foresees limited capital appreciation but significant support from capital returns.
Delfi Limited – An In-Depth Examination
Delfi Limited (S\$0.735, down 0.5 cents) reported a PATMI of US\$33.9 million driven by US\$502.7 million in net sales for FY2024, reflecting declines of 26.6% and 6.6% respectively in the Group’s US Dollar reporting currency. The performance was impacted by a stronger US Dollar against regional currencies, especially against the Indonesia Rupiah. When measured on a constant currency basis, net sales were lower by 3.9%.
In response to fierce competition and to generate long-term growth for its brands, Delfi increased promotional spending in the second half of 2024. This strategy yielded an increased market share in Indonesia, driven predominantly by its SilverQueen and Cha Cha brands. However, net sales in Indonesia fell to US\$314.3 million, although there is an anticipated positive momentum for its Own Brands into 2025. Notably, the decline in the Agency Brands segment, which would have otherwise seen a Y-o-Y growth of 5.5%, was largely due to the termination of a key partnership in late 2023.
Maintaining robust working capital management, Delfi generated net cash from operations totalling US\$52.6 million – an increase of US\$27.4 million year-on-year. Capital expenditures of US\$28.6 million were primarily directed towards capacity expansion and efficiency improvements. Ending FY2024 with a cash balance of US\$43.8 million, Delfi retains a strong balance sheet that serves as a cushion against market uncertainties.
The board has proposed a final dividend of 1.18 US cents per share – adding to an interim dividend of 2.06 US cents per share – cumulatively representing 59% of PATMI for the year. Despite a stable payout ratio, this marks the first full-year dividend cut since FY17. In light of high cocoa prices, which, although eased from all-time highs, remain a concern as they are still nearly double that of early 2024, the broker classifies Delfi with a recommendation downgrade from “Accumulate” to “Accumulate on Weakness”. With valuations trading at 1.3x P/B and a P/E of 9.9x, the discounted outlook vis-à-vis peers has driven this cautious stance. The report notes Delfi’s resilience through improved market share in Indonesia and a net-cash positive position, yet warns of potential short-term headwinds.
Other Listed Companies and Trusts – Snapshot Analysis
The report also provides a comprehensive overview of several other noteworthy companies and trusts. Although detailed commentary is not provided for each, key metrics such as consensus forward dividend yields, forward P/E ratios, trailing price-to-book (P/B) and EV/EBITDA ratios are highlighted:
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Frasers Logistics Trust – Forward dividend yield stands at 7.49%.
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Mapletree Industrial Trust – Capturing a solid dividend yield of 6.87%.
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Mapletree Pan Asia Comm Trust – Marginally lower at 6.86% but remains attractive.
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Mapletree Logistics Trust – Yielding 6.53%.
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DBS Bank – With a forward dividend yield of 6.13%.
For blue-chip conglomerates and industry stalwarts:
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Jardine Cycle & Carriage – Exhibits a consensus forward dividend yield of 7.45%.
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Jardine Matheson – Offers a dividend yield of 8.11% and is also noted for its attractive forward P/E with a low multiple of 0.41.
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Singapore Airlines – Demonstrates robust dividend yields at 8.79%.
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Yangzijiang Shipbuilding – Leads with a dividend yield of 9.13%, with trailing metrics also indicating low valuation multiples.
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Wilmar International – Rounds off the list with a yield of 9.49%.
Additionally, valuation measures reveal low trailing forward P/E multiples for notable names such as Hongkong Land (0.33), UOL Group (0.41), and City Developments (0.52), while lower trailing P/B ratios are noted for Genting Singapore (5.65) and Yangzijiang Shipbuilding (5.77). These metrics offer investors a snapshot into the discounted valuation landscape, which is an important signal for long-term yield and dividend stability.
Corporate Transactions and Share Buybacks
In addition to overall market and company performance, the report sheds light on numerous corporate transactions such as acquisitions, disposals, and share buyback activities. Highlights include:
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Acquisitions – Notable moves include significant transactions by Marco Polo Marine, Singapore Shipping Corp Ltd, and Indofood Agri Resources Ltd. The latter reported a sizable transaction volume from 24 September to 31 December 2024.
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Disposals – Transactions by Seatrium Ltd (via Temasek through Keppel Ltd), Parkway Life REIT, and UOL Group Ltd are detailed, emphasizing active portfolio management.
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Share Buybacks – Multiple companies, such as SCI, Singtel, Eurosports Global, Global Testing Corp Ltd, and several others, executed buyback programs. These activities, noted for their cumulative purchase volumes and percentages, underscore the continuous efforts by companies to deploy excess capital and provide an additional layer of support to share prices.
Macro Market News and Geopolitical Insights
The report also includes a macroeconomic narrative affecting US, Hong Kong, and China markets. Analysts note that while US stocks declined on sour consumer sentiments and weak corporate results, the bigger surprise came with note of President Trump’s territorial ambitions. Attention is drawn to potential geopolitical instability arising from heightened tensions around the Mexican border and Panama, with the possibility of foreign interference if alliances deteriorate.
In China, Huawei Technologies has creatively registered its new Watch D2 as a medical device. With the watch’s ability to charge to personal medical insurance accounts, it has rapidly become popular – so much so that demand has forced pharmacies in Shanghai to implement purchase limits and require pre-orders. Despite the high price tag of 2,988 yuan (S\$555), the move provides a welcome sales boost and highlights the broader trend of consumer tech companies leveraging medical labelling.
SGX Watch-List Highlights and Upcoming Events
The report concludes with an update on SGX’s Watch-List, which now includes 32 companies under close scrutiny. Names such as Amos Group, Ascent Bridge Ltd, and several others have been recently added. This list, including the latest periodic additions, ensures that investors have insight into emerging market opportunities and risks, thereby supporting proactive portfolio management.
Conclusion
In summary, the report from LIM & TAN SECURITIES outlines a nuanced picture of a global market in flux. OCBC stands out with its robust performance and capital-return strategy, making a compelling case for an “Accumulate on Weakness” approach. Meanwhile, Delfi Limited faces headwinds from currency fluctuations and high input costs, warranting a downgrade in its outlook. Other listed trusts and conglomerates are juxtaposed with attractive yield and value metrics, while active corporate transactions and a dynamic macro backdrop emphasize both challenges and opportunities in today’s financial landscape.
Date: 26 FEBRUARY 2025
Broker: LIM & TAN SECURITIES
