Near term STI target raised to 2400, enroute to 2800 over 12 months

Still like early cyclical plays – CapitaLand, UOB, Wilmar,
SGX, SIA Engrg, Swissco, SAR, First Resources, Ho Bee and
FCT

DBS Research believes the worst is over for the Singapore
economy and the market could re-rate to mid cycle PER as the
economy progressively recovers. Our near term target could hit
2400 if we apply a target PER of 16x, which is the historical
average PER on FY09 earnings. Applying a potential earnings
growth of 11% growth for next year, the STI could reach 2,865
without stretching valuations to extreme levels.
We still like early cyclical plays but prefer laggards within these
sectors – our preference for Capitaland over City Development
based on potential upside in the property sector, UOB over
OCBC for Financials. Wilmar is our top pick, as we expect the
potential listing of its China subsidiaries to unlock value for
shareholders. We have picked SGX as a proxy to our positive
stance on the equities market and SIA Engineering, which will
lead the recovery in the aviation sector. Our small/mid cap picks
are resources stock benefiting from the firm oil/coal/commodity
prices,(Swissco, SAR, First Resources) or value buys (Ho Bee and
FCT) trading at a discount to book value.
1Q GDP fell 14.6% from 4Q 08, smaller than the 19.7% drop
reported in the earlier April data, and marked the fourth
straight quarter of economic contraction. On a Y-o-Y basis,
GDP fell 10.1%, also less than expected and a smaller fall than
11.5% reported earlier. The difference was mainly due to
manufacturing data for January and February being revised up.
Singapore maintained its forecast for the economy to shrink by
6 to 9% this year and kept its inflation outlook at between
minus 1% and zero.
Ezra is proposing a private placement of up to 78m new shares
priced at S$1.185 each, raising total gross proceeds of up to
S$92.4m. The issue price of each new share represents a
discount of c. 8.8% to yesterday’s closing price of S$1.30. This
issue represents around 13.3% of Ezra’s outstanding share
capital. Proceeds will be used to pay down debt (lower net
gearing to about 0.22x from 0.47x), funding capex and funding
possible M&As.
Mercator Lines said that it will lift its fleet size by a quarter to
15 by 2010 and sees increased coal demand from India giving a
boost to dry bulk shipping. According to the company, dry bulk
shipping is still likely to see lower freight rates, after the sector
has been hammered by the global slowdown, but it is unlikely
to deteriorate much further as it has sunk to a very low base