Equities market strength may not be sustained
Maintain SELL on SGX. After equities market ADT rose to S$2.27b in May 09, it subsequently fell for two months before recovering to S$1.88b in Aug 09. The ADT for Jul and Aug 09 was S$1.73b, higher than our FY10 assumption of S$1.47b. However, we are maintaining our assumption as current market valuations are not cheap and investing interest may not be sustained. Our SGX target price of S$7.00 is derived from 22x of our FY10 EPS, which is close to the 22x average for the past four years.
Value per share traded is sharply lower than historical average, suggesting dominance of penny stocks trading. For the two months of Jul and Aug 09, value per share traded was S$0.79, sharply lower than FY08 and FY09’s S$1.08 and S$0.94 respectively. This suggests that trading activity is more concentrated in the penny stocks. Historically, the penny stocks were the last to move in an upmarket. We are not optimistic that equities market trading volume will stay high in the months ahead.
Our analysis shows that SGX target price would be S$8.00 if FY10 ADT hits S$1.84b, or S$9.10 if ADT is S$2.20b. Investors who are more optimistic on the market trading volumes can trade on SGX. But we are not so optimistic.
SGX’s earnings is less sensitive (than BMB) to ADT changes. Equities trading accounts for a third of SGX’s operating revenue, lower than Bursa Malaysia Berhad (BMB)’s 47%. A 25% rise in SGX ADT (above base case) will raise SGX FY10 net profit by 15%, whilst BMB’s FY10 net profit could rise by a stronger 21% for a similar percentage change in ADT. This is not a positive for SGX as we are forecasting FY10 ADT to be stronger than the FY09 level.
Dividend yield is also unexciting. SGX is committed to an annual base dividend of 14S¢/share. We are forecasting FY10 dividend of 28.9S¢/share, based on a 90% payout ratio (FY09 payout ratio was 90%). This gives an unexciting dividend yield of 3.4%.
Leng Seng Choon, CFA
Showing posts with label SGX. Show all posts
Showing posts with label SGX. Show all posts
Tuesday, September 15, 2009
Thursday, May 21, 2009
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
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
Monday, May 11, 2009
Bull run ‘breakout’ at year end
SINGAPORE, May 11 — Templeton Asset Management’s veteran fund manager Mark Mobius is so bullish on emerging markets that he thinks the recent dramatic stock market surge is barely the beginning.
He believes the “breakout” for emerging market stocks has not yet happened.
The money manager said the bull run could start in earnest at the end of this year and could even breach the highs that were seen about two years ago. “It could go higher than (in) 2007, as we’re now in a different era. A lot of companies are much stronger, with stronger balance sheets,” he said in a recent interview.
Mobius’ confidence comes as many market analysts are urging investors to be careful as the current rally may be a false dawn. For example, economist Andy Xie has cautioned that this is a bear market bounce that will end in tears.
But why the bearish outlook?
Mobius, who in 2006 was named one of the Top 100 Most Powerful and Influential People by Asiamoney magazine, explained: ‘Because they lost so much money in the downfall, they are very bearish. They said “never again”.
“You’ll find all kinds of doom scenarios out there. Some will say it’ll get worst and that the markets will go down further, while others say that there’ll be a depression greater than (in) the 1930s.”
Mobius, who is bullish on commodities as well as companies that cater to emerging market consumers, thinks this economic downturn is “not as bad” as the Great Depression of the 1930s in the US.
“During the Great Depression, there were no guarantees on bank deposits...People had bank deposits and they didn’t get one cent back. And there was no social security system,” he said.
Mobius said China’s rapid growth would spur demand for consumer goods, and Chinese consumers, in spite of their high propensity to save, would continue to spend.
“Their savings rate is high, but per capita income is going up, so they are able to devote a high proportion to not only saving but also spending,’ he added.
“The Chinese government is also subsidising purchases, giving rebates, and that should drive more consumption.”
Reiterating what he told investors earlier this year, he said: “We’re building a base for the next bull market.”
But Mobius cautions investors not to put all their money into the markets right away, but to dollar cost average (invest regularly with small amounts) over, say, a year.
“You’ll have the jagged movement up and down...and lots of volatility. Until all the bears are out and confidence has returned, then you’ll see a breakout. When that happens, it’s anyone’s guess, but we’re looking at the end of this year, possibly,” he said. — The Straits Times
He believes the “breakout” for emerging market stocks has not yet happened.
The money manager said the bull run could start in earnest at the end of this year and could even breach the highs that were seen about two years ago. “It could go higher than (in) 2007, as we’re now in a different era. A lot of companies are much stronger, with stronger balance sheets,” he said in a recent interview.
Mobius’ confidence comes as many market analysts are urging investors to be careful as the current rally may be a false dawn. For example, economist Andy Xie has cautioned that this is a bear market bounce that will end in tears.
But why the bearish outlook?
Mobius, who in 2006 was named one of the Top 100 Most Powerful and Influential People by Asiamoney magazine, explained: ‘Because they lost so much money in the downfall, they are very bearish. They said “never again”.
“You’ll find all kinds of doom scenarios out there. Some will say it’ll get worst and that the markets will go down further, while others say that there’ll be a depression greater than (in) the 1930s.”
Mobius, who is bullish on commodities as well as companies that cater to emerging market consumers, thinks this economic downturn is “not as bad” as the Great Depression of the 1930s in the US.
“During the Great Depression, there were no guarantees on bank deposits...People had bank deposits and they didn’t get one cent back. And there was no social security system,” he said.
Mobius said China’s rapid growth would spur demand for consumer goods, and Chinese consumers, in spite of their high propensity to save, would continue to spend.
“Their savings rate is high, but per capita income is going up, so they are able to devote a high proportion to not only saving but also spending,’ he added.
“The Chinese government is also subsidising purchases, giving rebates, and that should drive more consumption.”
Reiterating what he told investors earlier this year, he said: “We’re building a base for the next bull market.”
But Mobius cautions investors not to put all their money into the markets right away, but to dollar cost average (invest regularly with small amounts) over, say, a year.
“You’ll have the jagged movement up and down...and lots of volatility. Until all the bears are out and confidence has returned, then you’ll see a breakout. When that happens, it’s anyone’s guess, but we’re looking at the end of this year, possibly,” he said. — The Straits Times
Saturday, May 9, 2009
Four reasons why the aggressive run-up in the STI during the past several days is not sustainable
1) STI is heavily overbought. Current RSI (relative strength index) reading is even higher during Oct 07 when STI hit an all-time high of 3,906. This suggests a state of divergence, where a new high in the RSI has not coincided with a new high in the underlying security. Elliot Wave Count coupled with fibonacci retracements suggests a minimal price target of 2,050. This level also represents the double daily lows seen on 05 & 06 May 09.
2) Banks are also overbought. Run-up in the index of late has been mainly contributed by the three banks where they are also presently technically overbought. Additionally, gainers within the top active counters among the past few days have included offshore marine and oil & gas plays (Ezra / Swiber / Cosco / AusGroup, etc). Potential fall of the index should also drag down the share prices of these sectors.
3) Impending result of stress tests. While results of the stress test of the US are not officially out, the market is already expecting additional capital to be required by 10 of these 19 banks. Notable ones include GMAC (US$11.5 billion), Bank of America (US$34 billion), Wells Fargo (US$15 billion), and Citigroup (US$5 billion). Should actual results indicate that more capital is needed, equity markets may take a tumble.
4) US non-farm payrolls on 08 May 09. While official market forecasts are gunning for 603k jobs to be lost for the month of April, note that the bar has been raised as the ADP Employment Report within the private sector released on 06 May 09 is forecasting for only 491k jobs to be lost. Therefore, even if the actual number released by the US government manages to meet official market forecasts, global indices may still fall as whisper numbers are now gunning for a better figure than -603k. STI may suffer a relatively bigger fall compared to the other indices as it has outperformed most of these indices for the week so far.
By James Lim
2) Banks are also overbought. Run-up in the index of late has been mainly contributed by the three banks where they are also presently technically overbought. Additionally, gainers within the top active counters among the past few days have included offshore marine and oil & gas plays (Ezra / Swiber / Cosco / AusGroup, etc). Potential fall of the index should also drag down the share prices of these sectors.
3) Impending result of stress tests. While results of the stress test of the US are not officially out, the market is already expecting additional capital to be required by 10 of these 19 banks. Notable ones include GMAC (US$11.5 billion), Bank of America (US$34 billion), Wells Fargo (US$15 billion), and Citigroup (US$5 billion). Should actual results indicate that more capital is needed, equity markets may take a tumble.
4) US non-farm payrolls on 08 May 09. While official market forecasts are gunning for 603k jobs to be lost for the month of April, note that the bar has been raised as the ADP Employment Report within the private sector released on 06 May 09 is forecasting for only 491k jobs to be lost. Therefore, even if the actual number released by the US government manages to meet official market forecasts, global indices may still fall as whisper numbers are now gunning for a better figure than -603k. STI may suffer a relatively bigger fall compared to the other indices as it has outperformed most of these indices for the week so far.
By James Lim
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