Senior Correspondent
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AFTER gaining some 382 points in the four weeks since it closed at 2,299 on July 3, the Straits Times Index yesterday dropped 32.88 points to 2,648.76, perhaps its first significant correction during this period. A reversal in Hong Kong and a 50-points slide into negative territory for the September futures on the Dow Jones Industrial Average suggested that the selling was largely in anticipation of a Tuesday loss for Wall Street. This was also accompanied by a weak opening Europe-wide.
Turnover excluding foreign currency issues was a heavy 2.6 billion units worth $2.2 billion. Excluding derivatives there were 150 rises versus 318 falls. One dealer summarised the present sentiment thus: 'Prices have run up so much in the past four months that you have to have really surprising earnings to justify more gains.'
Most brokers responded in less than enthusiastic fashion to OCBC's results despite a supposedly better-than-expected 10 per cent rise in Q2 profit to $466 million reported on Monday.
In response, Morgan Stanley retained its 'underweight' on the stock. 'The first decade of this century is shaping up to be a 'lost one' for Singapore banks. They exited the 1997/98 Asian crisis in relatively good shape but have since failed to leverage on that position by increasing their presence meaningfully in the higher-return, higher-growth markets (such as Indonesia). . .' said MS. 'Moreover, the cloud of lending into a Singapore property bubble continues to hang over the stock.' MS set a price target of $4.60-$7.00 for OCBC.
Elsewhere, JP Morgan said it is 'neutral' on OCBC with a $7.80 target, adding that it expects the latter to reverse its year-to-date outperformance as earnings momentum could wane, while Deutsche Bank called a 'hold' with an $8.10 target. The counter yesterday lost 10 cents at $7.70 with 7 million shares traded.
In the property sector, OCBC Investment Research yesterday issued an outright 'sell' on City Developments (CDL). It raised its RNAV (revised net asset value) estimate for CDL from $7.72 to $8.20 after raising its average selling price assumptions (for various mass market developments) and taking into account a marked-to-market value of CDL's stake in Millennium and Copthorne. Together with an improving property market, OCBC Investment Research raised its CDL fair value to $8.20.
'CDL is currently trading at a price/RNAV of 1.26x and its valuation premium is the highest among peers. While we recognise its strong track record and management, we caution against paying too high a premium as there is still uncertainty in the macro environment,' said OCBC Investment Research. The stock yesterday fell 6 cents to $10.24.
The other prominent name to release its Q2 results was China shipyard Cosco Corp, though once again, analysts were largely unimpressed by the numbers. Citi Investment Research for instance, called a 'sell' saying that although Cosco has been one of the biggest underperformers in the sector this year, there are no catalysts to turn positive. 'Results and guidance suggest earnings growth will continue to be hampered by lack of progress in shipbuilding and we do not rule out potential for losses to deepen further,' said Citi. Its target price is $1.05. Deutsche Bank in the meantime, called a 'sell' with a 12 -month target of 41 cents, while Credit Suisse called an 'underperform' and set a target of 51 cents. Cosco ended 2 cents down at $1.30 yesterday with about 71 million shares traded.
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