Senior Correspondent
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A REBOUND in Hong Kong and a firm opening for Europe yesterday failed to help the Straits Times Index avoid a third consecutive loss, the index reversing an afternoon gain of about 20 points to finish with a nett loss of 5.33 points at 2,601.5. This brings its 3-day loss to around 80 points or 3 per cent.
Brokers were unable to offer plausible reasons for the loss given the buoyant external environment - the Hang Seng closed almost 2 per cent higher while Europe opened with an average rise of one per cent.
UOB was the biggest drag on the index with a 28-cent drop to $16.34 that cuts 3.85 points off. UOB's latest results - a Q2 net profit of $470m which was 22 per cent lower than last year but 15 per cent higher quarter-on-quarter - drew a mixed bag of analyst recommendations.
Citi Investment Research called a 'buy' as did Credit Suisse (CS), the latter saying that although it may be tempting to take some profit given UOB's outperformance over the past three months, UOB is clearly the bank with the highest sustainable ROE (return on equity) of 13-14 per cent versus 10 per cent for DBS and 11-12 per cent for OCBC. As a result, CS set a $20 target using 1.85x book and 16 times earnings.
Morgan Stanley (MS) on the other hand, issued an 'equal weight' on UOB saying that at 1.6x book or 13.2x forecast FY2009 earnings, the stock is fairly valued given a soft earnings outlook and the likelihood of only modest long-term loan growth as the 'abnormally large construction cycle closes'. Macquarie Research's call in the meantime was 'neutral' because UOB is trading at a premium to the sector average price/book and near one standard deviation above its historical mean. MS's target is $16 while Macquarie's is $17.61.
In a Aug 5 'hold' call on SingTel, Deutsche Bank said that the recent slide in the stock was not just due to it going ex-dividend (6.9 cents per share) but it also reflected a reversion of the Singapore/Australia valuation back towards its historical mean. Using this as the basis for its argument, Deutsche said that it is confident that over the next three months, the potential for substantial upside from current levels is not high.
Daiwa Institute of Research, meanwhile, downgraded SingTel from 'outperform' to 'hold' in a Aug 5 report. 'The attractiveness of hybrid plays (with both defensiveness and growth potential) like SingTel is likely to fade when market confidence in an economic recovery increases, in our view. With its already stretched valuations, we have . . . lowered our six-month target to $3.19 from $3.26, aligning it with our base-case sum-of-the-parts valuation.'
SingTel yesterday closed unchanged at $3.23.
Among other reports of interest were those on the Singapore Exchange, which on Wednesday reported FY2009 earnings of $305.7m, down 36 per cent year-on-year but above market expectations.
OCBC Investment Research issued a 'hold' with a $8.35 fair value. 'We do not expect the transition to a new CEO at the end of this year to bring about dramatic changes at SGX. We expect SGX's key drivers and objectives to remain on developing new products and objectives . . . with the recent rally, SGX and its regional peers have similarly been re-rated and are trading at an average PE of 29 . . . we are raising our peg from 20 to 25x (but still below peak valuation of more than 30x)'.
SGX ended 11 cents weaker at $8.48.
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