Senior Correspondent
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AFTER dropping 27 points on Wednesday, the Straits Times Index rose 28.43 points to 2,598.36 yesterday, thanks mainly to a 5 per cent bounce in China.
Equally instrumental were gains in Hong Kong and the US futures market, the latter encapsulating expectations of how Wall Street will perform when it opens on Thursday.
The second line, meanwhile, ran on its own largely speculative and rotationally driven steam, with mainly low-priced issues the subject of gambles that some could become reverse takeover targets, after the few deals already announced. At the very least, this gave punters plenty of opportunities to try their luck riding the volatility in hopes of a quick profit.
In some cases, accompanying research could be found to help explain the movement. CIMB, for example, issued an 'out-perform' on Sinomem with a target price of 90 cents, saying that it is one of the few S-chips it likes for its growth prospects and management integrity. CIMB's report probably contributed to the stock rising nine cents to 63 cents on volume of 65 million.
'We are excited about Sinomem's municipal BOT (build, operate, transfer) water projects, which should boost its earnings visibility with good recurring income,' CIMB said.
'Its water business is on the verge of replacing its traditional business as the largest profit contributor and should be a key earnings driver in the next three to five years. Asset value - for example, restructured downstream business and water assets - could potentially be unlocked for capital recycling. Sinomem offers value at 7.5x CY10 P/E or a 40 per cent discount to Singapore-listed peers.'
Commodity stocks have been in play recently, among them Olam International which said on Wednesday that it plans to raise funds via a convertible bond issue, a deal that met with a mixed reception from brokers. Nomura, for example, rated Olam 'neutral' in a report yesterday, saying that valuations are stretched, the shares are already pricing in near-to-medium-term earnings growth and the constant issuance of paper to meet capital needs is an overhang.
UBS Investment Research, on the other hand, called a 'buy' on Olam with a 12-month price target of $2.75, on the basis the company is embarking on a strategic change from a pure commodities trader to an upstream operator. Olam yesterday added two cents to $2.31 with 19 million units done.
Among the other reports of interest was RBS Asia Securities' feedback from clients following its 'under-weight' on the banks last week, when it called a sell on DBS and OCBC. In its Wednesday report, RBS said that it polled 37 clients. Some 43 per cent agreed with the recommendation, while 35 per cent disagreed.
'Our downgrade rests on the view that Singapore banks are likely to disappoint through falling net interest margins (as loan spreads decline), anaemic loan growth and bad debts that are expected to remain at elevated levels for several more quarters,' RBS said. 'We also argued that valuations have overshot at 16.1x one-year forward rolling PE.'
It also said that while banks will benefit when interest rates rise, it is too early to speak of rates rising. As for playing the regional recovery theme, RBS said that there are better ways than Singapore banks at current valuations. It recommended clients look at Thai and Indonesian banks.
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