SGX Market Commentary
Published October 11, 2006

It's still mostly about banks and property


THE Straits Times Index on Monday lost 28 points after news of the North Korean nuclear test but yesterday regained 26.15 points at 2,647.66, helped by a firm showing in Japan and Hong Kong as well as a slew of fresh 'buy' reports from brokers. Banks, property and Jardine stocks were again the main drivers of the index while second-line activity was focused on a wide array of counters, ranging from new issues to oil and gas plays.

'Wall Street didn't crack on Monday, so this gave investors confidence to stay in the game,' said a dealer. 'Also, Japan and North Asia didn't cave in, adding to the confidence.'

Rises in the three banks accounted for 14 points or more than half of the index's rise, with DBS's 40-cent rise to $20.30 alone accounting for 6.3 points.

Among the other blue chips, F&N stood out with a 12-cent jump to $4.42 that came with 2.4 million shares traded. In a 'buy' that set a $5 price target, US broker Merrill Lynch said F&N is well-positioned to leverage off the strong recovery in the property market over the next 3-4 years. 'Our projected residential launch programme should see Singapore residential property Ebit (earnings before interest and tax) increasing to $295 million in 2008 from $91 million in 2005,' said Merrill.

On the topic of local property, UOB Kay Hian yesterday recommended an 'overweight' on the sector, on the basis that it offers one of the best plays on domestic reflation as well as rising foreign investments.

Pointing to $19 billion invested in property during the first eight months of 2006 as surpassing 2005's $13.5 billion, the local broker said it is confident the reflation story will remain intact to 2010 when Singapore opens its two integrated resorts. It added that the hotel and office segments will properly be the best performers within the sector because of rising rentals amidst tight supply. Its recommended stocks are Suntec Reit, Ho Bee and Wing Tai.

Within the second line, oil and gas play Ezra Holdings caught the eye with a 40-cent surge to $3.78 on volume of 1.9 million shares thanks to fresh 'buy' reports.

JP Morgan, for instance, said it has raised Ezra's target price to $4.25 because of the latter's progress in executing its growth strategy. 'Ezra has recorded high-yielding wins of long-term charter contracts and set up appropriate financing structures to fund its growth,' said the US broker, referring to Ezra's recent winning of a US$400 million floating production storage and offloading (FPSO) charter order. JP Morgan's target price is based on a multi-stage discounted cash flow valuation.

Kim Eng Securities was more ambitious in its target, setting an objective of $5.14. Referring to the FPSO contract, Kim Eng said 'on the back of this significant development, we have raised Ezra's EPS estimates by 19 per cent for FY08. Valuation looks attractive given that FY08 PE will fall to 7.6 times.' Its target price is based on 11.6 times 2008 earnings.

It was a firm day throughout, with 294 rises versus 103 falls and 350 counters either not traded or unchanged, excluding warrants and bonds. Turnover excluding foreign currency stocks was 1.4 billion units worth $1.2 billion.