Business

STI bogged down by Jardine, banks

Index was due for a correction after weeks of advance, say brokers

Yesterday, the role of prime index mover was assumed by Jardine Matheson, when it plunged US$2.81 (S$3.90) or 4.3 per cent to US$62.29, accounting for 10 out of the Straits Times Index's (STI) 36.5 points or 1.12 per cent loss to 3,227.71.

The index had risen about 90 points since the start of the month, driven to fresh 22-month highs mainly by the banks, so it came as no surprise that adding to the index's loss were falls in the banks, their combined contribution amounting to a further 11 points.

Falls in United Overseas Bank and OCBC Bank were particularly notable.

Turnover was a moderate-to-heavy 2.3 billion units worth $1.4 billion and the broad market was weak, recording 172 rises versus 292 falls excluding warrants.

Brokers noted that the STI had been rising strongly for several weeks now and was therefore due for a correction of sorts.

On the external front, Hong Kong closed slightly weaker and the Dow futures slipped marginally into the red at 5pm.

Among the top actives was Noble Group, which has been heavily sold off over the past week because of various financial concerns.

But it managed a $0.07 rebound yesterday to $0.66 on volume of 121.2 million shares done.

Religare Capital Markets, in a sales flash note titled "It's always darkest before dawn", said that Noble is not facing a solvency crisis, nor is it facing a liquidity crunch.

"As at March 31, liquidity headroom was US$2.4 billion," said Religare.

"This is after having raised US$750 million in bonds in March, completing a US$1 billion borrowing base facility which is partially committed, and repaying outstanding loans under the group's revolving credit facilities."

Elsewhere in the commodities sector, shares of Golden Agri-Resources ended $0.005 weaker at $0.37 on volume of 22.1 million.

WITHIN EXPECTATIONS

UOB-Kay Hian described the company's latest results as being within expectations, and maintained its "hold" recommendation with $0.45 target price, which is pegged at 15 times 2017 forecast earnings.

"We are reviewing our recommendation as sentiment is expected to further weaken in a situation of palm oil supply outweighing demand, which is likely to happen in 2H17 when production picks up strongly amidst normalising yields but demand remaining stagnant," said the broker.

OCBC Investment Research also maintained a "hold" on Golden Agri-Resources, but with a fair value of $0.38.

In the second line, shares of movie firm Spackman Entertainment ended $0.006 lower at $0.143 on volume of 12.4 million.

RHB noted that the company has bounced back into the black this year, and maintained a "buy" with a discounted cash flow-based target price of $0.27.

In a May 16 Research Alert titled "Singapore Q1 results drive further earnings upgrades", Credit Suisse Private Banking's head of South-east Asia research for private banking, Ms Kum Soek Ching, said she thinks the worst is behind the banks as far as asset quality is concerned.

She also said that the three should trade at price-to-books consistent with their five-year average.

"This may already be an optimistic target as the average ROE (return on equity) for the sector for the next three years is estimated to be about 9.8 per cent to 10.9 per cent versus the low-teens over the past five years," said Ms Kum.

"The confluence of factors driving the sector may be at its most positive now - earnings beat, worst of asset quality being just over, margin expansion potential from higher rates, and prospects of loans recovery.

"It is hard to get a quarter when all the stars are so aligned, and the rally reflects that," she added.

This article appears in The Business Times today. For full listings of SGX prices, go to btd.sg/BTmkts