Business

STI rebound fades amid N. Korea concerns

Average value per unit traded $0.40 and 15 of top 20 actives priced below $0.20

The Straits Times Index yesterday first rebounded strongly in tandem with an overnight rise on Wall Street but drifted to a net loss of 0.76 of a point at 3,137.54 as geopolitical concerns, particularly surrounding North Korea, took grip.

The Dow futures reversed a morning gain to trade in the red in the afternoon, and Europe opened weaker across the board.

Turnover was moderate at 2.6 billion units worth $1.05 billion, and the advance-decline score excluding warrants was 224-262.

The average value per unit traded was $0.40 and 15 of the top 20 actives were priced below $0.20. Among these were AddValue and Chasen, which had weakened on Monday but managed to close yesterday slightly firmer.

Among telcos, M1's shares finished $0.02 weaker at $2.12 with 2.8 million traded. The company on Monday reported a 14.6 per cent drop in first-quarter net profit to $36.3 million despite a 1.2 per cent rise in revenue to $260.7 million.

OCBC Investment Research said it thinks M1's current share price is still largely supported by a potential takeover transaction as its major shareholders conduct a strategic review of their stakes.

"On largely unchanged forecasts apart from incorporating the most recent spectrum auction outcome, maintain HOLD on M1 with the same fair value of $1.96,'' said the broker.

Elsewhere, RHB on Monday said it had initiated coverage of Taiwan venture capital firm Hotung Investment Holdings with a target price of $2, saying that despite a proven track record of profitability, Hotung has historically traded at low valuations, as the market probably has not known or understood its business model.

"A 100 per cent payout policy has resulted in cumulative dividends of $70 million paid over the past five years. The stock offers attractive forward yields of about 10 per cent,'' said RHB.

"We see good value at present levels, with the stock currently trading at 0.5x FY17F P/BV (price/book value).

"Continued share buybacks or a partial capital reduction could serve as catalysts for the stock. Our target is based on a FY17F P/BV of 0.6x''.

Hotung rose $0.015 to $1.74 with 350,700 done.

Macquarie Warrants (MW), in its latest newsletter, said Macquarie Equities Research (MQ) has raised its STI target from 2,930 to 3,235.

"MQ's target represents the average of MQ's bottom-up and top-down index valuations. (The) upgrade is largely driven by the latter, as MQ incorporates an improved top-down growth outlook of +6 per cent for 2017 versus 'flat' at the end of last year. The key driver of the change is stronger non-oil domestic exports readings (around 90 per cent correlation with index EPS growth)."

It added that the STI has been quick to reflect the better earnings outlook, and has traded up to its +1 standard deviation band.

"That level looks about fair, given the resumption of earnings growth post 2016's contraction,'' said MW.

"But it doesn't leave much upside, with most of MQ's expected market total shareholder return (TSR) coming from its still-healthy dividend yield.''

It said MQ has raised its "overweight'' in property and financials, lowered its "overweight'' in telcos, moved commodities to "underweight'' and maintained an "underweight'' for the industrials and consumer sectors.

DBS chief investment officer Lim Say Boon, in his April 17 Investment Insights, said investors should stay alert to geopolitical events but should not be too alarmed.

Then there are "the more fundamental problems of (US President Donald) Trump's combative/mercurial policy style, high US equities valuations, and likely slow progress towards tax cuts and fiscal stimulus - all of which should limit the upside of any relief rebound".

Mr Lim added: "Stay cautious towards risk assets."

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