Business

Banks account for 21% of turnover

Fresh concerns over banks' oil and gas exposure lead to STI's 15.98-point loss

Weakness in the three banks following fresh concerns over their oil and gas (O&G) sector exposure was the main factor behind the 15.98-point loss at 3,278.95 that the Straits Times Index (STI) suffered yesterday.

It did, however, manage to rebound almost 20 points off its intraday low of 3,259.

A fair bit of this recovery was from OCBC Bank, which sank to $11 before closing with only a two-cent loss at $11.19 on volume of 5.2 million.

Losses in the three banks cut 12 points off the STI, with Jardine stocks also featuring prominently.

The market's turnover amounted to 1.74 billion units worth $1.2 billion, of which $246 million or 21 per cent came from trading of the banks. The advance-decline score excluding warrants was 168 to 262.

Brokers said the suspension of O&G company Ezion Holdings because of financial difficulties and large losses reported by others in the sector such as Nam Cheong have thrust banks' exposure to the sector back into the limelight and prompted a re-evaluation of bottom lines.

However, at least one observer said the O&G sector's woes were simply an excuse to sell out of an outperforming sector.

In the second line, shares of printed circuit board company Jadason Enterprises ended $0.003 weaker at 10.7 cents on volume of 12 million.

RHB in its latest report said Jadason's management has indicated that its profitable manufacturing and support services segment is likely to do well in the second half of the year, as its long-term customers have indicated their intention to raise their production capacities.

"We expect this to bump its segment revenue by 30 per cent and expect it to enjoy bumper profits in FY17F-18F. Maintain 'buy' with a discounted cash flow-based target price of 15 cents," said the broker.

Elsewhere in the second line, shares of beauty products seller Best World International, which dropped on Tuesday after Bloomberg reported that China is cracking down on direct sellers, ended $0.015 down at $1.34 on volume of 10.2 million.

In response to a query from the Singapore Exchange on Tuesday, the company said although it holds a direct selling licence, it has not converted its business in China to direct selling yet.

In a flash note, CIMB said Best World's business model differs from a pyramid scheme because: its products are of quality; it has set low hurdles for members to sustain their memberships; and it charges little or no joining membership fee.

"We reiterate our 'buy' call and target price of $1.80 (based on 18x CY18F price/earnings, global peers average)," said CIMB. "The stock has retraced to 12.6x CY18F P/E, close to its average mean of 12.8x during the last earnings upcycle.

"This is an attractive entry point given its stellar forward earnings momentum."

Mr Rob Carnell, head of Asia Research at ING Asia-Pacific, said for the Singapore economy, his base case remains positive.

"We don't subscribe to the gloom-mongers' global view. And soft electronics exports in June look due for a bounce, or at worst, flatline, which should help lift the overall export figure," said Mr Carnel.

"Both the consensus monthly forecast (-0.4 per cent month-on-month) and the consensus year-on-year forecast (9.1 per cent) look too low to us. We anticipate 12.8 per cent Nodx (non-oil domestic exports) growth in July."

Bank of America Merrill Lynch (BoA-ML) in its latest fund manager survey said only 33 per cent think corporate profits will improve over the next 12 months, the lowest level since November 2015.

"Investors' expectations of corporate profits have taken an ominous turn this year," said Mr Michael Hartnett, BoA-ML chief investment strategist, "which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones. Further deterioration is likely to cause risk-off trades."

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