Genting, banks give boost to STI

"Sell into strength but buy the dips" was the preferred trading mode during yesterday's session when the Straits Times Index first dropped into the red but rebounded to finish at 3,137.57 for a net gain of 15.37 points.

Turnover was the highest in almost 10 days at 3.5 billion units worth $1.7 billion for an average of $0.48 per unit. The advance-decline score excluding warrants was 239-208 - much closer than the index's strength might suggest.

Banks were once again chiefly responsible for the index's rise, though OCBC Bank closed unchanged. Elsewhere in the index, casino operator Genting Singapore's shares jumped $0.05 to $1.03 on volume of 79 million. The company on Wednesday reported a net profit of $159 million for the fourth quarter ending Dec 31 compared with a loss of $7.75 million a year earlier.

It also said it is continuing to track developments in Japan where lawmakers are debating whether to allow casinos. If the result is positive, Genting said it has sufficient financial resources and is well placed to bid for a licence.

OCBC Investment Research said when it upgraded Genting to a "buy'' that after adjusting its valuation model to reflect the latest earnings and a firmer operational outlook, its fair value estimate rose from $0.88 to $1.17.

RHB, in the meantime, said it is upgrading its FY17-18 forecast earnings per share for Genting by 8 per cent to 12 per cent as it lowers its bad debt provision by 11 per cent to 15 per cent.

"Key risks include the volatility in win rates and potential weakness in tourist arrivals to Singapore due to the strengthening of the SGD against regional currencies,'' said RHB.

It maintained a "neutral'' recommendation on Genting with a revised discounted cash flow-based $0.93 fair value.

In the oil and gas sector, shares of Ezion rose $0.035 to $0.395 on volume of 54.6 million after the company reported a full-year net loss of US$33.6 million (S$47.3 million) and a net loss of US$66.6 million in the fourth quarter.

However, it also said it has renewed working capital facilities with all its bankers and has completed discussions with all of them to reduce its net annual principal repayment to match its cash flows.

"Looking ahead, we await updates regarding the JV with Swissco for possible impairments,'' said OCBC Investment Research.

"That said, the stock's current low valuation has largely priced in the negatives, and we maintain our Buy rating with $0.54 fair value estimate, based on 0.6x FY17F book''.

Bank of America-Merrill Lynch, in its Feb 21 Situation Room, noted that although credit spreads have been tightening because of increasing risk of rising interest rates, it is of the view that higher interest rates and inflation are not the biggest near-term risks to its bullish view on credit spreads.

"With the continued rally in equities instead we are getting to the point where we are most concerned in the near term about scenarios that lead to a correction in stocks - especially if interest rates decline materially in sympathy,'' it said.

"Two leading candidate scenarios for this include US policy risk - including most prominently, but not limited to, disappointments around tax reform - and developments ahead of the French election.''

On the timing of a US interest rate hike, ABN Amro said most Fed members have said they need to have more clarity on the fiscal stimulus plans.

"We expect the Fed to hike rates three times this year in June, September and December - though the chances of an earlier move have increased.''

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