Local market rides on US stocks' rally
Banking shares in S'pore gain on the back of renewed optimism in Trump administration
Renewed optimism in the new year about the incoming Trump administration helped Singapore shares extend its gains on the second trading day of this year.Led by a rally in the three banking stocks - OCBC, DBS and UOB - the benchmark Straits Times Index (STI) clocked 22.34 points or 0.77 per cent higher to finish at 2,921.31 yesterday, after retreating from an intra-day high of 2.932.35.
Despite the weak turnover of almost 2.3 billion units worth $967 million, trading was firm with gainers outnumbering losers 280 to 151, excluding warrants.
The local market's performance came on the back of the US stocks' rally overnight, in their first session for the new year.
This came as investor sentiments were cheered by the prospects of tax cuts, regulatory reform and other initiatives.
On Monday, Wall Street edged up, with the S&P 500 rising 0.9 per cent, as investors took comfort in data showing an improvement in activity in the US manufacturing sector.
Adding on to that upbeat mood was the greenback hitting a 14-year high.
Within the region, Australia's S&P/ASX 200 ended yesterday's session up 0.06 per cent at a 19-month high, while the Nikkei 225 index rose sharply by 2.5 per cent to a 13-month high.
Over in China, the benchmark Shanghai Composite Index closed 0.7 per cent higher.
But Hong Kong's Hang Seng Index ended 0.1 per cent lower yesterday.
Back home, the combined gains of index movers OCBC, DBS and UOB added 11.6 points to the STI.
OCBC added $0.12 to end at $9.10 on a volume of 5.1 million, DBS went up $0.20 to close at $17.52 on a volume of 3.8 million, while UOB finished the day's trade at $20.62, up $0.21, with almost 2.8 million shares changing hands.
Some oil- and gas-related stocks, such as Ezra, Mermaid Maritime and Ezion, ended the day in the green and were among the most active counters, following news that top exporter Saudi Arabia was expected to raise prices for its crude as part of planned supply cuts.
Also active was Genting Singapore, whose counter rose $0.035 to close at $0.91 on a volume of 33 million shares.
It had said that it has completed the disposal of its stake in an integrated resort in Jeju, South Korea, where the total sum received by the group was US$411.1 million ($593 million).
Separately, oil and gas engineering services provider AusGroup yesterday replied to a Singapore Exchange (SGX) query on why it did not comply with the Code of Corporate Governance guideline, which requires named disclosure of the individual director and chief executive's renumeration.
"Given the sensitivity and confidentiality of remuneration matters, the board is of the opinion that it is in the best interest of the company not to disclose the remuneration of each individual director and the CEO on a named basis in the FY2016 annual report," the group said.
On the broader outlook, rising nominal growth, wages and inflation accelerating globally this year led by the US would be a central theme.
Mr Richard Turnill, managing director and global chief investment strategist for BlackRock, said in his global weekly commentary: "With inflation taking root and growth picking up, we believe bond yields have bottomed, and yield curves are likely to steepen further in 2017."
He added that BlackRock favours emerging market equities, given the structural reforms, improving profitability and low valuations.
However, a sharp rally in the US dollar or significant changes to trade agreements are risks.
"We see earnings growth and further rotation into big sectors, such as financials, underpinning a US stock market advance in 2017, but we are cautious in the near term after large inflows and new record highs," he added.
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts
COMFORTDELGRO | BUY
TARGET PRICE: $2.95
JAN 4 CLOSE: $2.51
OCBC Investment Research, Jan 4
ComfortDelGro (CDG) recently announced the acquisition of the remaining 49 per cent stake in ComfortDelGro Cabcharge (CDC) for a cash consideration of A$186 million (S$195 million), based on a valuation of 4.6x FY15 Ebitda of CDC.
CDC is one of the largest private bus operators in New South Wales and Victoria, Australia.
Trans-Cab announced last week taxi rental rate cuts ranging between -22 per cent and -35 per cent for one-man operation taxi hirers. We believe it wants to achieve lower fleet idle rate in the shortest time possible.
We do not expect CDG to engage in direct rental rate cuts as its taxi fleet idle rate is still close to 0 per cent, and its continuous fleet renewal programme helps justify the higher rental rates.
CDG is not sitting still as it is gradually shifting taxi operations from fixed rental rate to revenue risk sharing model. Taxi hirers pay up to 50 per cent less in rental rates, but CDG takes a cut in their fare revenues.
As we factor in the Australian acquisition, cut FY17/18F taxi operating profit by 3 per cent/6.8 per cent, and increase our risk-free rate assumption from 2 per cent to 2.6 per cent, our DCF-derived FV drops from $3.08 to $2.95. Even if we assume a highly unlikely 50 per cent plunge in taxi revenue in FY18, our FV drops to $2.49.
COMFORTDELGRO | BUY
TARGET PRICE: $3.24
JAN 4 CLOSE: $2.51
RHB, Jan 4
While competition from Uber and Grab is real, ComfortDelGro (CDG) has not seen meaningful impact on its taxi business here.
Its taxi fleet hired-out rates have been steady at 99 per cent, with revenue continuing to grow. We estimate a sharp decline in taxi fleet size for smaller taxi companies - this would provide CDG with an opportunity to grow its fleet although at a much slower pace.
We expect its taxi rental rates (and revenues) to rise in line with its plans to replace end-of-lifecycle Hyundai Sonata cars with newer taxis. We expect its bus business to book 7 per cent to 8 per cent Ebit margins from 4Q16 under the Government contracting model, which should support growth into 2017. Its rail unit should see revenues increase amid higher ridership once the Downtown Line Stage 3 is operational in September.
We believe CDG should benefit from rail ridership growth and fare increases. Key risks are a lower than estimated margin for the bus business, drop in taxi hire-out rate, among others.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.