'Wait-and-see' start to the week
Second-liners provide the main play, though with slim pickings, as STI loses 1.23 points
A slight weakness in the Dow futures made for a cautious start to the week for the local stock market, as the Straits Times Index (STI) drifted to a 1.23-point loss at 3,329.52.
Volume at 2.8 billion units worth $1.4 billion was average by recent standards and, excluding warrants, there were 226 rises versus 210 falls.
Brokers said the market was in "wait-and-see" mode, following a recent US interest-rate hike, North Korea missile test and political upheaval in Washington involving the Trump administration.
As a result, second-liners provided the main play, though even here the pickings were slim. Rowsley, which is set to benefit from a large injection of healthcare assets, stood out when it topped the actives list with a $0.009 rise to $0.119 on volume of 371 million, while there was also interest in Disa and LionGold Corp.
Within the index, Yangzijiang Shipbuilding's $0.110 or 8.4 per cent jump to $1.415 on volume of 37.6 million was noteworthy, as was Singapore Telecommunications' $0.030 drop to $3.97 on turnover of 27.7 million. Brokers were unable to shed any light on these moves.
Among banks, UOB ended $0.060 weaker at $23.99 on volume of 2.5 million.
Macquarie Warrants (MW) in its daily newsletter said Macquarie Equities Research (MQ) is not quite positive on UOB because:
(i) UOB is least likely to surprise positively on loan loss provisions due to the absence of general provisioning writebacks made in FY16;
(ii) cost-income ratio to remain elevated due to little revenue growth and sticky cost growth from ongoing investments, and
(iii) earnings per share should be impacted by the continuation of scrip dividend.
MQ is "neutral" on UOB with $21.50 target price, said MW. RHB, on the other hand, maintained a "buy" with a Gordon Growth Model-derived target price of $26.50, assuming an 8.9 per cent cost of equity and 11 per cent return on equity.
"Our target price also implies 1.31x 2017 forecast price/book value, slightly higher than the four-year historical average of 1.14x," said RHB.
In the retail food sector, shares of supermarket operator Sheng Siong ended $0.015 weaker at $0.945 on volume of 15.9 million.
The company last week announced a 6.1 per cent rise in net profit for its second quarter ended June 30 to $16.1 million.
OCBC Investment Research described the results as within expectations and said it sees opportunities for the group to open new stores.
"Given the lower interim dividend of 1.55 S-cents/share (vs 1.90 S-cents/share), we believe the group is opting to stay prudent and maintain a healthy balance sheet.
"All considered, we raise our cost of equity to 6.4 per cent, which brings our fair value down to $1.04 (previous: $1.15) with BUY rating unchanged," the broker said.
In his July 31 Investment Insights, DBS chief investment officer Lim Say Boon said that in the United States, the earnings season is still tracking well as 78 per cent of the firms have reported positive earnings surprises.
"But the lingering uncertainties over US policies remain a clear and present danger to the trajectory of domestic equities.
"The recent failure of the US Republican Party in repealing Obamacare has indeed cast major doubt on the ability of the Trump administration to implement key fiscal policies," said Mr Lim.
"Meanwhile, the ongoing US dollar weakness (and by extension, looser financial conditions) comes at an opportune time for the US Federal Reserve as the central bank prepares to normalise its balance sheet.
"This week's US nonfarm payroll numbers will be closely watched."
This article appears in The Business Times today. For full listings of SGX prices, go to btd.sg/BTmkts