Warrants Highlight

DBS - Price target of $14.75

The nation had its first local bank reporting results yesterday, announcing strong third quarter earnings. DBS Group’s third quarter earnings were up 12% compared to the same period a year ago. For the first nine months this year, net profit rose 13% to a record S$2.60 billion.

Shortly after, Macquarie Equities Research (MER) released a research report on DBS. Below are some excerpts from MER’s report, dated 1 Nov. MER maintains a ‘Neutral’ rating on DBS with a 12 month target of $14.75, saying that the slowing pre-provision operation profit momentum should fail to excite, but the stock is not expensive at 1.0x 2013E price to book value with a 4% forward yield.

Macquarie’s DBS warrants

DBS Results beat MER’s forecast
DBS’s 3Q12 result beat MER’s forecast by 6% on weakening pre-provisioning operating profit that was masked by extremely low credit costs. Key revenue drivers show weakening momentum, a trend which is in line with MER’s expectations and MER believes that of most investors.

Net interest margin fell by 5bps quarter on quarter to reach 1.67% on a 6bp decline in yields and a 1bp increase in funding costs. The margin squeeze, which was within MER’s expectations, was compounded by a surprisingly weak 1% quarter on quarter decline in loans. This appears to have been driven by a combination of weakening demand for corporate loans compounded by FX impacts – the SGD appreciated 3% against the USD in the quarter.

With pre-provisioning operating profit coming in 2% below MER’s forecast, the key driver of the earnings beat was the near-zero credit costs. General provisioning fell by 77% quarter on quarter as loan growth ebbed, with specific provisions down 10% quarter on quarter to reach just 3bps of average loans.

DBS still below MER’s target price
MER stated that the result is moderately weak on the top line and near-zero credit costs will fail to impress most investors. But the valuation at 1.0x 2013 P/BV should support the stock, which is now 6% below MER’s target price. DBS traded at $13.90 at the time the research report was written.

Singapore Market Wrap

China PMI data ignites A50 index

China's official PMI rose to 50.2 from 49.8 month-on-month, indicating an expansion in the world's second largest economy. This economic data seemed to ignite the financial markets, sending the China A50 index 2.1% higher day-on-day (d.o.d) to 7294.
However, the STI was unable to gain positive traction from the positive China news. It slipped 0.39% to 3026.61 for the trading session.

Call STI 3100MBeCW130131 (PA7W) exercise level 3,100.*
Put STI 2800MBePW130131 (PA8W) exercise level 2,800.*

Call CN8000MBeCW130130 (Q7GW) exercise level 8,000.*
Put CN7000MBePW130130 (Q7HW) exercise level 7,000.*

DBS 3Q12 earnings rose
DBS reported net earnings of S$856 million for it's 3rd Quarter 2012. This is a 6% increase from the last quarter and a 12% improvement from the previous year. For the 9 months, net profit hit a record of S$2.6 billion. DBS dropped 0.72% to $13.80 d.o.d.

Call DBS MB eCW130102 (O9KW) exercise price $14.00.*
Put DBS MB ePW121205 (Q7SW) exercise level 13.80.*

Noble consortium discontinues acquisition offer
Noble and Steelmakers Australia had earlier approached Arrium with an improved cash proposal to acquire 100% of Arrium. However, it has been rejected and the consortium will not continue to pursue the acquisition. Noble plunged 3.44% to $1.265 for the day.

Call NobleGrpMBeCW130201 (Q5OW) exercise price $1.40.*
Put NobleGrpMBePW130201 (Q8YW) exercise price $1.25.*

Overnight Market Wrap

S&P rallies most in 8 weeks

The S&P rallied 1.1% after officials released data which beat expectations and signalling that the world's largest economy might be recovering. The index closed at 1427.59.

Jobless claims fell to 363,000 when the Bloomberg survey was expecting 370,000. American companies added 158,000 jobs in October, more than estimates. This is the highest increase in eight months. Tomorrow, the US is expected to release the monthly labour report and economists are expecting the unemployment rate to be at 7.9%.

In addition, manufacturing also came in above 50, implying an expansion. Economists were expecting a reading of 51, but reports showed 51.7 in October.

Overnight Markets

Indices	Last	Change
STI	3026.61	-0.4%
HSI	21821.90	0.8%
DJIA	13232.60	1.0%
S&P 500	1427.59	1.1%
Nasdaq	3020.06	1.4%
China A50	7293.83	2.1%

Corporate News

Corporate Announcements

GLP establishes Japan REIT (J-REIT) that focuses on owning and operating logistics facilities. GLP will contribute 30 of it's properties in Japan, of a consideration of around JPY 209 billion (US$2.6 billion), to the REIT.

Earnings release dates:
Fri 2 Nov: SIA (2Q12)
Fri 2 Nov: Starhub (3Q12)
Fri 2 Nov: Cosco (3Q12)
Mon 5 Nov: SembCorp Marine (3Q12)
Tues 6 Nov: Ezion (3Q12)
Tues 6 Nov: SATS (2Q13)
Wed 7 Nov: UOB (3Q12)
Wed 7 Nov: Biosensors (2Q13)
Thurs 8 Nov: Noble (3Q12)
Thurs 8 Nov: UOL (3Q12)
Fri 9 Nov: SembCorp Industries (3Q12)
Fri 9 Nov: OCBC (3Q12)
Fri 9 Nov: Wilmar (3Q12)
Mon 12 Nov: Genting (3Q12)
Wed 14 Nov: GLP (2Q13)
Wed 14 Nov: City Dev (3Q12)
Wed 14 Nov: Singtel (2Q12)
Wed 14 Nov: STX OSV (3Q12)

Ex-dividend dates:
Tue 6 Nov: Olam ($0.05)
Fri 7 Dec: SPH ($0.17)