Warrants Highlight

UOB remains MER's top pick

On 7 November, UOB announced their third quarter earnings of $707 million, beating the average analysts’ estimates polled by Thomson Reuters. This is a 36% rise compared to the same period a year ago, helped by strong fee and commission income and trading gains.

Macquarie is pleased to list a new warrant over UOB this morning.

Macquarie’s UOB warrants

Before UOB announced its earnings, Macquarie Equities Research (MER) released a research report on Singapore Banks stating that UOB remains as its top pick. Below are some excerpts from MER’s report, dated 2 November.

DBU LDR reaches post-1998 high
The MAS Sept data release confirms the breakout of the system’s domestic banking unit (DBU) loan to deposit ratio (LDR) to new post-Asian Financial Crisis highs. This comes as a surprise to MER in the wake of QE3. But deposits – especially current account, savings account – are getting harder to come by and actually decreased month on month in September. The slowdown in loans growth is expected but loans are still outpacing deposits.

Loans grew the least since Jan 2011
Loans expanded by 16.5% year on year (+0.7% month on month), the lowest growth figure since Jan 2011 and almost half the rate of expansion posted in Sep 2011. The year on year slowdown is not a surprise given the high base and weakening corporate demand. The slowdown was indeed more pronounced for corporate loans which expanded 18% year on year vs peak levels of more than 40% last year. Consumer loan growth was steady month on month at 15%, with a 0.2ppt month on month decline in mortgage growth to 14.5% in line with a relatively buoyant property market.

But DBU deposits slowed even more
Surprisingly the growth in DBU deposits slowed down even more, to 6% year on year with a 0.3% month on month decline. The combination of rising loans and falling deposits led to a 1ppt increase in the DBU LDR to 93.7%, the highest level since Nov 1998. Interestingly, DBS, the biggest funding franchise in Singapore, posted a SGD LDR of 68% in 3Q12 – well below the system but up 6ppt from 3Q11. DBS also expanded its SGD deposits by 4% quarter on quarter in 3Q12 vs 2% for the system overall. MER’s sense is that this could spell margin pressure for the other banks, with foreign players likely to be most heavily impacted.

MER’s outlook
MER downgraded the Singapore banks to Neutral in June in light of MER’s expectation for earnings momentum to slow in 2H12, a view that appears to have been borne out by DBS’s 3Q12 financials and is probably consensus at this point. Valuations have cooled somewhat in recent weeks and year to date share price performance of the banks has converged as the high flying stocks of 1H12 – UOB and DBS – have lost steam in the past two months.

However, UOB remains MER’s top pick, with 12.7% upside (using 19 November 2012’s closing price of $17.91) to MER’s target price of $20.18, but MER does not expect it to be immune from the slowdown in earnings momentum.

Other new listings
Besides listing a warrant over UOB, Macquarie is also listing a new warrant over Ezion.

Macquarie’s Ezion warrants

Singapore Market Wrap

Quiet Monday, awaiting for more catalyst

The market was quiet on all fronts ahead of the US report on Existing Home Sales on Monday night. The STI rose marginally 0.2% to 2950.93 day-on-day (d.o.d) in a lacklustre session.

Since the announcement of China's top political appointments last week, the China A50 Index closed in negative territory for the third consecutive day. It was down 0.4% to 6955.

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

Call CN7800MBeCW130429 (R0QW) exercise level 7,800.*
Put CN7000MBePW130130 (Q7HW) exercise level 7,000.*

China's new home prices rose in October
China's new home prices climbed in 35 out of 70 cities compared with 31 in September, whereas existing home prices rose in 12 cities from a year earlier, the same level as September. China's National Bureau of Statistics' data showed that housing sales climbed 6.6% to 3.88 trillion yuan in the first 10 months this year. Yanlord, a company that develops high-end residential property projects in China, rose 1.5% to $1.32 d.o.d.

Call Yanlord MBeCW130201 (Q4QW) exercise price $1.40.*

Sembmarine's subsidiary signs contract worth US$295.2 million
Sembmarine's Jurong Shipyard (JSPL) announced that it has finalised a contract with Prosafe worth US$295.2 million. This contract would allow JSPL to build the second unit of a new generation of harsh-environment accommodation semi-submersible, which is scheduled to be delivered by end of December 2014. Sembmarine rose 0.5% to $4.13 for the trading session.

Call SembMar MBeCW130502 (R0WW) exercise price $4.25.*
Put SembMar MBePW130701 (R0OW) exercise price $4.40.*

Overnight Market Wrap

S&P advanced most in two months

The US had a good session last night spurred by optimism that the US will be able to avoid the 'fiscal cliff'. The S&P closed 2% higher, ending at 1386.89 yesterday.

President Obama said at a news conference yesterday that "he is confident they can get their fiscal situation dealt with". This echoed what House Speaker John Boehner said last Friday when he mentioned that budget talks were "constructive".

Last night, existing homes sales unexpectedly increased 2.1% in October, exceeding the Bloomberg survey. Gains in property could boost consumer sentiments, underpinning household spending which accounts for 70% of the economy.

After the US trading session closed, credit rating agency Moody's announced that it is downgrading France one notch, from AAA to Aa1.

Overnight Markets

Indices	Last	Change
STI	2950.93	0.2%
HSI	21262.10	0.5%
DJIA	12796.00	1.6%
S&P 500	1386.89	2.0%
Nasdaq	2916.07	2.2%
China A50	6955.46	-0.4%

Corporate News

Corporate Announcements

Kepcorp's Keppel yard in Brazil receives US$2 million in bonuses for safe and early delivery of a Floating Storage Offloading and Production.

Ezion has received the receipt of approval in-principle from the SGX for the proposed subscription of 10 million new ordinary shares in the capital of the company by Mr Tan Boy Tee for the cash consideration of S$12.635 million.

Ex-dividend dates:
Fri 7 Dec: SPH ($0.17)