Warrants Highlight

DBS - 'Outperform rating (MER)

Last week, the STI hit its 16-month high on Friday to close at 3,168.4. The last time the index traded above that was in early August 2011. Year to date, the index has rallied 19.3%, outperforming the MSCI Asia Pacific Index. The regional benchmark index has gained 12.3% for the year.

This morning, Macquarie is listing new warrants over the Straits Times Index (STI), DBS, CapitaLand and Cosco Corporation.

On 21st November, Macquarie Equities Research (MER) upgraded DBS to ‘Outperform’ from ‘Neutral’ with a 12-month price target of $15.16. Below are some excerpts from the research report.

Deposit franchise should help protect Net Interest Margins (NIM). NIMs are likely to remain under pressure for the Singapore banks, but DBS’s dominant deposit base at home should allow for some degree of insulation against an expected moderate rise in SGD funding costs, and MER is forecasting flat NIMs year on year (YoY) at 1.7% in 2013. MER forecasts loan growth of 7% for 2013, driven by domestic demand-related segments while transaction banking-related growth is likely to weaken in line with MER’s view on regional trade.

Opex and provisioning the main earnings risks. With revenue drivers under pressure, cost efficiency and continued low provisioning are major swing factors to earnings. MER factors in flat JAWs (Income Growth Rate – Expense Growth Rate) for 2013, a reversal of the negative JAWs posted in 2010-12E, with overall costs to rise 7% YoY in line with revenues. DBS has consistently beaten MER’s expectations on credit costs, and MER now forecast loan loss provisioning to rise from a trough of 16bps in 2012E to 20bps in 2013E. MER thus assume that credit conditions remain benign and that the 134% NPA loss coverage provides a sufficient cushion.

Ultimately, MER’s upgrade is largely a valuation call. The Singapore banks have been the second worst performing country bank sector over the past three months, and DBS’s performance has been in line with the sector. It’s time for some mean reversion, in MER’s view – especially for DBS, which is now trading at 1.0x 2013E Price to Book Value (P/BV), a level that implies 9.5% expected ROE which appears overly bearish. MER has the stock on an 11% ROE outlook and 4% dividend yield, an outlook that is in line with consensus for 2012-13E. MER retains a conservative view on rising interest rates, which MER believes accounts for its 2014E earnings estimate being 7% below consensus.

Singapore Market Wrap

Lacklustre market awaits for US fiscal solutions

Asian markets went sideways as investors await further news on the US "fiscal cliff". The STI, in line with regional markets, spent the session in the black before selling pressure in the afternoon caused it to close marginally down 0.1% to 3,156.8.

Call STI 3250MBeCW130430 (R5XW) exercise level 3,250.*
Put STI 3100MBePW130430 (R5WW) exercise level 3,100.*

China new home prices climbed
Data from China's National Bureau of Statistics showed that new home prices rose in 53 of the 70 cities being tracked, an increase from October's 30 cities. According to Bloomberg, Liao Yonglin, an official from the Ministry of Land and Resources, stated that China will continue with its real estate controls. Yanlord, a high-end residential property developer in China, hit an intraday high of $1.59, before settling back flat to $1.525.

Call Yanlord MBeCW130201 (Q4QW) exercise price $1.40.*
Call Yanlord MBeCW130910 (R5GW) exercise price $1.50.*

EDB invests in Ezion
EDB Investments Pte Ltd (EDBI), the corporate investment arm of Singapore's Economic Development Board, has bought roughly S$19 million worth of shares in Ezion. Ezion is expected to expand its fleet of Multi-Purpose Self Propelled Jack-up Rigs as well as tap onto EDBI's network of resources to enhance its growth in the Oil & Gas industry. Ezion jumped 3.3% to $1.555 day-on-day.

Call Ezion MBeCW130603 (Q8WW) exercise price $1.40.*
Call Ezion MBeCW130701 (R1WW) exercise price $1.65.*

Overnight Market Wrap

S&P rise to a two-month high

The S&P continued its rally last night, adding 1.2% to close at 1,446.8. The National Association of Home Builders/Wells Fargo index of builder confidence increased to the highest in more than six years and the S&P index of homebuilders rallied 2.3%.

Budget talks sparked optimism in the markets after President Barack Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases from the income bracket above $400,000 instead of $250,000. According to a person familiar with the talks, the revised plan would raise $1.2 trillion in taxes in the next decade and cut $1.22 trillion in spending.

House Speaker John Boehner, who is against raising tax rates of the top earners said that he will push a budget "plan B" measure that will include tax increases on income of more than $1 million a year while he continues to negotiate with the president. However, Obama's administration and other Democrats immediately rejected the proposal as inadequate.

Overnight Markets

Indices	Last	Change
STI	3156.79	-0.1%
HSI	22494.70	-0.1%
DJIA	13351.00	0.9%
S&P 500	1446.79	1.1%
Nasdaq	3054.53	1.5%
China A50	7816.54	0.1%

Corporate News

Corporate Announcements

Ezion announces the S$19 million investment by EDB Investments Pte Ltd, the corporate investment arm of Singapore's EDB.

Ex-dividend dates:
Mon 24 Dec: Singtel ($0.068)