DBS Equity Research: Wired Daily 10 June 2015

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DBS Equity Research: Wired Daily 10 June 2015

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Publish date: Thu, 11 Jun 2015, 10:32 AM

Maintain view for STI correction to end at 3270-3300 - Time to bargain hunt, banks and SingTel to underpin index

Market is still under-appreciating the OCBC-WHB's franchise in Greater China

China A-shares not included in MSCI EM Index yet - Expect a 10-15% correction for the SSEC over next 1-2 months

MSCI has decided not to include China A-shares into the MSCI Emerging Markets Index at its regular annual early summer review. Instead, it will form a working group with the China Securities Regulatory Commission (CSRC) to address some remaining issues before including A-shares into its global and regional benchmarks. The issues to be addressed include quote allocation, capital mobility and beneficial ownership. We expect A-shares to correct in the near term on the back of this news. Technically a correction in the SSEC to 4100-4500 over the next 1-2 months is likely.

Our HK Strategist says the Hong Kong market is seasonally weak in May and June, and this year looks to be the same. The ex-dividend factor drag down on the HSI is estimated at 330 points this year. But he expects declines in Hong Kong to be milder, in part because the Hong Kong market has been lackluster since May. Also, adding A-shares into MSCI EM actually has slight negative fund flow impact to China-H and other emerging markets. The cool down in A-shares may also induce bargain hunting in Hong Kong by pent up China liquidity.

For the Singapore market, the STI entered the 3270-3300 range yesterday that we continue to see as a potential inflexion point. Valuation is now very attractive at 13x (-0.5SD) 12-mth forward PE while Fibonacci projection points to any further downside limited at 3270. Investors should look to bargain hunt oversold blue chips and stocks. Banks and SingTel should underpin the STI. A minor rebound is expected in the current session.

We believe the market is still under-appreciating the OCBCWHB's franchise in Greater China. Integration is still on-going but signs of improvement are visible in its wealth management income line. We expect wealth management income to continue its upward trajectory. Expect 2Q15 NIM to improve but loan growth (ex OCBC-WHB) would likely remain sluggish. We forecast 6% loan growth for 2015 with flat NIM y-o-y. Our S$12.80 TP implies 1.4x FY16F BV. We believe OCBC's share price should re-rate on clarity of earnings enhancement from OCBCWHB. The potential reach from its differentiated non-interest income franchise should support valuations. A turn in the interest rate cycle with minimal disruption to asset quality would be testimony of its credit robustness.

Soilbuild Construction Group has been awarded a design and build contract worth US$50.4mil to build Rosehill Residences, a 24-storey, 176-unit condo along Kabar Aye Pagoda Road, near the city's most famous Shwedagon Pagoda. The project is scheduled to start in the third quarter of 2015, and will be completed in 40 months. The contract was awarded by a JV - 60% held by Soilbuild Group Holdings and the rest by a group of 7 veteran Myanmar businessmen who contributed the private land. The land has obtained the Myanmar Investment Commission (MIC) approval.

XMH Holdings Ltd, a diesel engine, propulsion and power generating solution provider in the marine and industrial sectors, has secured orders worth a total of S$23.1mil.

US stocks were little changed as investors continue to mull over the timing for the FED to start raising rates. Investors are also seeking signs of progress in Greece's debt talks. The country submitted fresh proposals to its creditors in a bid to unlock bailout funds with just 3 weeks to go before its financial safety net expires.

Source: DBS

STI ETF (ES3)Soilbuild Const (S7P)

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