Towards Financial Freedom
DBS Equity Research: Wired Daily 15 Dec 2015
STI - Near-term bounce from 2790 to 2900 possible but any Capricorn Rally seen short-lived
Ascendas REIT - TP tweaked lowered to $2.52 post placement
Stocks should start the session on a firmer footing on the back of the overnight fall on Wall Street. STI rebounded from an intra-day low near 2790 yesterday. In the immediate term, this level should hold as prices hold steady ahead of tomorrow's FOMC meeting outcome. The next one week will depend on what the FED does and hints with regards to how fast rates may go up.
A minor rebound post FED meeting is possible heading to year-end as there may be some bargain hunting in anticipation of the 'Capricorn' rally. However, we think any Capricorn rally will be short lived amid concerns of more earnings cut heading to the 4QCY15 results season. For now, upside looks capped at 2900 or just slightly above and immediate resistance is at 2860. But we view any weakness in 1QCY16 down to 2650-2700 as a tactical accumulate opportunity. Singapore's market valuation is inexpensive. At 2800, STI currently trading at 11.46x (-1.5SD) FY16F PE.
We lower our DCF-based TP for Ascendas REIT to S$2.52 (previous $2.57) as we roll forward our valuations and update our assumptions from the recent placement. A-REIT has acquired assets worth more than S$1bn in assets in Singapore and Australia, in search for higher returns. Looking ahead, with vacancy rates standing at c.11%, we believe that A-REIT has upside to earnings if the unoccupied space can be filled.
Ezion has entered into a strategic cooperation agreement with a Chinese SOE to support offshore wind power installation projects in China. The move is in line with its strategy to diversify its customer base to include non-O&G players in view of the challenging near-to-medium term outlook of the sector. We believe this is a positive shift for Ezion as clean and renewal energy is up-and-coming. Maintain Buy call on Ezion, TP is unchanged at S$1.00, pegged to 0.8x PB.
U.S. stocks rose following a rebound in oil price that overshadowed credit market turbulence. Tomorrow is the FED's decision on interest rates. Consensus expects an 83% chance that rates will go up (source: CME Group FedWatch).
Bond market anxiety spilled over to equities in recent days after Third Avenue Management froze redemptions at a high-yield mutual fund last week and Lucidus Capital Partners liquidated its entire high-yield portfolio.
Source: DBS
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