STI rebounds, albeit in lower volume

An easy calm settled on the Singapore stock market yesterday, with heightened caution the name of the game following news that oil and gas (O&G) firm Ezra Holdings had filed for US Chapter 11 bankruptcy protection over the weekend.

After Monday's weakness, yesterday's session was marked by low volume, with prices drifting within narrow bands and few features of interest.

As a result, the Straits Times Index rarely threatened a breakout either way, eventually finishing 7.13 points lower at 3,158.57. Turnover, which last Friday amounted to S$1.9 billion, dwindled to 1.5 billion units worth S$909.3 million. Excluding warrants, there were 239 rises versus 225 falls.

All three local banks fell slightly after coming under pressure on Monday.

The O&G sector, however, stabilised, although shares of Malaysian shipbuilder Nam Cheong continued to encounter selling after its auditors last week said they were uncertain of Nam Cheong's ability to continue as a going concern.

The stock on Tuesday ended S$0.007 weaker at S$0.027 with 42.2 million shares done.

With trading in blue chips featureless, traders expended their energies on second liners, a popular recent choice being Monday's debutant, coffee shop operator Kimly. Offered at S$0.25 per share, the stock on Tuesday rose S$0.02 to S$0.46 with 38.6 million shares traded.

Also active was commodity firm Noble Group, which ended S$0.007 down at S$0.191 on volume of 80 million. Apart from the O&G sector, telcos have also been in the spotlight after M1's substantial shareholders with a 61 per cent stake said they are conducting a strategic review of their stake that could include a sale.

In a "hold" on M1, OCBC Investment Research said if a sale does occur, M1's valuation could be in the range of S$2.27 to S$2.62 per share, based on EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortisation) multiple of 8-9x, applied to the average of M1's FY17F and FY18F Ebitda.

"Without further clarity and not ruling out a potential takeover scenario, we incorporate a 30 per cent probability of a takeover of M1 based on the average of 8-9x EV/Ebitda [(S$2.27+S$2.62) / 2 = S$2.45], and 70 per cent probability that no transaction materialises (i.e. S$1.75), we upgrade M1 to HOLD with a higher FV of S$1.96 (prev: S$1.75)," said the broker.

M1's shares dropped S$0.02 to S$2.15 with three million shares traded.

Maybank Kim Eng in an unchanged "neutral" view on the banks noted that DBS Bank, UOB and OCBC Bank do not disclose their exposure or provisions to Ezra Holdings.

"Therefore, in our effort to quantify the actual impact of Ezra Group, we had to make broad assumptions that will lead to some discrepancy between our estimates and the actual figures," it said.

"We estimate Singapore banks have about S$217 to S$748 million of claims and borrowings to Ezra Group, based on court filings and bank borrowings...

"If we assume O&G support services' NPLs (non-performing loans) require specific provisions of 50 cents per dollar of problem loans, and the estimated claims/borrowings for Ezra Group are classified as NPLs, FY17E profits may fall by 3 to 8 per cent... Having said that, we believe banks have already classified loans to Ezra as NPLs and made some provisions for this".

DBS's chief investment officer Lim Say Boon, in his March 20 Investment Insights, noted that the current rally on Wall Street will present a dilemma for the Federal Reserve.

"Rising risk asset prices have been translating into looser financial conditions in the US and should the latter persist, the Fed might be forced to hasten the pace of its monetary tightening," he said.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts