By Frankie Ho


The December-quarter earnings season in Singapore has just ended. Disappointments were plentiful, but some analysts believe the worst may be over, and that the stock market could be poised for more gains even after the strong run-up in the last two months.

Of the more than 300 companies that announced 4Q2011 results by the end of the trading day on Feb 29, those that turned in weaker numbers outnumbered those that reported an improvement by about 1.6 to one.
According to Deutsche Bank, 28% of the companies under its coverage turned in results that were below its expectations, while 42% were inline and 30% outperformed. This, it says, was an improvement from 3Q2011 and 4Q2010, when 40% and 39% of companies, respectively, missed expectations.

Companies that underperformed in 4Q2011 included Wilmar International, which continued to face margin pressure in several business segments Neptune Orient Lines, which turned in a US$320 million ($400 million) net loss Genting Singapore, whose casino continued to lose market share to Marina Bay Sands and United Overseas Bank, which was hurt by higher impairment charges, Deutsche Bank points out.

For UOB KayHian, 31% of the companies it covers fell short in their 4Q2011 performance. This was better than the 34% in 3Q2011, although worse than the 25% in 4Q2010. Still, it notes that almost two-thirds of all the companies turned in 4Q2011 results that were within expectations. “This is one of the highest percentages in the last two years.”

What this points to, as far as Deutsche Bank is concerned, is that companies could be looking at better days ahead. “The weak 4Q reporting season could mark the trough of the earnings cycle.” Meanwhile, it expects the Singapore economy to bottom out in 1Q2012 but avoid a technical recession, based on recent better-than-expected local exports data.

Reflecting its improved outlook, Deutsche Bank has raised its end-2012 target for the Straits Times Index to 3,250 from 3,100. It expects earnings to increase 7% this year and 13% in 2013. Among sectors, its favourites are offshore and marine, banking, and sea transport. It has an “underweight” call on telecommunications and is “neutral” on commodities. Its top stock picks include DBS Group Holdings, Ezra Holdings, Fraser & Neave, Keppel Corp and Neptune Orient Lines.

Credit Suisse has also bumped up its end-2012 STI target, to 3,400 from 3,038. The recent fall in US jobless claims to their lowest since early 2008 was a key factor behind its upgrade. Even at 3,400, the Singapore market’s price-to-book valuation stands at 1.68 times, still below its historical average of 1.75 times since 2000, it notes. Its top picks are cyclical stocks, such as Olam International, Noble Group, STX OSV Holdings and Keppel Corp.

CIMB Research is also among those that are less bearish, although it advocates that investors adopt a trading stance. It says while current market conditions appear favourable, supported in large part by the ECB’s recent moves to inject liquidity into European banks, the real challenges could surface later in the year.

In particular, there is a high probability of Greece failing to honour its debt commitments as its economy struggles, CIMB says. An oil shock stemming from tensions in the Middle East should also not be ruled out, it adds. “We think there are enough interested parties to keep tensions from erupting, but this means that a ‘risk premium’ will be attached to oil for 1H2012. Back when commodity prices boiled in 2007, the world went into recession in 2008.”

CIMB has a target of 3,340 for the STI by end-1H2012 and 2,865 by year-end. Its top 10 stock picks are CapitaLand, CDL Hospitality Trusts, DBS, Ezion Holdings, Genting, Global Logistic Properties, Indofood Agri Resources, Overseas Union Enterprises, Sakari Resources and Sembcorp Industries.

The STI gained 13.1% in the last two months, in line with the MSCI Asia Pacific Index’s 13.3% rise.