It manifests itself prominently in the banking sector
By R SIVANITHY 1 November 2008
The past week provided the perfect illustration of something that’s often sorely lacking in the stock market.
We’re speaking, of course, of a wide range of differing opinions from analysts about the state of affairs surrounding either a stock or a sector - too often we see the herd instinct run riot among researchers, just as it often does among retail and institutional investors.
The present diversity manifests itself prominently in the banking sector.
Royal Bank of Scotland, for example, on Tuesday kicked things off with an ‘overweight’, saying that the selling had been overdone.
‘The sector now trades at an average P/B (price/book) of 0.8x 09F, which is close to levels seen during the 1997/98 Asian financial crisis. Our analysis suggests the market is currently either pricing in a cost of capital of 13.6 per cent or an expected ROE of 8.3 per cent for Singapore banks, neither of which we consider plausible,’ said analyst Trevor Kalcic.
He went on to add that earnings are unlikely to collapse, although EPS (earnings per share) growth will slow.
‘Slower loan growth and deterioration in asset quality are in the price, in our view,’ said Mr Kalcic.
Similarly, Deutsche Bank’s Michael Chang on Wednesday argued that worsening fundamentals do not justify excessive investor pessimism.
‘Our analysis supports the thesis that the banks are not facing an asset quality crisis and they are well placed to ride out these tough times,’ said Mr Chang.
Daiwa’s David Lum, however, on Wednesday argued otherwise.
‘We estimate that the global financial crisis will wipe out about three years (2008-2010) of earnings growth for Singapore banks and have downgraded the sector rating to Negative from Positive,’ said Mr Lum, who believes that a decline in non-interest income will not recover until 2011 and that non-performing loans will rise from 1.4 per cent in 2008 to 2.4 in 2009 and 3.1 in 2010.
Similarly, Citi Investment Research’s Robert Kong on Thursday argued that there is still further downside because banks are not cheap enough yet, having not fallen as much as the Straits Times Index.
Unfortunately, for Neptune Orient Lines (NOL) shareholders, there are no differing opinions governing their stock - it appears that all are unanimously negative.
In reviewing NOL’s 3Q earnings, JPMorgan maintained its ‘underweight’ with a March 2009 price target to $1.10 based on 0.45x estimated FY10 price/book, 0.45x being the trough price/book multiple in the past decade.
Similarly, CIMB maintained NOL as an ‘underperform’ with a $1.30 target price, while Morgan Stanley on Wednesday rated NOL an ‘equal weight’, a rating that is under review because NOL’s 3Q results were poor, thus underscoring Morgan’s view that the container shipping industry is now heading south with no upturn expected until 2H09 at the earliest.
Finally, in a week which started out with the STI testing the 1,600 mark before it ended a net 7.71 points lower at 1,794.20 yesterday, it’s perhaps best to bear in mind Merrill Lynch’s Tuesday warning to investors in a Global Economics report to prepare themselves for an onslaught of ‘horrific economic data round the corner’ as the September/ October data are released.
‘The financial crisis is going to be reflected in a collapse in the Sep/Oct economic data set to be released in November, starting this Friday,’ said economist Alex Patelis.
1 comment:
A welcome diversity of opinion from analysts
It manifests itself prominently in the banking sector
By R SIVANITHY
1 November 2008
The past week provided the perfect illustration of something that’s often sorely lacking in the stock market.
We’re speaking, of course, of a wide range of differing opinions from analysts about the state of affairs surrounding either a stock or a sector - too often we see the herd instinct run riot among researchers, just as it often does among retail and institutional investors.
The present diversity manifests itself prominently in the banking sector.
Royal Bank of Scotland, for example, on Tuesday kicked things off with an ‘overweight’, saying that the selling had been overdone.
‘The sector now trades at an average P/B (price/book) of 0.8x 09F, which is close to levels seen during the 1997/98 Asian financial crisis. Our analysis suggests the market is currently either pricing in a cost of capital of 13.6 per cent or an expected ROE of 8.3 per cent for Singapore banks, neither of which we consider plausible,’ said analyst Trevor Kalcic.
He went on to add that earnings are unlikely to collapse, although EPS (earnings per share) growth will slow.
‘Slower loan growth and deterioration in asset quality are in the price, in our view,’ said Mr Kalcic.
Similarly, Deutsche Bank’s Michael Chang on Wednesday argued that worsening fundamentals do not justify excessive investor pessimism.
‘Our analysis supports the thesis that the banks are not facing an asset quality crisis and they are well placed to ride out these tough times,’ said Mr Chang.
Daiwa’s David Lum, however, on Wednesday argued otherwise.
‘We estimate that the global financial crisis will wipe out about three years (2008-2010) of earnings growth for Singapore banks and have downgraded the sector rating to Negative from Positive,’ said Mr Lum, who believes that a decline in non-interest income will not recover until 2011 and that non-performing loans will rise from 1.4 per cent in 2008 to 2.4 in 2009 and 3.1 in 2010.
Similarly, Citi Investment Research’s Robert Kong on Thursday argued that there is still further downside because banks are not cheap enough yet, having not fallen as much as the Straits Times Index.
Unfortunately, for Neptune Orient Lines (NOL) shareholders, there are no differing opinions governing their stock - it appears that all are unanimously negative.
In reviewing NOL’s 3Q earnings, JPMorgan maintained its ‘underweight’ with a March 2009 price target to $1.10 based on 0.45x estimated FY10 price/book, 0.45x being the trough price/book multiple in the past decade.
Similarly, CIMB maintained NOL as an ‘underperform’ with a $1.30 target price, while Morgan Stanley on Wednesday rated NOL an ‘equal weight’, a rating that is under review because NOL’s 3Q results were poor, thus underscoring Morgan’s view that the container shipping industry is now heading south with no upturn expected until 2H09 at the earliest.
Finally, in a week which started out with the STI testing the 1,600 mark before it ended a net 7.71 points lower at 1,794.20 yesterday, it’s perhaps best to bear in mind Merrill Lynch’s Tuesday warning to investors in a Global Economics report to prepare themselves for an onslaught of ‘horrific economic data round the corner’ as the September/ October data are released.
‘The financial crisis is going to be reflected in a collapse in the Sep/Oct economic data set to be released in November, starting this Friday,’ said economist Alex Patelis.
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