Money Talk: Singapore banks, CWT, UMS Holdings

United Overseas Bank (UOB) logo at UOB Plaza One in Singapore. -- ST PHOTO: STEPHANIE YEOW
United Overseas Bank (UOB) logo at UOB Plaza One in Singapore. -- ST PHOTO: STEPHANIE YEOW

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Singapore banks

Broker: Maybank Kim Eng

Benefiting from issues plaguing its peers, UOB delivered an outperformance year to date despite weaker Q1 results versus its peers'. Its share price has risen by 7.1 per cent, which compares favourably to that of DBS (-0.1 per cent) and OCBC (-4.3 per cent).

In our view, UOB's share-price outperformance can be attributed to reduced appetite for a more aggressive OCBC and its smallest exposure to Greater China

The outperformance is unlikely to reverse, in our view, because its premium valuation remains modest. We expect UOB to continue to benefit from lingering concerns surrounding DBS and OCBC. We therefore think it is too early to downgrade UOB purely because of its outperformance.

Maintain Overweight on banks. For exposure, DBS is our top pick as it is best positioned to take advantage of a rising interest rate environment, followed by UOB. We would remain cautious towards OCBC.

2. CWT

Broker: OSK-DMG

Reuters reported that China's Qingdao port, the world's seventh-largest, has suspended some metal delivery as Chinese authorities are investigating whether single cargoes of metal were used multiple times to obtain financing. The metal involved in the financing probe is estimated to have a combined total value of about US$400 million.

Chinese traders have been carrying out an arbitrage by borrowing against the commodity in dollars at low offshore rates and investing onshore at a higher interest rate. The trader later pays back the dollar loan.

Amid the current fraud investigation, we see downside risk to copper and aluminium prices in the near term as some traders may be forced to sell commodities onto the market to raise funds to pay back the dollar loans.

With respect to Singapore-listed entities, GKE Corp, which runs metals logistics business in China, last week, warned of potential losses. We spoke to CWT Limited, which operates commodity collateral management business at Qingdao Port.

The management confirmed that it does not see any risk from the investigations as it does not own and has not funded any base metal cargo held by the port. We have a Buy call on CWT with a target price of $1.90.

3. UMS Holdings

Broker: CIMB

UMS started trading on an ex-bonus basis on June 5. In the absence of news flow and with a steady Straits Times Index, its ex-bonus share price should have been near $0.728.

Instead, share sales by both its major shareholders brought down its share price to $0.66 on that day's close. Are the major shareholders signalling a return of the semiconductor industry's downturn?

For prudence's sake, we revert to 1.19 times price-to-book value for 2014 (a still-generous valuation at the high end of its last earnings upturn) to value the stock, from 1.38 times previously, and normalise dividends back to 5 cents.

We adjust our earnings per share for its recently completed 1-for-4 bonus issue and downgrade the stock to Reduce from Hold, with de-rating catalysts expected from a possible earnings downturn in the second half of the year. Our target price is now $0.56, from $0.80 previously.