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Assessing the impact of Ezra group

■ We estimate DBS’s exposure to the Ezra group is S$637m, OCBC: S$300m, UOB: S$166m, assuming each company’s debt is equally split among its key bankers.

■ Based on 40-80% write-down in the book value of fixed assets, we estimate that DBS will have to make SPs of 8-16bp, OCBC: 9-12bp and UOB: 6-7bp.

■ At above 1x CY17 P/BV, we think the market has yet to price in asset quality concerns which could erode the impact of higher NIMs in 2017.


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Oil & Gas sector: Interest is returning

Ever since OPEC announced that it will cut production – the first time in eight years – in late Nov last year, oil prices have increased from the mid $40s to the mid $50s currently, and investors keen to gain exposure to oil plays have generally focused on the large caps like Keppel Corp (+16%), Sembcorp Industries (+19%), Sembcorp Marine (+9%) and mid-sized Ezion Holdings (+20%), possibly due to concerns that some smaller companies would face greater financial difficulties under the tough environment. Despite some returning interest in the sector in fear of losing out during an oil price rally, we also get the sense that investors in general are still cautious about entering the sector in a big way, due to conservative company guidance and the continued flow of some negative news. Looking ahead, investors are advised to be nimble amidst the uncertainties, but those with a longer-term horizon could consider accumulating on dips our preferred pick, Sembcorp Industries [BUY, FV: S$3.36]. Maintain NEUTRAL on the broader sector.


First Resources (FR SP)

4Q16 FFB Nucleus Production Comes In Slightly Stronger Than Expected

FR’s FFB nucleus production fell 6.4% yoy in 2016; this is slightly better than our and management’s expectations of 9.6% yoy and 10% yoy declines. We expect better qoq and yoy 4Q16 earnings on: a) improved FFB production and higher CPO prices, and b) stable contribution from downstream operations. We adjust our FFB production growth estimates for 2017-18 and hence raise our net profit estimates by 5% and 13% respectively. Maintain BUY with a higher target price of S$2.15.


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City Developments News Flash (CIT SP, BUY, TP: SGD9.70, Market Cap: USD5,960m)

Acquisition of luxury residential site in London

City Developments Limited (CDL) announced the acquisition of Ransomes Wharf Site in Battersea, London from Curtaus Trust for GBP58.0m (SGD103.2m), phased over the next 18 months. CDL plans to develop the site into a luxury residential project with an estimated gross development value of GBP222.0m (SGD395.2m). The site has an existing planning permission for 118 apartments including 24 affordable homes, eight commercial units and 103 car parking spaces.


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LionelLim8.16Check out our compilation of Target Prices

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