Stocks Today

SINGAPORE, March 26 - Olam International fell as much as 11.9 percent to S$2.00 with 3.4 million shares traded after a downgrade by Merrill Lynch triggered a selloff.

“The Merrill Lynch note not only downgraded the stock, but also gave a price target below its current trading price. Basically traders are just dumping Olam’s shares,” a dealer from a local brokerage said.

Merrill Lynch analyst Han Lim Chong cut the commodities trader to “sell” from “neutral”, with a target price of S$1.60, citing the firm’s high debt levels and slower earnings growth.

“Olam has become dependent on leverage for growth which, in our view, is not sustainable given the high 460 percent net gearing and low 1.7 times interest coverage,” Han said in a client note.

He added that Olam’s high valuation of five times net asset value and 26 times earnings and negative cash will make it difficult for the company to raise new equity.

My views: My opinion is that many people follow the analysts’ reports by herd instinct. They rarely questioned or investigate the worthiness of the stock. If the analysts’ reports is true, isn’t it true that they or the firm being able to make more $$$ by being first?

Secondly, let’s say the panic selling makes it cheap enough for some big institutions to buy in? So they are helping themselves to a bigger slice of the cake.

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Chinese-based Synear Food Holdings fell as much as 10.7 percent to S$0.375 with 9.7 million shares traded a day after the firm issued a profit guidance for its 2008 first-quarter earnings, dealers said. The frozen foods company said that a recent snowstorm in China was expected to cut its sales in the first quarter by up to 10 percent as compared to the same period in 2007.

The company said that sales would still be higher than what they were in the fourth quarter of 2007.

CIMB analyst Ho Choon Seng downgraded Synear’s investment rating to “underperform” from “trading sell” and cut its share target price to S$0.35 from S$0.77, citing poor near-term outlook and execution risks from the company’s aggressive expansion plans in China to capitalise on the upcoming Beijing Olympics.

My views:  Synear’s price has dropped significantly recently from more than S$1.00 to its current price of about S$0.37 in a short period. Though its suffering from the snowstorm impact and rising inflation, I still expect a decent profit, perhaps, a diminishing profits in view of the China’s increasing inflation. Somehow, I disagree with CIMB’s investment ratings. I find synear to be a good company to hold over long term due to its strong financial backing. Most of the time, they are performing relative better than the industry. I am looking for further bargain around S$0.20-S$0.25.

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My views: The debt rating works similarly to bond rating. The initial ratings can be changed from time to time, so buying a good rated bonds will not always stay that way and it will be downgraded when things don’t look good. I wonder if the ratings is useful in the first place or not. The same goes for the subprime CDOs…

Allco dropped a legal suit on Tuesday to stop Moody’s from downgrading its debt rating to Ba2 from Ba1. Moody’s said the rating “remains on review for further possible downgrade”. Allco Commercial Real Estate Investment Trust fell as much as 5.6 percent to S$0.755, with 1.2 million units traded a day after rating agency Moody’s downgraded the company’s credit rating, dealers said.

“Going forward, the poor rating has a mild negative effect for the REIT. If credit environment improves the rating wouldn’t matter,” a dealer from a local brokerage said.

Allco dropped a legal suit on Tuesday to stop Moody’s from downgrading its debt rating to Ba2 from Ba1. Moody’s said the rating “remains on review for further possible downgrade”.