Brokers' take

Memtech International >Hold (maintained) UOB Kay Hian, Oct 12 Oct 12 close: S$0.875 Target price: S$0.95

MEMTECH International's gross margin was weaker than expected in Q2 2018 due to higher costs of raw materials - silicone rubber and plastic resin. Margins could stay weak as raw material prices remain elevated due to supply shortages from a factory shutdown and higher oil prices.

Memtech has little room to pass on the increase in raw material prices, aside from negotiating for a lower cost-down. On the other hand, Memtech could quote for higher prices for new contracts to incorporate the higher raw material costs.

We cut our 2018-20 net profit forecasts by 4.6-5.0 per cent due to weaker gross margins from high raw material prices and higher regulatory costs. Risks include higher-than-expected raw material costs, unfavourable forex rates, further pricing pressure from customers and lower-than-expected utilisation.

Maintain "hold" but we cut target price by 12 per cent to S$0.9.5.

Banks > Overweight RHB Research, Oct 12

THIS morning (Oct 12), the Monetary Authority of Singapore (MAS) announced its decision to increase slightly the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. MAS indicated this is consistent with a modest and gradual appreciation path of the S$NEER policy band to ensure medium term price stability.

The upward trajectory for the 3-month Singapore Interbank Offered Rate (Sibor) remains intact, although the extent of increase may be somewhat milder with the monetary tightening move. The driving factor for 3-month Sibor increase is expected hikes in the Fed Funds rate.

Recent checks with Singapore banks point to likely net interest margin (NIM) expansion in Q3 2018, on the back of higher lending yields from home mortgages and business loans, and amid interest rate increases, eg, 3-month Sibor.

We continue to be bullish on the banks' NIM expansion over the next few quarters. Maintain "overweight" on Singapore banks, with UOB as top pick - its potential to dish out more dividends should attract more investor interest.

Compiled by Leila Lai