Gold has room to fall; AVI-TECH and AP OIL in the spotlight

Spot gold prices and gold futures have risen recently, supported by uncertainty over the upcoming US presidential election. Spot gold prices have risen 1.45 percent this week while gold futures are 1.43 percent higher.

However, UBS CIO believes that gold may have room to fall in the short term as the market has not fully priced in a December rate hike by the US Federal Reserve. Long term, gold is still valuable as a hedge against geopolitical risks, CIO said.

CIO is expecting the Fed to raise rates by 25 basis points in December. -- Kelvin Soh, UBS

Moves by 2 companies with large cashpiles

1) AVI-TECH ELECTRONICS (AVIT SP) Out Of The SGX-ST Watchlist With A Significant Cash Pile AVIT is a Singapore-based company listed on the SGX mainboard. Incorporated in 1981, AVIT provides solutions for burn-in services, burn-in board manufacturing and PCBA and engineering services for the semiconductor, electronics and life sciences industries. The company has a net cash and equivalents position of S$28.3m (S$0.165 per share or about 57% of market capitalisation) as of 30 Jun 16. As of 16 Sept 16, the company received the in-principle approval for removal from the SGX watchlist. Full UOB Kay Hian report here.  2) AP Oil It announced (18 Oct) that it has signed a JV agreement to subscribe to a 12.5% equity stake, at RMB25m (c.S$5.15m), in a JV company involving Shenzhen-listed Zongshen Power Machinery (70%), SGX-listed MoneyMax Financial Services (12.5%) and Free Trade Port Co. (5%). The JV co. will provide financial leasing services through hire purchase contracts with companies in Chongqing. This development in AP Oil moves in-line with our long-term investment thesis that AP Oil is poised to increase shareholder value by utilizing its large cash hoard for corporate actions. With this, our investment call on this severely undervalued business with a stable and cash-generative business remains unchanged.  We see this as a stock catalyst and expect AP Oil to continue to invest surplus cash (S$33m net cash at 1H16; mkt cap S$41m) as we maintain our BUY rating and target price of S$0.33 (based on 1x FY16F BVPS). -- Renfred Tay, KGI Fraser