Morning Market Commentary

4QCY12 Results Season Commentary:
By Derrick Heng, Singapore Equity Strategist; Phillip Research Team

We reviewed our analyst’s expectations for the upcoming results season and spotted the following trading opportunities:
 
1. Profit turnaround plays:
 

• Driven by seasonal strength and recovery of its Australia operations, Tiger Airways (Sell, TP: S$0.45) could recover from 6 consecutive quarters of losses and turn in its first profitable quarter. While markets could react positively to the profit turnaround, we maintain our cautious view due to the hefty valuations on the stock.
• Neptune Orient Lines (Accumulate, TP: S$1.36) is expected to report a marked improvement in profitability in this quarter. As compared to the huge losses of US$320mn in 4QCY11, we expect a marginal profit of US$17mn largely due to an 8%y-y improvement in freight rates.

2. Strong y-y profit growth:
 

• One of our top picks in the Singapore Market, Pan United Corp. (Buy, TP S$0.88) is expected to finish the year on a high note, with 45% full year earnings growth and good chance of raised dividend.
• SATS (Accumulate, TPS$2.94) could report a 27% growth in profits on margin expansion and higher sales from the aviation business unit.
• We forecast double digit profit growth for SGX (Neutral, TP: S$6.85) driven by strong growth in from derivative trading volume in the quarter.

3. Potential disappointments:
 

• Genting Singapore (Neutral, TP: S$1.15) recent run up reflects market expectations of strong earnings in 4QFY12. While earnings is expected to be better than S$110 mn in 3QFY12. We are doubtful of growth against 4QFY11 earnings of S$266mn as this requires it to grow by 142% q-q amidst a weaker than expected year for casinos in general.
• Starhub (Neutral, TP: S$3.20) could report significantly lower profits of S$63mn (4QCY11: S$93mn) due to one-off gains of S$10mn that were booked in the same period last year.

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Asia has been trading sideways for most of this week, as major indices pause before major resistance levels: the HSCEI at the 12000 resistance level, the Hang Seng is in messy a resistance zone 23-25k, while the STI is looking like a “wait and see” before the major 3300 level.

So what are we waiting for? Resolution of the US sequester / debt ceiling is certainly a good excuse for a pause. But we reckon certainly some of the cyclical improvement of the global economy has already been priced in and the strength of this improvement will be monitored more closely before deciding to charge higher. As it stands data coming in daily is acceptable for continued optimism. 4q12 earnings will be crucial to confirm the improving economies and our Equity Strategists are not pessimistic.

Now for the interesting bit – if you believe markets have on the whole predictive power – the S&P500 is incipiently grinding against the crucial 1470 mark with the daily candlesticks putting in a series of long tails indicating reluctance to go lower but preference to edge higher. Predicting a positive resolution to the US sequester/debt ceiling perhaps? Or is it plain complacency? Because if we fail to clear the 1470, a potential bearish divergence in the weekly charts could be forming.

As it stands short term trading signals are unclear, but we continue to believe that overall, this is a year for stocks and maintain OW on CN, HK, SG, TH and PH markets. Investors looking to invest in the first 4 markets should check out our Country Strategy reports, else invest in them thru ETFs in the Asset Strategy reports.
 

Macro Data:

In the US, parsing the Dec industrial production (+0.3%m-m) reflect that  business equipment production gained 1.3% m-m, consistent with the capex rebound seen in recent months. Meanwhile, CPI inflation remained unchanged in Dec -following a 0.3% decline in the preceding month- owing to a 2.3% m-m decline in gasoline prices.WIth inflation below Fed's inflation target, the Fed can continue with its focus on improving the labour market via LSAPs and ZIRP.

In China, FDI fell by 4.5% y-y in December, the 13th decline in 14 months. For the whole year in 2012, the reading fell by 3.7% y-y, the first full year decline since 2009. As the labor costs keep rising, the nation is losing advantages as a destination for workshops and plants of international corporations. Nonetheless for 2013 at least, we are still positive on China economy as the on-going urbanization would keep boosting domestic demand for consumption and investment.

 

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,208.50 (+0.39%). 3.8bn shares were traded with value worth S$1.8bn.
• We reviewed our analyst’s expectations for the upcoming results season and spotted trading opportunities in the following counters: Tiger Airways, NOL, Pan United, SATS, SGX, Genting Singapore and Starhub. For details, please refer to our market commentaries.
• In the latest twist to the SC Global privatisation offer, Wheelock Properties had accepted the offer to sell its entire 17.933% stake in the company. With the acceptance of this offer, the free float of SC Global is now below 10% and trading of the stock would suspend on the Final Closing Date (extended to 30th Jan 13).
• Our top picks for the Singapore Market are Pan United, SIAEC & Capitaland. Pan United is a dominant supplier to the construction industry in Singapore and we expect the company to perform well given the strong pipeline of infrastructure work over the next few years. SIAEC is a key beneficiary of the aviation growth story in the region and offers excellent dividend yields. Capitaland would be a beneficiary of the stabilisation of property prices and bottoming out of economic conditions in China.

Thailand
 

• Thai stocks saw another session of wild swings on Wed but the composite SET index finished the day down 6.72 points. Sector rotation and selective plays were also more active on Wed.
• Trade will be more cautious after the SET index rallied to test 1430 and pulled back amid a lack of fresh trading cues to set a market direction and technical sell signals. Volatility is also likely to persist today. Some rebound is likely after yesterday’s lower close but we believe the broader market will likely remain range-bound. The strength of the baht would help limit the market’s downside to a certain extent but investors should be cautious after a continued influx of capital inflows into equities and a rally in the SET index to its highest level in more than 17 years, which may give some investors an excuse to gradually book profits and the stronger baht may deal a bigger blow to exports.  
• The short-term strategy is to be selective in stocks.
• Today we peg resistance for the SET index at 1420-1427 and support at 1412-1404.

Indonesia
 

• Most Indonesian stocks ended green on Wednesday (17/01), amid weaker closes on equity markets in Asia as the Yen rebounded. The Jakarta Composite Index gained a modest 10.140 points, or 0.23%, to close at 4,410.964. The advance included six of the 9 major industry groups, with consumer goods fared best and agriculture weighed on the JCI. Index of consumer goods sector gained 0.70%, construction, property and real estate sector climbed 0.62%, and trade and services sector added 0.55%. Commodity stocks plunged on Wednesday, with the index of agriculture sector dropped 1.50%, and mining sector lost 0.72%. LQ45 – the index trailing Indonesia’s blue-chip shares – added 2.496 points, or 0.3%, to close at 756.988. More than 120 shares advanced, 117 shares declined, and 228 shares stagnated Wednesday on the Indonesia Stock Exchange, where 5.075 billion shares worth IDR 4.099 trillion changed hands on the regular trading. Foreign investors posted net purchases worth IDR 444.26 billion in total.
• The Jakarta Composite Index is likely to move sideways today, with lack of lead from global markets overnight. We expect the JCI to trade within 4,380 – 4,426 range in today’s sessions.

Sri Lanka
 

• The Colombo bourse continued yesterday’s positive momentum and concluded the trading day within the green territory for the 3rd straight day despite a marginal selling sentiment witnessed in early hours of trade. The Benchmark ASPI closed at 5,812.47 gaining 62.23 points or 1.08% while recording its 3 months high after 9th October 2012. Moreover, this is the first trading day of the year which recorded an upsurge of more than 1% in ASPI having recorded a 1.82% jump on 12th December 2012, the day at which the Central Bank of Sri Lanka slashed the policy rates by 25 BP. S&P SL20 index too jumped up for the fourth consecutive day by 28.86 points (0.92%) to conclude at 3,163.18. The day’s turnover stood at LKR 636Mn; this was a 12.57% decrease compared to the previous trading day.
• During the day, Diversified Holdings (LKR 263Mn) and Bank, Finance & Insurance (LKR 150Mn) respectively turned out as the best performers under the sectorial summary. The total traded volume for the day consisted with 30.4Mn shares; this was a 51.75% increase against the previous trading day. Price gainers outnumbered the price losers at a ratio of 168:51. Foreigners appeared to be bullish for the second consecutive day of the week, recording a net foreign inflow of LKR 112Mn, extending the year to date net foreign inflow to LKR 483 Mn. Furthermore, the market capitalization as at the day’s closure was LKR 2.23Tn with a year to date gain of 3%.

Australia
 

• The Australian share market on Wednesday closed half a per cent higher, buoyed by the big banks and a major restructure by Boral, one of the nation's biggest manufacturers.  The benchmark S&P/ASX200 index was 21.8 points or 0.46 per cent higher at 4,738.4.
• Today, the local share market looks set to open higher despite mixed showings on Wall Street and European markets following more gloomy economic news as the World Bank and Germany cut growth forecasts. The SFE Futures 200 is pointing upwards 8 points or 0.17 per cent to 4,713.
• On the local economic news front for Thursday, the Australian Bureau of Statistics (ABS) is to release December's labour force figures and international merchandise imports for the same month.  
• In equities news, both Santos and Woodside Petroleum are scheduled to release fourth quarter reports.

Hong Kong
 

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 25 point and 99 points to 23357 and 11907 respectively. Market volume was 73.467 billion, dropped 2.2% dod.
• The HSI gained support from the 10 SMA (23316), however, due to a deep consolidation in China market is expected, we believe the HSI will follow the trend of China, Investors are suggested to stand on sideline and wait for a clear trading signal or change to a defensive position and increase cash on hand is also highly recommended. Investors can also buy in the A share related ETF after the consolidation in China market, We expected the rebound target of SHI is 2500 in this year.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level.

Morning Note

Company Highlights

WBL Corporation Limited announced that Standard Chartered Bank will for and on behalf of The Straits Trading Company Limited in relation to its mandatory conditional offer, will acquire all the issued ordinary stock units in the capital of the Company, other than those already owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with the Offeror. The consideration for each Offer Stock Unit is 1.07 new Offeror Shares or S$3.41 in cash. (Closing price: S$4.00, 0%)

Ntegrator International Ltd, a leading regional communications network specialist and systems integrator, announced that it has secured new contracts worth approximately S$11.7 million1 from Myanmar Radio and Television (“MRTV”) and the Viettel Group of Companies (“Viettel”). The order for communications equipment from MRTV, Myanmar’s state-owned broadcast radio and television network, includes a three camera Digital News Gathering Satellite van, 2 sets of 1.2m antenna broadcast microwave link system, a 100kw medium wave radio transmitter as well as fiber headend equipment, for use in major cities such as Naypyitaw, Yangon and Mandalay. (Closing price: S$0.045, 0%)

Midas Holdings announced that its joint venture company, Nanjing SR Puzhen Rail Transport Co., Ltd. (“NPRT”), has won its first 100% low-floor tram project valued at approximately RMB338 million. The contract is awarded by Suzhou New District Tramway Co., Ltd, for the supply of 18 100% low-floor trams for the Suzhou National New & Hi-tech Industrial Development Zone Tramline 1, a light rail line that is currently under construction. Delivery of the trams is slated to take place in 2014 and is expected to contribute positively to the Group’s financial performance for the financial year ending 2014. (Closing price: S$0.52,-0.95%)

Asiatravel.com Holdings Ltd announced the issuance and allotment of 59,731,708 Warrants, comprising 29,865,854 Tranche 1 Warrants and 29,865,854 Tranche 2 Warrants. The total number of Warrants allotted was less than the 60,689,198 Warrants disclosed by the Company as the minimum allotment in the Announcement dated 17 December 2012. This was due to 957,490 Warrants not being issued and allotted to Foreign Shareholders.The Warrants will be listed and quoted on the Catalist Board of the SGX-ST on 18 January 2013 and trading of the Warrants will also commence with effect from 9.00 a.m. on the same date. The New Shares arising from the exercising of the Warrants, will, upon allotment and issue, be listed and quoted on the Catalist Board of the SGX-ST. (Closing price: S$0.235,0%)

Swee Hong Limited announced that it has secured a contract from Public Utilities Board worth approximately S$9,700,000 in relation to the proposed dredging of Sungei Sembawang. The commencement date of the Contract is 22 January 2013 and the completion date for the Contract is 21 January 2015. The Contract is not expected to have any material impact on the Company’s earnings or the net tangible assets for the current financial year ending 30 June 2013. (Closing price: S$0.275,+1.85%)

Source: PhillipCapital Research - 17 Jan 2013