Morning Market Commentary

- STI: -0.42% to 3195.1
- MSCI SE Asia: -0.03% to 883
- Hang Seng: -0.07% to 23339.8
- MSCI APxJ: -0.05% to 475.7
- Euro Stoxx 50: +0.61% to 2718.9
- S&P500: +0.56% to 1480.9

REIT Sector Update:
By Travis Seah, REIT Analyst

Sabana REIT reported another credible set of results in 4Q12. DPU of 2.41 cents was registered in the last quarter, taking the total FY12 DPU to 9.28 cents. This exceeded our FY12 DPU estimates by 5%, partly due to lower-than-expected finance expenses. The property portfolio was revalued at S$1.13bn (21 properties), up 8.2% compared to a year earlier (20 properties excluding 23 Serangoon North Avenue 5). At this juncture, we have our neutral rating unchanged (TP: 1.150) and wait for more update from the analyst briefing later in the morning.

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Speak of the devil, in yesterday’s note we said that “… 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...”

So we’ve broken thru! Hopefully this spills over positively into Asia which has seen the HSCEI stuck below the crucial 12k, the STI consolidating sideways (we think building a base to take on the 3300 at some point), and ASEAN markets also tentative to go higher.

US economic data has been encouraging, with good prints for jobless claims, housing starts, industrial production. SG’s trade date was below expectations but still a sequential gain. China’s FDI data was a tad disappointing but then the main drivers this year will be domestic. Overall, data is still in line with our expectations of a cyclical recovery, and our SG Equity Strategist’s expectation of earnings momentum improving.

We continue to believe that 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 (see below), else invest in them thru ETFs in the Asset Strategy reports (see below)

Macro Data:

In US, applications for jobless benefit decreased by 37,000 to 335,000 in the week ended in Jan 12, the lowest level since the period ended Jan 19, 2008, beating the market expected 369,000 claims. The fewer claims indicate that businesses are growing comfortable with their current headcounts, a necessary development before hiring starts to pick up. A separate report showed that the housing starts rose by 12.1% m-m in December, reaching a 954,000 annual rate, capping the best year for the industry since 2008, reflecting an ongoing bottoming out of housing market.

In Europe, construction output fell by 0.4% m-m in Nov, after it was flat in Oct, reflecting weak investment activities. In Germany, Construction output advanced 1% m-m and Spain gained 1.2%. In France and Italy, output dropped by 0.5% m-m and 3.4% m-m respectively.

In Singapore, non-oil domestic export rose by 1.8% m-m sa in Dec, trailing the market expectation of 4.5% m-m gain, after the 0.3% m-m sa drop in Nov. On y-y basis, the reading fell by 16.3% y-y after the 2.5% y-y drop in Nov. Electronic exports fell by 19.1% y-y in Dec, exceeding the market expected 12.8% y-y drop, compared to 16.5% y-y drop in Nov. There is possibility for even deeper drop before the exports pick up more notably as conditions in US and Europe improve. The government predicts economic growth of 1-3% this year.

In Japan, tertiary industry index fell by 0.3% m-m in Nov, while the market was predicting a 0.1% m-m gain, after the 0.1% m-m drop in Oct. Nationwide department sales fell by 1.3% y-y in December, after it gained 2.2% y-y in Nov, reflecting a faltering domestic consumption. The new leadership has promised to conduct more aggressive stimulus and at the same time push the central bank for further monetary loosening to end up the nation’s decade long deflation. Today’s data has not revealed the response to real economy to the expectation.

In Sri Lanka, the central bank kept the benchmark interest rate unchanged at 7.5% to combat the high inflation which exceeds 9% for a 6th month in seven in December. The central bank governor Cabraal said in his policy speech that The island seeks inflation in the mid-single digits, and the government’s infrastructure drive will help boost expansion to 7.5 percent in 2013 from an estimated 6.5 percent in 2012.

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,195.1 (-0.42%). 4.8bn shares were traded with value worth S$1.7bn.
• Due to lower than expected finance expenses, Sabana REIT reported higher than expected DPU for 4QFY12. Pending updates from the results briefing, our Neutral rating remains.
• Economic data points are in line with our expectations of a cyclical recovery (see MMC). For investors looking to ride the risk-on rally and gain exposure to cyclical counters, our preferred stocks in the industrials and transportation space are NOL, SIA and Keppel Corp.
• 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 traded in range on Thu, seesawing between positive and negative territory amid a lack of fresh trading cues with mid and small cap stocks in play.
• Volatility is expected to remain high in the Thai stock market today but the positive sentiment is likely to continue after the composite SET index bounced back in late trading to finish the session up by nearly 5 points yesterday and sentiment in Asia was also bullish this morning as stronger-than-expected US economic data eclipsed weaker-than-expected results from Bank of America and Citigroup. Hopes of further monetary easing from the Bank of Japan, which will meet early next week, sent Japan’s Nikkei share average higher by as much as 2% at the open. The sustained rise of the baht should also continue to lend good support to the market, in our view. The baht was quoted at 29.74 to the US dollar this morning (0755 hrs Thailand time) though the Bank of Thailand and the Ministry of Finance have announced some measures to the stem the currency’s rise. However, investors should be more cautious in short-term trading as any rapid fall in the baht may trigger profit taking. Overall we expect the composite SET index to trade in a range of between 1410 and 1430 today.  
• The short-term strategy is to be selective in stocks.
• Resistance on the main index is seen at 1430-1437 and support at 1412-1404 today.

Indonesia
 

• Most Indonesian stocks finished lower, amid plummeting trade volume as Jakarta braced for widely spread floods that swept the city and its surrounding areas. Ending a flat trading on Thursday (17/01), the JCI lost 12.581 points, or 0.29%, to close at 4,398.383. Miscellaneous industry sector led the declines that included six of the 9 major industry groups with 1.63%-drop, trade and services with 0.83%-decline, and consumer goods with 0.61%-fall. LQ45 – the index tracking Indonesia’s blue-chip shares – shed 4.690 points, or 0.62%, to close at 752.298. More than 120 shares declined, 88 shares advanced, and 260 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 2.589 billion shares worth IDR 3.08 trillion traded on the regular board. Foreign market participants posted net purchases worth IDR 299.71 billion.
• The JCI will likely move higher today, buoyed by positive global market sentiment. We expect the composite index to trade within 4,372 – 4,435 range today.

Sri Lanka
 

• The Colombo bourse continued its positive momentum and concluded the trading day within the green territory for the 4th consecutive trading day. The Benchmark ASPI closed at 5,875.28 gaining 62.81 points or 1.08%, the highest level after 05th October 2012. Moreover, this is the second consecutive day in which the ASPI recorded an upsurge of more than 1% during 2013. The S&P SL20 index too up by 21.43 points (0.68%) and closed at 3,184.61 for the 5th consecutive trading day. The turnover for the day was LKR 2.05Bn; this was an increase of 222.13% compared to the previous trading day.
• Beverage Food and Tobacco (LKR 695.6Mn) and Bank, Finance & Insurance (LKR 668.4Mn) stood out as the best performers under the sectorial summary. The total traded volume for the day totald up to 52.1Mn shares; this was a 71. 59% increase against the previous trading day. Price gainers outnumbered the price losers at a ratio of 152:49. Foreigners appeared to be bullish for the third consecutive day of the week, recording a net foreign inflow of LKR 152.5Mn, extending the year to date net foreign inflow to LKR 635Mn.Additionally, the market capitalization as at the day’s closure stood at LKR 2.26Tn with a year to date gain of 4.12%.

Australia
 

• On Thursday the Australian share market closed at a fresh 19-month high despite disappointing jobs numbers while Woodside Petroleum finished flat after delivering good news on production. The benchmark S&P/ASX200 index was pushed 18.2 points or 0.38 per cent higher to 4,756.6.
• Today, the local market looks set for another stronger day of trading following strong performances on Wall Street and European markets overnight following positive US economic data. The SFE Futures 200 is pointing upwards 23 points or 0.48 per cent to 4,744.
• Overnight the US data showed the nation's new housing starts jumped by 12 per cent in December to their highest level since 2008. For 2012 overall they soared by 28 per cent. Also, new US jobless claims dropped last week to 335,000, the lowest level in five years.
• On the economic data front we are expecting key China GDP data for the 4Q at 1:00pm local time and locally we have the HSBC investment report due out while Deloitte releases its Telecommunications, Media and Technology Predictions report for 2013.
• No major equities news is expected locally.

Hong Kong
 

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 17 points and 49 points to 23339 and 11858 respectively. Market volume was 78.294 billion, rose 6.6% dod.
• Technically, the HSI is expected to gain a support from 23300 level, major resistance will be 23800 level.

Morning Note

Company Highlights

IEV Holdings Limited announced that the Company’s subsidiary, PT IEV Gas signed a supplemental agreement with PT Odira Energy Persada (“PT Odira”) on 9 January 2013 to extend the term of a Processing and Transport Agreement to 30 September 2013. The Processing and Transport Agreement was signed on 26 February 2007 for a period of 5 years and is for the processing of natural gas into Compressed Natural Gas (“CNG”) and the transportation of such CNG. The total volume of CNG expected to be processed and transported for the 12-month period from September 2012 to September 2013 would amount to approximately 759,369 million British thermal units (“mmbtu”), based on the minimum off-take of 85% of the total contracted units of CNG as provided in the Processing and Transport Agreement. (Closing price: S$0.525, -0.94 %)

Ley Choon Group Holdings Limited’s wholly owned subsidiary, Ley Choon Constructions and Engineering Pte Ltd has been awarded a S$16.2 million contract by the Land Transport Authority for the design and construction of sewer diversion works along Woodlands Avenue 2. The latest contract win came hard on the heels of two earlier contracts worth a total of approximately S$24.3 million awarded by other major customers in November last year. The Group’s total gross order book, including the new contract, now stands at S$169 million with projects stretching up to 2014. (Closing price: S$0.205, -2.38%)

Amtek Engineering Ltd announced that Amtek Precision Technology Pte. Ltd., a wholly-owned subsidiary of the Company, has on 4 January 2013 entered into two options to purchase with JL Marine & Engineering Pte Ltd in relation to the sale by the Vendor of two plants at No. 1 and 3 of Kian Teck Drive, Singapore. The Purchaser has exercised both Options on 16 January 2013. The aggregate value of the consideration for the Sale is approximately US$15.7 million based on exchange rate of 1.22. (Closing price: S$0.545, 0%)

Global Logistic Properties Limited announced that it will sell three of its properties to GLP J-REIT for approximately JPY12.6 billion (US$142 million). The consideration is in line with the appraised value of the assets2. GLP had granted purchase options to GLP J-REIT to acquire three logistics properties in Japan in November 2012. (Closing price: S$2.72, 0%)

Sembcorp Industries is spending US$200 million (S$245 million) to expand its seawater desalination capacity in the United Arab Emirates. The firm said on Thursday that it had signed a 20-year water purchase agreement with the Abu Dhabi Water & Electricity Company through its joint venture, Emirates Sembcorp Water & Power Company (ESC). ESC owns and operates the Fujairah 1 Independent Water and Power Plant, one of the world's largest operating hybrid desalination plants, in the UAE. The expansion, which is expected to be completed in the first half of 2015, will increase the Fujairah 1 IWPP's seawater desalination capacity by 30 million gallons per day. (Closing price: S$5.34, -0.187%)

Source: PhillipCapital Research - 18 Jan 2013