Morning Market Commentary

- STI: +0.50% to 3211.2
- MSCI SE Asia: +0.67% to 888.9
- Hang Seng: +1.12% to 23601.8
- MSCI APxJ: +0.79% to 479.5
- Euro Stoxx 50: -0.34% to 2709.6
- S&P500: +0.34% to 1485.98

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

The week promises to be a positive one for equities (as usual, with fingers crossed!). Last Thu we noted “… 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...”, that night the S&P500 busted thru the 1470, and we had positive spillover into Asia on Friday.

We reckon it will continue this week. Of note is the HSCEI (2828 HK), which popped thru the crucial 12k resistance to close above it. On the back of better than expected China econ data released Friday afternoon (see Macro Data), we think some fuel has been added in the tank for China equities. The A-share (83188 HK) market and Hang Seng (2800 HK) should have a good week ahead as well. All 3 indices are tradable with Phillip|CFDs or ETFs (tickers in parentheses). As usual, short term traders keep your stops tight, longer term traders not that China is our main OW call this year. Our Hds of China/HK Research top picks have been China Merchants Bank (3968 HK), Central China Real Estate (832 HK), Dah Sing Financial (440 HK) and HSBC (5 HK), all of which are on strong positive uptrends.

With both the US and China clearing some major resistance, hopefully the STI will shoot for the crucial 3300 resistance as well, in the meantime we wish to reiterate our SG Equity Strategist, Derrick Heng’s note on trading opportunities due to the upcoming results season:

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$76mn (4QCY11: S$93mn) due to one-off gains of S$10mn that were booked in the same period last year.

To finish off, 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). We also wish to add that our view on EM-Asia US$ Investment Grade Debt (EMB.AMEX and N6M.SGX) is starting to dim due to US$ depreciation, thus we are looking to downgrade it from OW to MW, while maintaining OW on EM-Asia LC and HY debt.

Macro Data:

In UK, retail sales excluding Auto fuel unexpectedly fell by 0.3% m-m in Dec while the market was predicting a 0.1% m-m gain, after the 0.1% m-m gain in Nov. On y-y basis, the gauge rose by 1.1% y-y, trailing the market expected 2.0% pace, compared to the 2.0% y-y gain achieved in Nov. The Bank of England left its target for bond purchases at375 billion pounds last week. U.K. consumers may remain under pressure this year. Inflation held at 2.7 percent last month, above the Bank of England’s 2 percent target and outpacing wage growth. Going forward, the consumers might face a continued squeeze on the back of weak wage growth, high inflation and fiscal austerity.

In China, real GDP reported 7.9% y-y gain in the last quarter of 2012, beating the market expected 7.8% y-y pace, compared to 7.4% y-y gain in 3q12. For the whole year 2012, the GDP grew by 7.8% from 2011, meeting our expectation, while the market was predicting a 7.7% y-y gain on average. In December, industrial production rose by 10.3% y-y, compared to 10.1% y-y pace in Nov, indicating a continued reacceleration in industrial activities. YTD FAI rose by 20.6% y-y in Dec, slightly slower than the 20.7% y-y pace in Nov, while retail sales rose by 15.2% y-y in Dec, compared to 14.9% in Nov, aligned with the government’s goal to boost domestic consumptions. To reiterate, we expect China’s economic reacceleration to continue, driven by domestic consumptions as the nation continues its pace urbanization which release further demand. We cautiously made a preliminary call of 8.0% y-y growth for 2013.

In Japan, industrial production fell by 1.4% m-m in Nov, after the 1.7% m-m drop in Oct. Over the year, industrial production fell by 0.2% y-y, compared to 1.6% y-y gain in Oct. The new leadership in Japan government has promised to increase stimulus to stir the nation’s shrinking economy, and at the same time push the central bank for further monetary loosening. Due to the expected further loosening, JPY has depreciated over 10% against USD since Nov. The weak JPY is likely to boost the nation’s export sector going forward.
 

Regional Market Focus

Singapore
 

• The benchmark STI gained ground to 3,211.22 (+0.50%). 5.0bn shares were traded with value worth S$1.5bn.
• Our banking analyst upgraded his recommendation on DBS (Accumulate, TP: S$16.10) driven by more positive views on the economic conditions in China and its positive spillovers into the ASEAN region.
• 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 performed better than what we thought last Fri after data showed China’s economy grew 7.9% y-y in 4Q12, beating market forecasts of 7.8% and on expectations for continued monetary easing from the Bank of Japan, which meets this week. The composite SET index advanced to a new 17-year high last Fri.
• Bullish sentiment remains intact after last Friday’s surprisingly strong rally drove the composite SET index higher to finish the session above 1430 on heavy turnover driven by continued foreign buying spree. Even though there is a possibility that the question of raising the US debt ceiling would be put off for a while as House Republican leaders said they would seek to pass a three-month extension of federal borrowing authority next week to buy time for the Democratic-controlled Senate to pass a budget that shrinks deficits, US budget cut negotiations will remain a worry. A stronger baht could also hurt exports and a reversal of the upward trend in the baht could also be a trigger for foreign investors to take profits in Thai shares if the government takes more measures to weaken the currency. Overall we believe the Thai market may likely continue with its sideways drift in an uptrend but investors should also watch out for a sporadic bout of short-term profit taking along the way.  
• The short-term strategy is to be selective in stocks.
• Today we peg resistance for the SET index at 1437-1445 and support at 1430-1424.

Indonesia
 

• Most Indonesian stocks ended in positive territory on Friday (18/01), buoyed by positive sentiments in global markets after the releases of upbeat US and China economic data. The Jakarta Composite Index closed at 4,465.484, up 67.101 points, or 1.53%. The advance included all major industry groups, led by miscellaneous industry sector with 3.14%-gain, basic industry with 1.70%-advance, and financial with 1.68%-rise. Blue-chip stocks also rose on Friday, with the LQ45 index that measures them climbed 14.621 points, or 1.94%, to close at 766.919. More than 140 shares advanced, 91 shares declined, and 233 shares remained unchanged Friday on the Indonesia Stock Exchange, where regular board volume topped 3.479 billion shares worth IDR 4.257 trillion. Foreign investors accumulated net purchases worth IDR 566.11 billion.
• The Jakarta Composite Index looked set for a further advance today, as optimism about the domestic and global economy will likely keep sentiments afloat. We expect the JCI to trade with support and resistance at 4,386 and 4,505 respectively.

Sri Lanka
 

• The Colombo bourse concluded the last trading day of the week on a mixed note. The ASPI gained marginal 0.49 points or 0.01% for the 5th consecutive trading day to end at 5875.77. The S&P SL20 index dipped 10.25 points (0.32%) for the first time during the week and closed at 3174.36.The turnover for the day recorded as LKR 789.7Mn was a 61.47% reduction compared to the previous trading day. Foreigners appeared to be bearish for the first time during the week resulting a net foreign outflow of LKR 154Mn during the day.
• The Market commenced the 3rd week of January amidst major political uncertainty which was mainly as a result of the impeachment of the CJ. Further, the CBSL Monetary Board decided to maintain its policy rates unchanged at the monetary policy meeting held on the 16th of January following to the previous downward revision of 25 basis points in the last month. Amidst these developments the Colombo Bourse displayed an overall positive image during the week gaining 129.28 points or 2.25% to reach its peak on Friday after the 5th October 2012 (5879.6) to close the week at 5875.77. At the same time, S&P SL20 index stood at 3174.36 gaining 40.49 Points (1.29%) during the week. The turnover for the week was LKR 4.2Bn supported by 30 crossings totalling up to LKR 1.6Bn accounting a 38.1% contribution to the weekly turnover while recording a 10.7% increase compared to the previous week’s turnover. 130.5Mn shares changed hands during the week, this was a 27% increase compared to the previous week. Foreign purchases amounting to LKR 1.99Bn outpaced the foreign sales of LKR 1.67Bn during the week, resulting a net foreign inflow of LKR 301.2Mn while extending the year to date net foreign inflow to LKR 481.1Mn. As at the week’s closure, the total market capitalization stood at LKR 2.26Tn, recording a year to date gain of 4.13% and the market PER(X) and PBV(X) stood at 16.63 and 2.16 respectively. The USD closed at LKR 128.24/- which was the highest quoted rate during the week.

Australia
 

• The Australian share market on Friday closed higher propelled by surging Rio Tinto shares after its chief Tom Albanese resigned in the wake of the miner's $US14 billion worth of write-downs. At the close on Friday, the benchmark S&P/ASX200 index was up 14.5 points or 0.31 per cent at 4,771.2.
• Today, the Australian market looks set to open higher after the Dow and the S&P 500 hit their best levels since late 2007, helped by news that Republicans might agree to raise the US' debt ceiling. The SFE Futures 200 index is pointing upwards 7 points or 0.14 per cent to 4,747.
• On the local economic news front for Monday, The Commbank State of the States report is due out and in equities news; Nine Entertainment has a scheme meeting scheduled.

Hong Kong
 

• Local stocks rallied The HSI and HSCEI rose262point and 247 points to 23601 and 12105 respectively. Market volume was 79.53 billion, rose 1.6% dod.
• Due to the GDP figure of China was better than market expectation, investors was more optimistic to the prospect of China. However, we believe the market is going to consolidate, as some of the technical indicators is showing the HSI is overbuying, investors are suggested to stand on sideline and wait for a clear trading signal.
• Technically, the HSI is expected to gain a support from 23300 level, major resistance will be 23800 level.

Morning Note

Company Highlights

THAI tycoon Charoen Sirivadhanabhakdi raised his offer price for Fraser and Neave (F&N) by a significant 67 cents to $9.55 per share just before midnight yesterday, while revealing that he had picked up an additional 6.3 per cent stake. Mr Charoen's offer, which is conditional upon his gaining majority control of the property and beverage conglomerate, will lapse at the close of Feb 4. (Closing price: S$9.580, +0.842 %)

China New Town Development Company Limited informed its shareholders that the Company is currently in discussions with several independent third parties regarding the possible investment in the Company in the form of subscription of new shares. As at the date of this announcement, no agreements have been reached and neither any non-binding letter of intent nor binding agreement has been signed by the Company. It is uncertain whether subsequent discussions with such Investors will lead to a materialization of the possible investment in the Company. Shareholders and investors of the Company are advised to exercise caution when dealing in the shares of the Company. (Previous closing price: S$0.078)

SingPost announced that it is acquiring a 62.5% stake in Famous Holdings Pte Ltd (FH) for S$60.0 million. Both companies have also agreed on an option to transact the remaining 37.5% stake at the end of 2015, at a price to be determined based on an agreed formula. Founded in 1988, FH is an established Singapore-based sea freight consolidator and freight-forwarder. It has a regional network with offices in 6 countries namely Singapore, Japan, Australia, China, Malaysia and the USA. (Closing price: S$1.175, 0%)

Keppel Data Centre Investment Management Pte. Ltd. and AEP Investment Management Pte. Ltd., as Joint Investment Managers of Securus Data Property Fund (Securus Fund or Fund), announced the Fund’s second closing with capital commitments totalling US$170 million. Keppel Telecommunications & Transportation Ltd (Keppel T&T) and AEP Capital Ltd are co-sponsors of Securus Fund, which is the world’s first Shariah-compliant data centre fund. Keppel T&T, through its wholly owned subsidiary Keppel Data Centres Pte. Ltd. (KDCPL) has committed to invest an additional US$50 million in Securus Fund, making it the single largest shareholder of the Fund when the second raising is fully deployed. (Closing price: S$1.340, +0.375%)

Star Pharmaceutical Limited informed that following Management’s preliminary review of the unaudited consolidated financial results of the Company and its subsidiaries, the Group is expected to report a loss for 4Q FY2012 and the financial year ended 31 December 2012. The Group’s financial results were adversely affected by a substantial write-off of an intangible asset of Category I Chinese Medicine Drug, Yanning Capsules, and allowance for impairment of deposit due to termination contract of R&D patent right acquisition. (Closing price: 0.049, -7.547%)

Chosen Holdings Limited provided a guidance on the Group's half year results for the financial period ended 31 December 2012. For the first half of the current financial year, the Singapore operation incurred losses due to lower revenue. Orders for our data media storage products weakened due to the drop in global demand for personal computers. Demand for medical devices from European customers was also soft due to the sluggish European economy. Profitability of the Malaysian operation continued to be affected by high testing cost on new products. As a result, the Group is likely to report a loss for the period. Management is in the process of finalising the actual results. Details of the Group's performance will be disclosed in the announcement of the half year results for the financial period ended 31 December 2012 which is scheduled for release on 1 February 2013. (Closing price: 0.127, +1.600%)

Source: PhillipCapital Research - 21 Jan 2013