Morning Commentary

- STI: -0.43% to 3259.8                                       - SET: +0.46% to 1478.8
- JCI: +0.50% to 4439                                         - KLCI: +0.01 to 1637.3
- HSCEI: -0.18% to 12077.9                              - Hang Seng: -0.07% to 23655.2
- Nikkei 225: +0.39 to 10866.7                          - S&P500: +0.51% to 1507.8

SINGTEL UPDATE:
By Ken Ang, Financials & Telco Analyst

SingTel (Neutral, TP: $3.06) announced the sale of its entire 30% stake in Warid Telecom (Private) Ltd, purchased in Sep 2007 for S$1.17 billion, for a consideration of US$150 million in cash, and right to receive 7.5% share of net proceeds from any future divestment. We view this divestment positively, as it reduces further losses and commitments, including guarantees of approximately US$90 million. As at Sep 2012, SingTel had received a guarantee call amounting to US$30.3 million which was not met due to on-going discussions. We note that Warid has performed poorly, registering negative post tax contributions every quarter since its acquisition, due to a depreciating Pakistani rupee and poor performance. The number of mobile subscribers have also been declining in recent quarters. We expect SingTel to re-invest the cash consideration into its existing business.

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

China A shares, CSI300, yesterday exited the classic definition of a bear market having put in a 20% gain since its 4q12 low. The A share market is in some sense playing catchup with the HSCEI and Hang Seng which have been rallying since June last year.

For the STI, yesterday we retreated nearly half a percent, in line with our heads up comment on Tuesday morning that as the index has been on strong 7 day advance, “…yesterday’s (Monday’s) inverted hammer close may indicate the market may soon be in the mood to profit take, its very hard to tell at the moment but just take note.” We view profit taking as short term and are OW Singapore for the year.

Singapore authorities has also released a white paper indicating a target population of 6.9m from the current 5.3m, making the urgency for infrastructure and housing more acute. The paper is likely to set off another wave of construction. Our top pick beneficiary is Pan United (see Equity Strategist note below), eminent ready mixed concrete supplier in Singapore with largest market share (30%).

In ASEAN, the KLCI managed to grind out another tiny gain, building on its rebound off the 200dma, this suggests that it will rebound higher still. But our opinion is that this is a quick trade (beware dead cat bounce) as the run-up to election may induce volatility as investors speculate the result. Thailand’s SET continues its beautiful uptrend.

US markets reversed previous day’s stall to charge higher. There is not much in terms of resistance to now shoot for the 2007 closing high of 1561.8. Earnings and economic data, on the whole, continue to suggest an improving economy led by a manufacturing rebound.

As usual we finish off with our market outlook for the year: we continue to believe that this is a year for stocks and maintain OW on CN, HK, SG, TH and PH, while MW on the US, MY and ID. Investors looking to invest in the first 4 markets should check out our Country Strategy reports, else invest/trade them thru ETFs/PhillipCFDs listed in the Asset Strategy reports (see Sector/Strategy Reports section).

Equity Strategists:
- Hd of China Research: China Life Insurance (2628 HK), China Lumena New Material (67 HK)
- Hd of HK Research: AIA (1299 HK) and HSBC (5 HK)
- SG Equity Strategist (Derrick Heng): For 1Q2013, we believe that cyclical stocks in the Industrials space could do well in the near term: SIA (Buy, TP: S$13.40), Keppel Corp. (Accumulate, TP: S$12.38) & NOL (Accumulate, TP: S$1.36). Top picks for the year are Pan United (Buy, TP: S$0.88), SIAEC (Buy, TP: S$5.00) & Capitaland (Accumulate, TP: S$3.97). 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. Although current price (S$0.985) has overshot our TP, we look forward to 4q12 results to reassess our TP. SIAEC is a key beneficiary of the aviation capacity 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.

SECTOR/STRATEGY REPORTS:
Macro Data:

In US, consumer confidence declined to 58.6 in Jan, the weakest level since Nov 2011, from a revised 66.7 in Dec, much lower than the market expected 64. Another report shows that property values rose by 5.5% y-y in Nov, the biggest gain since Aug 2006, after advancing 4.2% y-y in Oct.

In Australia, business confidence rebounded by the most in more than a decade. The confidence index for Dec rose sharply to 3 from -9, indicating a reverse of sentiment from pessimistic to optimistic.  Reserve Bank of Australia Governor Glenn Stevens and his board cut the benchmark rate to 3 percent last month, matching the level reached from April-October 2009 that was the lowest since 1960, as the economy struggles under a sustained high currency.

In India, the central bank lowered the benchmark interest rate for the first time since April, from 8% to 7.75%, and cut the cash reserve ratio from 4.25% to 4%. The central bank cut the inflation forecast to 6.8% and said there’s space, “albeit limited,” to support a faltering economy.
 

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,259.75 (-0.43%). 5.7bn shares were traded with value worth S$1.9bn.
• SMRT (Sell, TP: S$1.41) reported a surprisingly large decline in profits for quarter. We believe that the decline in profitability at its core fare based business is structural and continue to recommend an exit on this counter.
• For 1Q2013, we believe that cyclical stocks in the Industrials space could do well in the near term: SIA (Buy, TP: S$13.40), Keppel Corp. (Accumulate, TP: S$12.38) & NOL (Accumulate, TP: S$1.36).
• Top picks for the year are Pan United (Buy, TP: S$0.88), SIAEC (Buy, TP: S$5.00) & Capitaland (Accumulate, TP: S$3.97). 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. Although current price (S$0.97) has overshot our TP, and may experience short term profit taking, we look forward to 4q12 results to reassess our TP. 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 shares finish up 0.5% at 1478.77, with telecom stocks leading the market's advance. Resistance is tipped at 1500, while support is pegged at 1472. Among top actives, True Corp. (TRUE.TH) adds 2.3% to THB6.60, TMB Bank (TMB.TH) rises 6.3% to THB2.36, Charoen Pokphand Foods (CPF.TH) is up 1.4% at THB36.25, Advanced Info Service (ADVANC.TH) gains 3.4% to THB212 and BTS Group Holdings (BTS.TH) is up 3.2% at THB8.00. (Source: Dow Jones)

Indonesia

• Most Indonesian stocks advanced Tuesday (29/01), as Asia markets climbed even after mixed closes on US markets. The Jakarta Composite Index (JCI) gained 22.093 points, or 0.50%, to close at 4,439.030. The advance included eight of the 9 major sectors, led by construction, property and real estate sector with 1.77%-advance, basic industry with 1.01%-gain, and mining with 0.91%-climb. Blue-chip stocks listed on the Indonesia Stock Exchange also rose on Tuesday, with the LQ45 index that measures them added 2.945 points, or 0.39%, to close at 757.647. More than 150 shares advanced, 81 shares declined, and 231 shares remained unchanged Tuesday on the Indonesia Stock Exchange, where 3.711 billion shares worth IDR 4.077 trillion traded on the regular board. Foreign investors accumulated net purchases worth IDR 197.05 billion in total.
• The JCI is expected to climb today, on positive momentums from both US and regional Asia markets. The composite index will likely be traded with support and resistance at 4,356.03 and 4,474.75 respectively.

Sri Lanka

• The Colombo bourse concluded on a negative note for the second consecutive trading day, resulting both indices to retain at negative closures, this was mainly due to the prevalent selling pressure which was visible throughout the day. The benchmark ASPI Index lost heavy 54.34 points or 0.93% and closed at 5,800.75 recording its lowest value after 8 successive trading days and the S&P SL20 Index stood at 3,185.76 dipping 8.96 points or 0.28%. The market capitalization as at the day’s closure was LKR 2.23Tn recording a year to date gain of 2.8%.
• The turnover for the day was hoisted at LKR 1.35Bn with heavy crossings; which was an increase of 77.85% compared to the previous trading day. Bank Finance & Insurance (LKR758.3Mn) and Diversified Holdings (LKR444.9Mn) stood out as the best performers under the sectorial review. Shares totaling up to 28.1Mn changed hands during the day; this was an increase of 72.36% compared to the previous trading day. The foreigners were bullish for the second consecutive trading day resulting a net foreign inflow of LKR 830.6Mn while, recording a year to date net foreign inflow of LKR 399.2Mn; Furthermore, the Inflow recorded during the day was the highest inflow recorded for the year. The USD closed the day at a quoted price of LKR 128.78/-.

Australia

• On Tuesday the Australian stocks posted the longest streak of daily gains in more than eight years as three cuts in interest rates boosted lenders’ profit margins and signs of recovery in China’s economy buoyed BHP Billiton Ltd. The benchmark S&P/ASX200 index rose 53.8 points or 1.11 per cent to 4,889.0 - its highest close since April 2011.
• Today, the Australian market looks set to open flat following a mixed performance on Wall Street ahead of consumer confidence and housing data and in anticipation of a US Federal Reserve monetary policy meeting.
• On the economic news front for Wednesday, the Australian Property Institute is scheduled to release its residential property outlook for 2013 and in equities news, the second Hastie Group creditors meeting, expected to go for two days, is due to begin in Melbourne, Sydney, Perth and Adelaide.  Legal firm Jones Day is to host a seminar in Sydney on Australia's foreign anti-bribery legislation and its relevance to the resource sector, while Wesfarmers is expected to release its second quarter sales results.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI lost 16 points and 22 points to 23655 and 12077 respectively. Market volume was 75.660 billion, rising 12.2% dod.
• Investors lost trading direction before the end of January, we believe the market is going to consolidate, as some of the technical indicators is showing that the HSI is overbuying. We suggest for investors 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

Azeus Systems Holdings Ltd. announced that Azeus Systems Limited, a wholly-owned subsidiary of Azeus has been awarded a contract worth a total one-off price of approximately HK$60.4 million (equivalent to approximately US$7.9 million1) by the Government of the Hong Kong Special Administrative Region. The contract is for supply of a Verified Legislation Information System to the Department of Justice, to be completed in two phases within 29 months and 47 months from the date of contract award respectively. (Closing price: S$0.085, +8.974%)

SingTel announced that its wholly-owned subsidiary, SingTel Pakistan Investments Ltd has entered into an agreement for the sale of its entire 30% stake in Warid Telecom (Private) Limited to Warid Telecom Pakistan LLC. WTPL is an existing shareholder of Warid, and is part of the Abu Dhabi Group, which owns the remaining 70% stake in Warid. The Transaction is subject to certain conditions being met, including the approval of certain lenders of Warid. Upon completion of the Transaction, Warid will cease to be an associated company of SingTel. SingTel is to receive an aggregate consideration comprising US$150 million and a right to receive a 7.5% share of the net proceeds from any future sale, public offering or merger of Warid. The Cash Consideration is receivable in several tranches up to the third anniversary after Completion. (Closing price: S$3.470, +0.580%)

Magnus Energy Group Ltd. deems it appropriate to announce in accordance with Rule 703 that following a preliminary assessment, the Group expects to report a higher profit for the six months ended 31 December 2012 as compared to the corresponding period ended 31 December 2011, mainly due to a positive contributions from operations resulting in higher revenue and gross margin, and gain on disposal of both other financial assets and tubular assets. The disposal of financial assets relate to disposal of investment in Acer Energy which was announced on 12 Nov 2012. The Company holds an effective interest of 54.35% of Mid-Con Australia through Mid Continent Equipment Group Pte Ltd, which holds 100% of Mid-Con Australia. The Shares are held as available-for-sale financial assets and that Acer Energy is neither a subsidiary nor an associate of the Company. Please refer to the announcement for more details. (Closing price: S$0.024, +4.348%)

Global Logistic Properties announced that it has delivered a 35,000 square metres distribution center in Brazil which it is leasing to a leading global automotive corporation. The lease is for the first completed building at GLP Guarulhos in Sao Paulo. GLP Guarulhos is part of GLP Brazil Development Partners I, a joint venture between Canada Pension Plan Investment Board, Government Investment Corporation of Singapore and GLP. (Closing price: S$2.680, -0.372%)

Source: PhillipCapital Research - 30 Jan 2013