Morning Market Commentary

- STI: -0.10% to 3282.7            - SET: -1.11% to 1474.2
- JCI: +0.02% to 4453.7            - KLCI: -0.01 to 1627.6
- HSCEI: -0.34% to 12130.6        - Hang Seng: -0.39% to 23729.5
- Nikkei 225: +0.22 to 11138.7        - ASX200: +0.65% to 4910.4
- India NIFTY: -0.35% to 6034.8        - S&P500: -0.26% to 1498.1

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Profit taking is here? Why not lock in some after a good run. And we think even though most economists (including us) view US 4q12 GDP as a temporary blip, the market may nonetheless want to price in the risk that it may not be. A lot will depend on non-farm payrolls tonight, expectations are for 165k.

There is a debate going on on whether US 4q12 GDP -0.1%q-q saar, is a harbinger or a one-off. We think it’s a one-off as defense spending should come back 2q13 if the sequester is positively resolved, inventory should rebound in 1q13 as the tax uncertainty is over, and exports should improve 1q13 as the global economy is rebounding. US real disposable incomes surged 2.8%m-m in Dec (albeit due to bonuses) and manufacturing is rebounding.

Chief risk of course is that the US sequester/debt ceiling debate this Feb/Mar ends badly. Functioning US economy, dysfunctional congress.

On price action the S&P500 looks like weakness could be setting in while HSCEI and Hang Seng see momentum waning. The STI looks stronger technically than the others. But they all have had good runs so we shouldn’t be surprised if profit taking sets in.

A note on the KLCI, after surviving the 200dma, the index is now crawling on that support level. Suggest closing out positions are wait for a break in either direction. Its likely that speculation will be rife on the kind of mandate BN will have this year, so expect volatility on political risk.

No change to 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 likes China Life Insurance (2628 HK), China Lumena New Material (67 HK)
- Hd of HK Research likes 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). All 3 picks have already exceeded or are very close to TPs, so we look forward to 4q12 earnings to reassess their TPs. We have also revised SATS (Accumulate, TP:S$3.33) TP higher, as the company has the potential to increase dividends FY03/13.
 

Macro Data:

In US, consumer spending rose by 0.2% m-m in Dec as incomes surged by the most in 8 years, after the 0.4% m-m gain in Nov. The saving rate increased to 6.5%, the highest since May 2009, from 4.1%. Wages and salaries increased 0.6 % m-m. Disposable income, or the money left over after taxes, climbed 2.8% m-m after adjusting for inflation, the biggest gains since May 2008. Consumer comfort declined for a 4th straight week, a sign the payroll tax increase that kicked in at the start of the year is starting to ripple through the economy. Initial jobless claims rose 38,000 to 368,000 in the week ended Jan. 26, partially erasing a slide in the prior two weeks and reflecting the difficulty of adjusting the figures for swings at the start of a year. “With appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” the central bank said in a statement. Household spending “advanced,” though “the unemployment rate remains elevated.” With that being said, the open ended QE has not yet draw to a close.

In Euro zone, Germany’s retail sales fell by 1.7% m-m in Dec, compared to a 1.2% m-m gain in Nov and market expected 0.1% m-m drop. Over the year, retail sales fell by 4.7%, compared to a 0.9% y-y fall in Nov. Unemployment rate unexpectedly fell to 6.8% from 6.9, with the number of unemployed workers falling by 16K, while the market was forecasting 8K rise. In France, producer price fell by 0.3% m-m in Dec, exceeding the market expected 0.1% m-m drop indicating a weak production activity. Consumer spending stagnated from Nov, while the market was predicting a 0.2% m-m gain, after the 0.2% m-m gain achieved in Nov. As reported earlier, confidence indicator showed an improving sentiment; however, the confidence has not translated to real economy.

In Japan, industrial production rose by 2.5% m-m in Dec, trailing the market expected 4.1% m-m gain, after a 1.4% m-m drop in Nov. Labor cash earning fell by 1.4% y-y in Dec, after a revised 0.8% y-y contraction in Nov. Housing starts rose by 10.0% y-y, trailing the market expected 13.5% y-y gain, after a 10.3% y-y gain in Nov. Japan’s new leadership is targeting a 2.0% y-y inflation and is expected to add stimulus, which has trigger a sharp deflation of JPY in the last 2 months. The weak yen would likely bolster the nation’s export business going forward.

In Hong Kong, retail sales volume rose by 8.8% y-y in Dec, compared to 9.5% y-y gain in Nov but exceeding the market expected 7.6% pace. The city’s economy is riding on China’s economic recovery.

In Malaysia, the government held benchmark rate unchanged at 3.0% for a 10th straight meeting as economic growth and slowing inflation eased the need for stimulus. Economic indicators suggest a “robust expansion” in Malaysia last quarter, driven by domestic consumption and investment activity, the central bank said.

In Philippine, GDP rose by 1.5% q-q in 4q12, beating the market expected 1.2% pace. On y-y basis, GDP rose by 6.8%, compared to 7.2% y-y pace in 3q12. The central bank Governor Amando Tetangco said he’s studying more measures to counter excessive capital inflows lured by growth, joining South Korea and Singapore in warning that policy makers need to consider more steps to reduce the impact of such funds.

In Thailand, export rose by 13.6% y-y in Dec, compared to 27.1% y-y gain in Nov. Import rose by 1.3% y-y, after the 24.1% y-y gain in Nov. Business sentiment index fell to 50.6 in Dec, after the 52.0 reading in Jan.

Regional Market Focus

Singapore
 

• The benchmark STI was little changed yesterday, ended -3.24 points lower or -0.10% lower to 3,282.66. 3.9bn shares were traded with value worth S$2.1bn.
• Shares of WBL Corp surged 5.2% to $4.42 yesterday on speculation of further counter offers by the bidders.
• 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
 

• Consolidation kicked in on Thu after disappointing US economic data. The Thai baht weakened to around 29.8 to the US dollar. Foreign profit taking emerged in both equities and derivatives markets amid more sector rotation and selective plays.
• The composite SET index is expected to seesaw in a range of 1465-1480 today and trade back and forth in positive and negative territory amid caution ahead of today’s US key jobs report. Foreign fund flows, which remain mixed, also bear close monitoring but it is interesting to note that foreign investors dumped as much as Bt7.8bn worth of Thai bonds yesterday and the Thai baht remained on the weak side around 29.82 per US dollar amid a call for an interest rate cut to stem the currency’s rise. Further weakness of the baht could be another trigger for foreign investors to take profits in Thai shares.  
• In the near term, investors should be cautious in short-term trading. Cut loss if the SET index breaks below 1460.
• Resistance on the main index is seen at 1480-1486 and support at 1468-1460 today.

Indonesia
 

• Composite index of Indonesian stocks climbed on Thursday (31/01), ending a mostly negative session, as stock markets in Asia mostly declined on profit takings at the end of the bullish month. The Jakarta Composite Index (JCI) added 0.728 points, or 0.02%, at 4,453.703. The gain included four of the 9 major industry groups, with financial sector climbed 1.27%, basic industry advanced 0.48%, and consumer goods added 0.39%. LQ45 – the index tracking Indonesia’s blue-chip stocks, added 0.117 points, or 0.02%, at 761.256. More than 103 shares advanced, 148 shares declined, and 219 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 5.792 billion shares worth IDR 4.884 trillion traded on the regular board. Foreign investors posted net purchases worth IDR 459.78 billion.
• Indonesian stocks will likely be traded modestly higher, with mixed leads from the US markets overnight and regional markets early in the day. We expect the Jakarta Composite Index to trade with support at and resistance at 4,421.01 and resistance at 4,474.01.

Sri Lanka
 

• The Colombo bourse commenced the trading day on a positive sentiment and continued the momentum up until mid-day; however, a heavy selling sentiment was observed towards the latter part of the day as a result of profit taking nature of the investors which in turn resulted the indices to conclude on a mixed note. The benchmark ASPI Index lost 9.01 points or 0.15% and closed at 5,816.89 and the S&P SL20 Index stood at 3,197.61 dipping 3.98 points or 0.12%. The market capitalization as at the day’s closure was LKR 2.23Tn recording a year to date gain of 3.09%.The day recorded a massive turnover of LKR 3.43Bn immensely backed by crossings which amounted to LKR 1.94Bn; this was a 27.86% increase compared to the previous trading day.
• Bank Finance & Insurance (LKR 2Bn) and Diversified Holdings (LKR 1.3Bn) stood out as the best performers under the sectorial review. Shares totaling up to 41.7Mn changed hands during the day; this was a marginal decrease of 1.47% compared to the previous trading day. Price losers outpaced the price gainers at a ratio of 98:91. The foreigners were bearish for the second consecutive trading day resulting in a net foreign outflow of LKR 292.32Mn while extending the year to date net foreign outflow to LKR 1.32Bn.

Australia
 

• On Thursday the Australia share market closed slightly weaker, snapping a 10-day winning streak as markets in the United States fell. The benchmark S&P/ASX200 index fell 17.9 points or 0.37 per cent to 4,878.8.
• Today, the Australian share market looks set to open higher despite falls on Wall Street and many European bourses overnight with investors still unnerved by US gross domestic figures.
• Locally, on the economic news front we are expecting the release of the Reserve Bank of Australia (RBA) index of commodity prices for January, as is the Australian Bureau of Statistics' (ABS) producer prices indexes for the December quarter.  The Australian Industry Group's performance of manufacturing (PMI) index and the RP Data-Rismark's home prices, both for January, are also expected. Westpac chief economist Bill Evans is slated to address an Economic Indicators Luncheon - 2013 Qld Property Market, hosted by the Financial Services Institute.

Hong Kong
 

• Local stocks dropped. The HSI and HSCEI dropped 92 points and 41 points to 23729 and 12130 respectively. Market volume was 69.897 billion, dropped 8.2% dod.
• We believe the market is going to consolidate, as some of the technical indicators shows 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

Innopac Holdings Limited (“Innopac”) made a major move with the launch of a take-over  bid for Merlin Diamonds Limited (“Merlin Diamonds” or the “Company”), a diamond mining  and exploration company listed on the Australian Stock Exchange. Under the terms of the Bid Implementation Deed which Innopac has entered into with Merlin  Diamonds, Innopac has agreed to make an offer for 100% of the issued and paid-up share  capital of Merlin Diamonds, at the bid price of A$0.28 (approximately S$0.358 at an exchange  rate of A$1.00 to S$1.28) for each Merlin  Diamond share. The aggregate consideration for Merlin Diamond’s shares is up to a maximum of approximately A$59,401,178 (approximately S$76,033,508 at an exchange rate of A$1.00 to S$1.28) (Closing price: S$0.225, -8.2%)

Matex International Limited (the “Company”, and together with its subsidiaries, the “Group”) announced that the Company has entered into a placement agreement (the“Placement Agreement”) with SAC Capital Private Limited (the “Placement Agent”) in relation to the Placement.  1.2 Under the Placement Agreement, the Placement Agent agreed to procure subscription(s) for an aggregate of up to 10,300,000 new ordinary shares (the “Placement Shares”) in the share capital of the Company on a best endeavours basis, on the terms and subject to the conditions of the Placement Agreement. The Placement Shares will be issued at an issue price of S$0.0473 per Placement Share (the “Issue Price”). The Issue Price represents a discount of 9.73% to the weighted average price of S$0.0524 for trades done on the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for the full market day on 28 January 2013.  There were no trades done on 29 January 2013 and 30 January 2013. (Closing price: S$0.056, +12%)

Global Logistic Properties Limited (“GLP”), one of the  world’s leading providers of modern logistics facilities, with a market-leading position in  China, Japan and Brazil, today announced that it will commence development of GLP Ayase,  a 68,400 square metre (“sqm”) (736,000 square feet (“sq ft”)) large-scale, multi-tenant  logistics facility in Greater Tokyo. The total development cost is estimated to be JPY9.4 billion (US$110 million).  GLP Ayase is the fourth development under GLP Japan Development Venture (“Venture”). To-date, the Fund has announced four development projects for a total investment of JPY43 billion (US$501 million). (Closing price: S$2.760, +1.8%)

Lafe Corporation Limited (the “Company”, together with its subsidiaries, the “Group”) issued profit guidance with respect to the consolidated financial results of the Group for the financial year ended 31 December 2012.  The Group is expected to record a significantly reduced profit for the full financial year ended 31 December 2012 as compared to the previously announced results for the nine months ended 30 September 2012. The profit reduction primarily resulted from the impairment in value of the Group’s investment property at Emerald Hill, Singapore which takes into account the impact of the recent Singapore Government cooling measures. The independent professional valuation on the investment property is currently in progress. (Closing price: S$0.095, +9.2%)

JES International Holdings Limited (the “Company”  together with its subsidiaries, the “Group”), conducted a preliminary review of  the draft financial results of the Group for the financial year ended 31 December  2012 (“FY2012”), would like to inform shareholders  that the Group is expected to  incur a loss for FY2012.  Based on available information, the Group has made prudent charges and provision for liquidated and ascertained damages over late delivery of some vessels and reduced contract prices for certain vessels due to present climate in the industry which has resulted in a significant loss for 4th quarter of FY2012. As such, FY2012 will incur a loss. Closing price: S$0.210, -6.7%)

Swee Hong Limited (the “Company”) issued a profit guidance regarding the financial results of  the Company and its subsidiaries  (the “Group”) for the second quarter (“2Q2013”) and half year ended 31 December 2012 (“1H2013”), following an assessment of its operations for 2Q2013.  The Board wishes to inform shareholders that it is expected to report a loss for 2Q2013 and 1H2013. The expected loss is attributable to, inter alia:  1. decline in revenue from our operations; and 2. significant costs increases. (Closing price: S$0.280, +1.8%)

Loyz Energy Limited (the “Company”) issued a profit warning  regarding the financial results of the Company and  its subsidiaries (the “Group”) for the half-year  ended 31 December 2012 (“1H 2013”).   The Group is expecting to report a loss for 1H 2013. The loss is mainly due to operating expenses incurred from the business expansion in the oil and gas division which is currently not generating any revenue. (Closing price: S$0.395, -4.8%)

Source: PhillipCapital Research - 01 Feb 2013