Morning Market Commentary

- STI: +0.19% to 3297.4                                      - SET: +0.48% to 1506.4
- JCI: +0.20% to 4490.6                                      - KLCI: +0.43% to 1634.6
- HSCEI: -0.48% to 12156.6                               - Hang Seng: -0.16% to 23685
- Nikkei 225: +0.62 to 11260                              - ASX200: -0.28% to 4907.5
- India NIFTY: -0.19% to 5987.3                         - S&P500: -1.15% to 1495.7

SGX Update:
By Ken Ang, Financials & Telco Analyst

SGX (Accumulate, TP: S$7.88) recently released its monthly market statistics for Jan 2013. Securities Daily Average Value was up 55% m-m, from S$1.16 billion to S$1.80 billion. This marks a marked improvement as per our expectations. Derivatives Daily Average Volume was also up 15% m-m from 0.40 million, to 0.46 million, hitting a new record high. With the continued positive market sentiments, and the shift of funds from the Bond markets to the Equity markets globally, we continue to be positive on both SDAV and DDAV. We maintain our “Accumulate” call on SGX.

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

During yesterday’s market outlook webinar, a few remisiers/clients raised the question of whether a correction was imminent. Last week Friday, we speculated that profit taking might set in, but were caught out on the current pain trade of “fear of missing out”.

Today, profit taking is likely, as last night US and European stocks took a hit, and Spanish and Italian bond yields rose. The spectre of Europe is rearing its ugly head, as political risk threatens to derail structural reforms.

Spain’s govt is under corruption allegations, thus the risk of political transition is untimely in the middle of structural reform.

In Italy, where elections are due 24/25th Feb, polls showed Burlusconi’s party has gained on incumbent Monti as the former promises to undo and reimburse a property tax worth about 4b euros a year.

We view the Spanish risk as more serious as polls still show Monti will win the election.

While the indices are still on long term uptrends, in the short term (indices are tradable with PhillipCFD):

The S&P500 has an almost bearish engulfing candle, which suggests short term weakness ahead.

The STI gapped above the crucial 3300 (this cycle high) but closed slightly below the opening to close the gap. The STI has a tendency to close gaps before going higher, so while the sign is still rather bullish, this could be challenged near term if political risk from the EZ begins to worsen.

The HSCEI and Hang Seng uptrends could also be challenged for the same reasons.

China A shares, the CSI300 (83188 HK), are likely to take a pause before taking on the 2800 resistance.

No change to our overall 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).

Chief risks to this positive 2013 outlook of course is the 1st March US sequester, the 18th May US debt ceiling deadlines, and we now add political risk from the EZ.

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 Singapore, manufacturing activity expanded -albeit marginally for the first time in seven months- with the headline PMI registering a reading of 50.2 in Jan, up 1.6 pts m-m from the preceding month on account of higher new orders -domestically as well as for exports- and accumulation of finished goods (which hints of a gradual restocking in anticipation of higher demand). Electronics also remain mired in contractionary territory, despite a 3.3 pts m-m increase in the electronics PMI to 49.9 in Jan.

In US, factory new orders rose 1.8%m-m in Dec, compared to a 0.3% revised decline in the preceding month. Inventory to shipment ratio stood at 1.27, unchanged from the preceding month. Core capital goods orders -a proxy for capex spending by businesses- declined 0.3% in Dec after registering strong gains 3.3% (revised upwards by 0.3%-pt) in Nov.

In Australia, inflation accelerated slightly to 2.5% y-y in Jan, at the middle of the central bank’s 2-3% target, from 2.4% y-y in Dec. A separate report shows that the building approvals fell by 4.4% y-y in Dec, after a 3.4% m-m gain in Nov, indicating weak construction investment. On y-y basis, building approvals rose by 9.3% y-y, slower compared to the 14.1% y-y pace in Nov. As announced earlier, the nation’s performance of manufacturing index fell to 3 1/2 low in Jan, reporting 40.2, indicating weakening manufacturing activities. With inflation still tame and the weak economic growth, the central bank might consider cutting the benchmark interest rate by another 25 bps to 2.75%.

Regional Market Focus

Singapore

• The benchmark STI inched higher to 3,297.37 (+0.19%). 3.4bn shares were traded with value worth S$1.7bn.
• Trading volume on the SGX (Accumulate, TP: S$7.88) gained momentum across securities, derivatives and commodities business. Our analyst reiterated his positive view as positive market sentiments continues to drive up securities and derivatives trading volume on the Exchange.
• 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

• The composite SET index extended its gains on Mon led by big-cap laggard energy names though sporadic bouts of short-term profit taking set in along the way.
• Thai stocks could be choppy to the downside today after a two-day rally of up to 32 points and a slowdown in momentum during yesterday’s late market trading amid renewed concerns about the euro zone debt crisis, which dragged European equities down as much as 2%-3% yesterday. Calls for Spain's prime minister to resign over a corruption scandal and Italy’s national election by the end of the month could stall efforts to tackle the region’s debt woes and represent stumbling blocks for further rise in risk appetite while a surge in Spanish and Italian bond yields also renewed worries about the European economy. On the other side of the Atlantic, the Dow industrials also tumbled sharply after rising above 14000, its highest level in more than five years for only one day. Overall we believe the composite SET index may be poised for a pullback towards 1495-1490 today. 
• For short-term strategy, we recommend selective plays with focus on laggards relative to peers/broader market and expected to report impressive results and pay out attractive dividend.
• Today we peg resistance for the SET index at 1508-1513 and support at 1499-1490.

Indonesia

• Indonesia’s benchmark stock index moderately advanced on Monday (04/02), as stock markets in Asia climbed after rallies on US markets on Friday. The Jakarta Composite Index (JCI) rose 8.931 points, or 0.20%, to close at 4,490.565. The gain included six of the 9 major industry groups, with miscellaneous industry added 1.57%, trade and services sector gained 0.65%, and construction, property and real estate sector rose 0.39%. LQ45 – the index trailing Indonesia’s blue-chip shares – added 2.025 points, or 0.26%, at 768.206. More than 85 shares advanced, 152 shares declined, and 230 shares remained unchanged Monday on the Indonesia Stock Exchange, where composite volume reached 5.144 billion shares valued at IDR 4.79 trillion. Foreign investors posted net purchases worth IDR 461.99 billion.
• Stocks will likely be traded lower in Indonesia stock market today, as heavy drops on US markets may lead to declines in regional Asia markets. We expect the Jakarta Composite Index (JCI) to trade with support and resistance at 4,445 and 4,542 respectively.

Sri Lanka

• Market continued to show volatility on the last trading day. The Colombo bourse concluded the last trading day of the week on a negative sentiment, mostly due to investors realising there profits. The ASPI dropped 17.20 points or (0.30%) to end the day at 5799.69. The S&P SL20 index too dropped 0.80 (0.03%) points to close the day at 3196.81. The turnover for the day was recorded as LKR 951.07Mn which is a 72.23% reduction compared to previous trading day. Foreign investor sentiment changed to a positive outlook resulting in a net foreign inflow of LKR 446.08Mn for the day.
• A week with underline signs of volatility. The market commenced the last week of January with the local Treasury bond market yielding lower on both primary and secondary markets despite the January inflating reaching its six months peak of 9.8%. The 5 year Bonds yielding at 10.74% which was 16bsp lower than the last auction, with the secondary market quoting 10.90/95. Further with 3rd quarter results published been better than expected the selected counters gained momentum. However the overall market failed to gain momentum due to inevitable selling pressure coming into the market due to profit taking by investors. Amidst money market liquidity increasing the market displayed an overall negative movement during the week losing 78.5 points or (1.34%), with the market closing on its first trading day of the month at 5,799.69 which is the lowest since 15th January 2013 (5,750.24).at the same time S&P SL20 index stood at 3,196.81 gaining 6.16 points (0.19%) during the week.
• The turnover for the week was LKR 9.17Bn supported by 52 crossings totalling up to LKR 5.69Bn accounting to a 62% contribution to the weekly turnover while recording a 89.39% increase compared to the previous weeks turnover.  143.07Mn shares changed hands during the week, this was a 51.66% reduction compared to the previous week.  Foreign sellers outnumbered the buyers with the market recording LKR 5.21Bn selling and LKR 4.79Bn buying resulting in a net outflow of LKR 514.3Mn for the week; while extending the year to date net foreign outflow to LKR 873.5Mn. As at the week’s closure, the total market capitalization stood at LKR 2.23Tn, recording a year to date gain of 2.78% and the market PER(X) and PBV(X) stood at 16.41 and 2.13 respectively. The USD closed the week at LKR 128.08/-.
• Treasury bill rates drop for the 8th consecutive week The TB rates experienced a further reduction during the weekly auction held last Wednesday. The One year TB rate dropped by 14 basis points to 11.11% during the week and the 6 months rate dropped by 13 basis points to 10.28%. Further, the 3-month yield dropped by 16 basis points to 9.47% during the week. (1 Feb 2013)

Australia

• The Australian share market on Monday closed weaker, with investors unwilling to push the bourse to 5,000 points without new good economic news. At the close, the benchmark S&P/ASX200 index was 13.6 points or 0.28 per cent weaker to 4,907.5.
• Today, the local market looks set to open lower following strong falls on US and European markets overnight amid fears of political turmoil in Spain and Italy. The SFE Futures 200 is pointing downwards 30 points or 0.61 per cent to 4,839.
• On the local economic news front for Tuesday, the Reserve Bank of Australia (RBA) will hold its first rate meeting for 2013. The Australian Bureau of Statistics (ABS) is due to release December data for international trade in goods and services and house prices, and the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) for month just ended is due to be released.
• In equities news, Cochlear, Primary Health Care and Transurban Group are due to post earnings results.

Hong Kong

• Local stocks dropped. The HSI and HSCEI dropped 36 points and 58 points to 23685 and 12156 respectively. Market volume was 128.156 billion, recorded at 27 months.
• We believe the market is going to consolidate, as some of the technical indicators are showing the HSI is overbought, 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 24000 level.

Morning Note

Company Highlights

HSR Global Ltd issued a profit warning that the Group is expected to report a consolidated net loss for FY2012 (compared to a consolidated net profit of approximately S$0.47million for the financial year ended 31 December 2011) mainly due to the reasons as follows: 1. Start-up losses from new business units established in the second half of the financial year to broaden the Group’s revenue streams; 2. Impact of the softer property market which has resulted in reduced commission income; 3. Increased operating costs arising mainly from higher staff costs including the realignment of executive directors’ remuneration to market levels and investment in a new senior manager to spearhead the broadening of the Group’s revenue streams; and 4. One-off retrenchment costs incurred in relation to the disposal of the electroplating business of the Group in March 2012. Further details in respect of the Group’s FY2012 financial results will be announced no later than 1 March 2013. (Closing price: S$0.250, unchanged)

United Fiber System Ltd announced that the company have extended the long-stop date for the proposed S$2.24 billion acquisition of 96.9998% of PT Golden Energy Mines TBK for one month, from 31 January 2013 to 28 February 2013. The company also expects to record a material loss for FY2012, which can be attributed to, inter alia, the following: (a) The potential write-down on the value of forestry concessions owned by the Company; and (b) Losses incurred by the construction arms of the Company due to the challenging conditions in the construction industry in Singapore and stringent governmental regulation. Further details of the UFS Group’s financial results will be disclosed before 1 March 2013. (Closing price: S$0.050, unchanged)

XMH Holdings Ltd announced that the Group intends to acquire land from Jurong Town Corporation to construct new premises to, amongst others, accommodate new assembly and production lines and increase general warehousing capacities. The Group’s aggregate consideration or cost of investments for the Proposed Acquisition is currently estimated to be S$68.4 million, comprising: (i) the Land Premium of S$8.1 million, (ii) the estimated costs of the Building Works of S$51.0 million and (iii) the estimated costs acquiring new plant and machinery of S$9.3 million. The Consideration will be satisfied entirely in cash. (Closing price: S$0.265, unchanged)

Hengxin Technology Ltd issued a profit warning that the Group is expected to record a materially lower net profit for 4Q2012 compared to the same period in 2011. The decrease in the unaudited consolidated net profit of the Group is primarily attributed to the following: (A) Continuing weak market demand for RF Coaxial Cables, being the Group’s main product segment; and (B) Increase in operating expenses: The Group witnessed an increase in Selling and Distribution expenses and Administrative expenses. Further details of the Group’s financial performance will be disclosed when the Company announces its 4Q2012 unaudited consolidated results on or around 21 February 2013. (Closing price: S$0.152, unchanged)

Technics Oil and Gas Ltd announced that it has been awarded two contracts worth a total of S$6.6 million. The first contract involving the EPCC for the supply of reciprocating compressors for Diamond development project blocks – offshore Vietnam. The second involves EPCC for the provision of Deep Drawn Booster Compressor at Arthit. This contract is not expected to have positive material impact on the earnings per share for the financial year ending September 2013. (Closing price: S$1.015, -0.5%)

Source: PhillipCapital Research - 05 Feb 2013