Morning Market Commentary

- STI: -0.45% to 3261.8                                   - SET: -0.04% to 1499.8
- JCI: +0.09% to 4503.2                                  - KLCI: +0.34% to 1619.6
- HSCEI: -1.41% to 11682                              - Hang Seng: -0.34% to 23177
- Nikkei 225: -0.93% to 11357.1                     - ASX200: -0.93% to 3275.7
- India NIFTY: -0.34% to 5938.8                    - S&P500: -0.18% to 1509.4

OCBC update – GEH results
By Ken Ang, Financials and Telcos Analyst

Great Eastern Holdings, a subsidiary of OCBC(Reduce, TP: S$8 30), reported their 4Q12 results of S$225.6 million, up 227% y-y, but lower 64% q-q from a high base. Profit from life assurance was higher 314% y-y, 11% q-q, to S$210.1 million. This was due to strong performances from its non-participating funds, likely due to the strong equities and bonds market performance. This amount, which flows into OCBC’s non-interest income, was much higher than our forecast. We therefore expect an upward surprise for OCBC’s 4Q12 results. OCBC will be announcing their results on 15 Feb 2013.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

While the S&P 500 and DJIA are near their cyclical highs, a pullback might be on the cards. Specifically, both indices printed a 'dragonfly doji' for two consecutive trading days where the open and close are around the high of the day.

ECB Draghi signalled discomfort over the recent strong euro appreciation which will understandably weigh on EZ nascent and fragile recovery. Looking ahead, our base case scenario is for ECB to stand pat but with significant odds of a 25bps cut in the main refinancing rate should the Euro continue to appreciate strongly -especially against its main trading partners.

In Greater China, the H-shares China Enterprise Index pierced through while the Hang Sang Index tested their respective 40dma support level (consistent with our guidance yesterday). Should the bulls fail to overwhelm the bears and close Tues breakaway gap (formed to the downside), we suggest to short H Shares Index HKD5 CFD and Hong Kong 40 Index HKD5 CFD, especially if their respective 40dma support levels are also broken;  a weaker-than-expected Chinese trade data today might just be the catalyst.

In Malaysia, near-term weakness in the KLCI is likely to persist owing to political risk ahead of the 13th General Elections (pls refer to our ASEAN Macro Strategy report for details). The KLCI continued to close below its 200dma support level, and selling pressure might intensify- especially if trade and industrial production data (released at noon today) disappoint. Near-term support at around 1600.

In Singapore, STI has closed precariously below its 10dma support level. Near-term support at 3250 support level. On the other hand, 3400 will be the immediate psychological resistance level and the next major key resistance will be 3800 (attained in 2007).

Near-term downside risks -that could throw sand to the wheels, dampen risk appetite and bring the risk rally to a halt- are as follows:
(i)        Fiscal uncertainties in the US:  1st March sequester, the need to raise its US$16.4tn debt limit after 18th May, absence of a medium-term deficit reduction deal

(ii)        In the EZ, the immediate macro risk on the horizon is the Feb 24-25 Italian elections. With the Monte Paschi scandal, odds of a Berlusconi victory have increased according to pre-election poll surveys. A governing majority by Berlusconi (though not our base case scenario) will cast doubt on Italian reform commitments, result in another round of bond market turbulence and possibly forcing the Italian government to have the dubious honour of being the first nation to seek aid from ECB’s OMT program.

(All equity indices mentioned in this note are tradable with Phillip CFDs or ETFs)
 

Macro Data:

In US, initial jobless claims declined 5,000 wk-on-wk to 366,000 for the week ending Feb 2, consistent with a sluggish labour market recovery.

In Germany, manufacturing output rose 1.2%m-m in Dec after registering stagnant growth in the preceding month.

In Japan, core machinery orders rose 8.4% q-q, saar in 4q12 after registering declines in the preceding two quarters, signalling a nascent revival in capex business investments.

Regional Market Focus

Singapore

• The benchmark STI closed lower to 3,261.77 (-0.45%). 3.4bn shares were traded with value worth S$1.6bn.
• While results for the quarter beat our estimates, our analyst downgraded his rating on Starhub to Reduce, as he believes that stagnant dividend levels could disappoint market expectations.
• CMA results met our expectation with improved operating incomes from China in particular. Our analyst expects further improvement in FY13 as newly opened malls start to contribute, but downgrades to Neutral on valuation ground.
• 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$6.10) & 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 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

• Two straight days of net foreign selling kept Thai stocks in the red throughout the session on Thu amid selling in key energy, bank and food counters.
• Wild intraday swings are likely to continue in the Thai stock market today, the same as in the previous session but more weakness could be in store for Thai stocks amid a wave of heavy selling by foreign investors. As today is also the last trading day ahead of the Chinese New Year when several stock markets in Asia will be closed, some risk-averse selling is likely to continue. Euro-zone economic uncertainty will also remain in the market’s spotlight especially after European Central Bank President Mario Draghi said yesterday that economic activity in the euro area should gradually recover later in 2013 but there are more negative risks than positive ones. The bank’s concerns about the euro’s advance and its effect on the region’s economy also sent the single currency sharply lower and strengthened the US dollar in Asia this Fri. The Thai baht this morning (0800 hrs Thailand time) weakened slightly to 29.80 to the US dollar. Overall we expect the composite SET index to trade in a range of between1490-1505 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.
• Resistance on the main index is seen at 1505-1512 and support at 1496-1486 today.

Indonesia

• Most Indonesian stocks moved upward on Thursday (07/02), though most of major Asian markets closed lower after the negative sentiment on the European economy, which might affect the demand of products from Asia. The Jakarta Composite Index gained 4.172 points, or 0.09%, to close at 4,503.148. The increase included four of the 9 major industry groups, with miscellaneous industry sector was up 1.23%, finance increased 0.50%, and consumer goods sector improved 0.79%. Blue-chip shares also increased on Thursday, as the LQ45 index that tracks these stocks added 0.545 points, or 0.07%, at 770.394, with 11 of its 45 components increased. 128 shares advanced, 112 shares declined, and 112 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 4.22 billion shares worth IDR 4.10 trillion changed hands on the regular board. Foreign investors accumulated net purchases worth IDR 2,070.92 billion.
• Indonesian stocks will likely decline today, after negative closes on US markets overnight that may lead to declines on Asia markets. We expect the Jakarta Composite Index (JCI) to trade with support and resistance at 4,471.66 and 4,521.78.

Sri Lanka

• The Colombo bourse concluded the third trading day of the week entering in to positive territory again. Both indices recorded noteworthy gains and aggressive participations from foreign investors were highly witnessed mainly on recorded block trades today. Subscriptions on retail, high networth and corporate segments also noticeable to record a healthy turnover.
• ASPI gained 30.33 points to close at 5,810.42 points (0.52%) whilst, S&P SL20 Price Index ended at 3,243.70 points (0.82%) accumulating 26.31 points. The market capitalization as at the day’s closure was LKR 2.23Tn recording a year to date gain of 2.98%. The turnover for the day recorded LKR 1.53Bn, which is a 31.01% increase compared to the previous trading day.
• Bank Finance & Insurance (LKR 838Mn) and Diversified Holdings (LKR 412Mn) stood out as the best performers under the sectorial review. Shares totaling up to 21.6Mn changed hands during the day; this was an increase of 10.79% compared to the previous trading day.
• The foreigners appeared to be bullish for the trading day resulting net foreign inflow of LKR 160.2Mn reducing the year to date net foreign outflow to LKR 779.8Mn. USD closed the day at a quoted price of LKR 127.94/-.

Australia

• In Australia, the market on Thursday closed higher, boosted by some positive company earnings reports and better-than-expected unemployment figures. The benchmark S&P/ASX200 index climbed 14.7 points or 0.3 per cent to 4,935.7.
• Today, the Australian share market looks set to open mixed following the lead of international markets overnight after comments from European Central Bank (ECB) president Mario Draghi. In comments at a press conference after the ECB's regular interest-rate decision, Mr Draghi explicitly mentioned the risks posed by the recent rise in the euro. The currency's rise could limit inflation and slow economic growth there. That caused traders to bet that the bank may hold off on deploying further easy-money policies. The SFE Futures 200 is pointing upwards 16 points or 0.32 to 4,910.
• In local economic news on Friday, the Reserve Bank of Australia (RBA) is due to release its quarterly Statement on Monetary Policy.
• In equities news, Newcrest Mining is expected to post first-half results.

Hong Kong

• Local stocks slumped. The HSI and HSCEI dropped 79 points and 167 points to 23177 and 11681 respectively. Market volume was 79.044  billion.
• 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

Sembcorp Marine Ltd announced that SMOE, a wholly owned subsidiary of the Company, has secured an EPC contract worth about S$900 million to build an offshore platform integrated topside for Det norske oljeselskap ASA, Norway. Construction is expected to commence in December 2013 with sail-away scheduled in March 2016. The contract is not expected to have any material impact on the net tangible assets and earnings per share of Company for the year ending December 31, 2013. (Closing price: S$4.62, -0.6%)

Mercator Lines (Singapore) Ltd issued a profit warning that the Group expects to record net loss for Q313 and 9M13. The expected drop in the Company’s profits for Q3 FY2013 is primarily attributable to loss on sale of the vessel, MV Prem Putli, compensation and provisions pursuant to negotiations/settlement agreements with the owners of long term chartered in vessels and lower revenue due to adverse market conditions. Further details of the Group’s financial performance will be disclosed when the Company announces its unaudited financial results for Q313 by 15 February 2013. (Closing price: S$0.133, -2.9%)

Trek 2000 Int’l Ltd announced that it is presently conducting a risk management review of its Intellectual Property (“IP”) assets in view of the rapid technological changes, and based on an initial assessment, this exercise is likely to result in a downward revaluation in the Company's IP assets.  Any such change in IP asset values may impact the Company's financial results, including the likelihood of reporting a loss for the year ended 2012. Further details of the Group’s performance will be disclosed when the Group releases its year end results on 22 February 2013. (Closing price: S$0.260, -7.1%)

ASTI Holdings Ltd issued a profit warning regarding the financial results of the Group for FY12. Based on the preliminary review of its draft financial results, the Group is expected to report a net loss for the FY2012 mainly due to: - 1. Impairment losses arising from the proposed divestment of the Distribution business; 2. Decrease in gross profit margin from the Distribution business; 3. Contribution of losses from its newly acquired subsidiary – Advanced Systems Automation Limited; and 4. Increase in research and development cost incurred for development in semiconductor packages. The Company will provide further details of the Group’s performance when it releases the financial results for FY12 on or before 1 March 2013. (Closing price: S$0.082, -3.5%)

Dragon Group International Ltd issued a profit warning that the Group is expected to report a net loss for FY2012 mainly due to (i) the decrease in gross profit margin and (ii) impairment losses on the proposed disposal of all issued and paid-up ordinary shares in the share capital of Dragon Technology Distribution Pte Ltd (a wholly-owned subsidiary of the Company). Further details of the Group’s financial performance will be disclosed when the Company finalises and announces its unaudited financial results for FY2012 on or before 1 March 2013. (Closing price: S$0.103, unchanged)

Source: PhillipCapital Research - 08 Feb 2013