Morning Market Commentary

- STI: -0.32% to 3290.5                                  - SET: +0.83% to 1526.7
- JCI: +0.37% to 4588.7                                 - KLCI: -0.02% to 1630.9
- HSCEI: +1.47% to 11821.4                         - Hang Seng: +0.85% to 23413.2
- Nikkei 225: +0.50% to 11307.3                   - ASX200: -0.53% to 3326.7
- India NIFTY: -0.61% to 5897.0                   - S&P500: +0.07% to 1521.4

OCBC Update: First take
By Ken Ang, Financials and Telcos Analyst

OCBC (Reduce, TP: S$8.30) reported 4Q12 net profit of S$663 million, an increase of 11.6% y-y, but 8.4% lower q-q. Earnings were above our expectations, largely due higher profit from life assurance from its subsidiary, Great Eastern, as previously highlighted in our morning note dated 8 Feb 2013, and higher net trading income.  NIMs declined 5bps q-q, due to lower yields on placements with and loans to banks. This was mitigated by lower cost of deposits, as fixed deposit balances declined 4.7% q-q. Deposits grew healthily by 4.83% q-q, largely due to current accounts balance sharply increasing by 18.07% q-q. Loans also grew 2.93% q-q, bringing FY12’s y-y growth rate to 6.6%. Final dividend of 17 cents (FY2011: 15 cents) per share was recommended. Including the interim dividend of 16 cents (FY2011: 15 cents) per share, total dividends for FY2012 amounted to 33 cents (FY2011: 30 cents) per share. We will be providing further updates after the briefing by management later in the day.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

In Singapore, profit-taking spurred sellers to push the STI below -albeit slightly- its opening support. Still, STI is still waddling along the 10dma support level and has yet to close Wednesday’s breakaway gap (formed to the upside), portending further possible upsides. Near-term support at 3250 support level. 3400 will be the immediate psychological resistance level and the next major key resistance will be 3800 (attained in 2007).
 
We hoped that you took up our suggestion (on Thurs morning commentary) to enter long positions /accumulate the H-shares China Enterprise Index (HSCEI) and the Hang Sang Index (HSI) after both indices recently retraced from recent highs. Both the HSCEI and HSI gapped up when trading resumed yesterday. Looking ahead, there might be further upside if this breakaway gap (to the upside) is not filled and the indices decisively clear their respective 10dma resistance levels.

The S&P500 and DJIA ended broadly flat overnight but are still hovering around their respective cyclical highs. At this juncture, there is a slightly less than even chance of the S&P 500 and DJIA clearing above their strong technical resistance levels of 1575 (triple top) and 14200 (double top) respectively owing to lingering uncertainties in view of macro risk events ahead (such as a disorderly sequestration and risks listed on our Feb13 morning commentary) as well as the likely lagged adverse effect of the payroll tax hikes on consumption -which has yet to be priced into this 'complacent' market.

Gold broke out to the downside after falling through its 200dma as well as its horizontal support level of 1650 of the descending triangle formation, suggesting more downside ahead of gold. Slump in gold price was further exacerbated by the USD gaining strength against most currency pairs (except JPY and NZD) during yesterday's London/New York forex trading sessions.

Nonetheless, there is still some downside support for gold on account of lingering US fiscal uncertainties (particularly the sequestration) as well as extremely accommodative monetary conditions. One should not underestimate the link between currency debasement and gold; in this respect, gold is still an important hedge within a portfolio. Furthermore, over the longer term, (i) rising inflation expectations on the back of aggressive LSAPs by major central banks as well as (ii) escalating debt levels in the advanced economies (US and EZ) are likely to continue to lend support to gold prices.

For gold spot price, next major support level at around 1625 (4th Jan 2013 low) and resistance at 1695 (18th Jan 2013 high)- these two price levels define the low and high of the horizontal range that gold has been weakening within.

Meanwhile, silver broke below its 200dma strong support level. But note that the break upwards of the long-term descending trendline (which started in Apr 2011) increase the odds of an extended period of sideway price movement (i.e. ranging move). Near-term support at 30.15.

(All equity and commodity indices mentioned in this note can be traded with Phillip CFDs or ETFs)

Macro Data:

In the US, the labour market hints some tentative positive signals. Initial jobless claims declined 27,000 wk-on-wk to 341,000 for the week ending Feb 9. But we like to temper the optimism on the labour market by highlighting that weekly claims data are highly volatile, especially when data is sandwiched between holidays such as Martin Luther King Day and Presidents’ Day and a major snow storm, to boot.

In Japan, the economy remain mired in a recession, declining 0.1% q-q in 4q12, following a 1% contraction in the preceding quarter. Bank of Japan stood pat in Feb -not surprising in view of the change of guard next month- maintaining the asset-purchase program at 76 trillion yen and inflation target at 2%.

In Eurozone, the economy remain mired in a recession with the pace of GDP contraction accelerating from 0.4% q-q saar in 3q12 to 2.4% in 4q12, registering the sharpest contraction since 1q09.

In South Korea, the Bank of Korea stood pat, maintaining the 7-day repo rate at 2.75% for the fourth consecutive month.

In India, wholesale inflation eased from 7.18% in Dec to 6.62% in Jan. We opine that in view of some progress made by the government in addressing some of the structural growth constraints as well as easing inflationary pressures, the RBI might have more policy room to stimulate growth after cutting rates by 25 bps in Jan (the first cut since Apr2012).

Regional Market Focus

Singapore

• The benchmark STI closed lower to 3,290.47 (-0.32%). 10.6bn shares were traded with value worth S$1.8bn.
• Volume traded was exceptionally high with average value of the stocks traded remaining low.
• Prior to market opening, OCBC announced a surprise increase in final dividend payout of 17cents, taking total DPS for the year to 33cents (+10%y-y). NIMs continue to remain under pressure and declined by 5bp sequentially.
• 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

• The composite SET index extended its strong rally and continued to make new highs on Thu. Selective and sector rotation plays were more active with healthcare counters leading the market’s advance.
• Even though the Thai stock market extended its bull run and continued to make new highs, we however believe volatility is set to rise along with risks. There also appears to be no new catalysts to sustain a strong rally while the same old headwinds have returned to haunt the market from time to time. Data showed euro-zone economic contraction accelerated and deepened in 4Q12 while Japan’s GDP contraction slowed in 4Q12. Negotiations on US budget cuts will likely intensify as clocks tick to deadline. For the meantime, the most important factor to watch at home will be the Bank of Thailand’s Monetary Policy Committee meeting next week with eyes on interest rate decision amid conflicts between finance minister and the central bank. Although there are no signs of the exit of fund flows yet in sight, the pace of foreign buying slowed with sporadic bout of selling. Under this circumstance, we think institutions especially the launch of many triggers funds and proprietary account would be key market drivers for the time being rather than foreign investors. Investors should therefore watch out for more volatility along the way. Today we expect the composite SET index to trade in a range of between 1517 and 1530. 
• For short-term strategy, we advise investors to look for good earnings and dividend plays.
• We peg resistance on the main index at 1530-1535 and support at 1517-1509 today.

Indonesia

• Composite index of Indonesian stocks advanced on Thursday (14/02), as stock market in Asia gained on earnings results and deal news. The Jakarta Composite Index climbed 17.105 points, or 0.37%, to close at 4,588.673. Mining sector led the advance that included seven of the 9 major industry groups, with 1.83%-rise, followed by basic industry with 1.03%-gain, and agriculture sector with 0.61%-advance. The LQ45 index that tracks Indonesia’s blue-chip stocks added 1.386 points, or 0.18%, at 786.300. More than 130 shares rose, 121 shares fell, and 218 shares stayed unchanged Thursday on the Indonesia Stock Exchange. Volume on the regular board topped 8.429 billion shares with the total value of IDR 5.95 trillion. Foreign investors posted net purchases worth IDR 357.16 billion in total.
• The Jakarta Composite Index (JCI) will likely move sideways today, as mixed closes on US markets may provide little lead to markets in Asia. We expect the JCI to trade within 4,534 – 4,606 range today.

Sri Lanka

• The Colombo bourse concluded the fourth trading day of the week retaining the negative terrain again and both indices ended the day on a mixed note. Prolonged dull movement has been continuing and minimum investors’ attraction for the market activities despite the exceptional interim/annual results mainly of the blue chip companies. The Benchmark ASPI closed negative for the third consecutive trading day losing 1.73 points to close at 5,825.29 (-0.03%) whilst, the S&P SL20 Price Index ended within the green territory at 3,269.50 (0.38%) accumulating 12.36 points after recording negative closures for three consecutive trading days. The market capitalization as at the day’s closure was LKR 2.24Tn while recording a year to date gain of 3.24%. The total recorded turnover for the day LKR 471Mn was a 22.60% decrease compared to the previous trading day. Under the sectorial review, Bank Finance & Insurance and Diversified Holdings stood out as the best performers by contributing LKR 330Mn and LKR 59Mn respectively. Shares totaling up to 19.9Mn changed hands during the day; this was a decrease of 65.72% compared to the previous trading day. Price losers outpaced the price gainers at a ratio of 105:71. The foreigners appeared to be bullish for the third successive trading day resulting net foreign inflow of LKR 170.6Mn while reducing the year to date net foreign outflow to record LKR 929.3Mn.

Australia

• On Thursday (14/02/13), the Australian share market traded above the 5,000-point mark, boosted by encouraging company earnings reports. The benchmark S&P/ASX200 index rose 33.2 points or 0.66 per cent to 5,036.
• Today, the Australian market looks set to open lower following unimpressive showings on international bourses after news the Eurozone recession deepened in the final three months of last year. The SFE Futures 200 is pointing downwards 11 points or 0.22 per cent to 4,983.
• In economic news on Friday, Reserve Bank of Australia (RBA) assistant governor (economic) Christopher Kent is scheduled to speak at the Committee for Economic Development of Australia (CEDA) 2013 WA Economic and Political Overview, while the RBA board member Dr John Edwards is slated to attend at CEDA event in Sydney.
• In equities news, ANZ is expected to give a first quarter trading update, while Charter Hall Retail REIT, Tassal Group, OceanaGold and Paladin Energy are among the companies expected to post first half results.

Hong Kong

• Hong Kong shares gained on Thursday, led by property and financial stocks, as investors looked for bargains after heavy selling last week.
• Investors shrugged off comments from the territory's financial services secretary that Hong Kong will report economic growth of just 1 percent for 2012, its slowest since 2009.
• The Hang Seng Index ended up 0.9 percent at 23,413.25 points, rebounding from its sharpest weekly loss in three months last week. The China Enterprises Index of the top Chinese listings in Hong Kong gained 1.5 percent. But turnover remained weak with many traders still away for the holiday. (Source: Reuters)

Morning Note

Company Highlights

P99 Holdings Ltd issued a profit warning that the Group is expected to report a higher net loss for FY2012 as compared to FY2011. This was mainly attributable to the amortisation of the “Pel” licence acquired in FY2011, higher operating expenses from the marketing and setting up of the Pel caf business and the impairment of the “Pel” license. Further details of the Group’s financial performance will be disclosed when the Company announces its unaudited financial results for FY2012 on or before 1 March 2013. (Closing price: S$0.1.74, unchanged)

Viking Offshore and Marine Ltd announced that it has entered into a sale and purchase agreement with Mr. Terry Tan Soon Lee @ Huiri Amita in relation to the sale by the Company of its entire 320,000 issued and paid-up ordinary shares in Chuan Seng Leong Pte Ltd (“CSL”) for a aggregate consideration of S$3,200,000. The Company does not regard the business of CSL as being core to the businesses of the Group, and therefore the disposal represents an opportunity for the Company to divest of its non-core asset as well as to allow the Company to unlock shareholder value. The sales proceeds will be utilised towards the repayment of loans and payables of the Company. (Closing price: S$0.123, -1.6%)

Keppel Land Ltd announced that Keppel Land China Limited and Alpha Investment Partners Limited, the property fund management arm of Keppel Land Ltd, is partnering for the first time to acquire a mixed-use development, Lifehub @ Jinqiao, in the key gateway city of Shanghai, China. This latest acquisition is in line with Keppel Land’s strategy to further grow its commercial portfolio in high-growth cities. The above transaction is not expected to have any significant impact on the net tangible asset per share or earnings per share of Keppel Land Ltd for the current financial year. (Closing price: S$4.24, +1.0%)

STX OSV Holdings Ltd announced that it has secured a new contract for the design and construction of one Offshore Subsea Construction Vessel (“OSCV”) for Solstad Offshore, and delivery is scheduled from STX OSV Aukra in Norway in 2Q 2014. The value of the contract is approximately NOK 600 million. (Closing price: S$1.24, -1.2%)

STX Pan Ocean Co. Ltd announced that the Company has entered into two Consecutive Voyage Contracts (“CVCs”) with Korea Midland Power Co., Ltd. and Korea East-West Power Co., Ltd. at total sales of approximately USD 460million (each of them amounting to approximately USD 230million) . The transportation of steaming coal will take place mainly from Australia to South Korea. The contract with Korea Midland Power Co., Ltd. is scheduled to be effective from January 2016 and the other one with Korea East-West Power Co., Ltd. is scheduled to be effective from July 2018. The duration of both contracts is for 18 years respectively. The main objective of the Company for entering into the CVCs is to secure a stabilized source of profit. (Closing price: S$5.49, -3.7%)

Source: PhillipCapital Research - 15 Feb 2013