Morning Market Commentary

- STI: -0.64% to 3287.6                                   - SET: -1.16% to 1528.7
- JCI: -0.04% to 4632.4                                   - KLCI: +0.04% to 1614.1
- HSCEI: -2.20% to 11426.2                           - Hang Seng: -1.72% to 22906.7
- Nikkei 225:-1.39% to 11309.1                     - ASX200: -1.58% to 3312.9
- India NIFTY: -1.53% to 5852.3                     - S&P500: -0.63% to 1502.4

Wilmar Update: First take
By Nicholas Ong, Investment Analyst

Wilmar’s (Neutral, TP: S$3.70) 4Q results were better than expected, thanks to better higher profit from all except Plantations division, which was affected by lower CPO prices. However, FY12 core net profit decreased 23% yoy to US$1.2bn, hit by lower contributions from Oilseeds & Grains and Plantations division. Reported earnings were lower at US$1.3bn, due to lower net gains from biological assets. 4Q12 core profit jumped 52% yoy on better refining and crushing profits. Qoq, core profit rose 3%, on higher sales volumes from Palm & Laurics division. The group declared a final dividend of S$0.03, bringing the FY12 total dividend to S$0.05, versus total of S$0.061 last year. We will be providing further updates after the analyst briefing today.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Consistent with what we guided in our morning commentary yesterday, the STI pulled back to its 10dma support level -which is likely to continue treading along going forth. Today, the STI will might retrace lower on account of on weaker-than-expected PMI readings in the US and EZ, possibly hanging precariously below its 10dma. Near-term support at 3250 level. 3319 (52-week high) will be the immediate resistance level, followed by 3400 psychological resistance level and subsequently 3800 major key resistance.

In Singapore, data released this morning indicated that real GDP grew 1.3% for the whole of 2012, a 0.1%pt upward revision from advance est and in line with our house forecast of 1.4% (Dec 5. ASEAN macro strategy). Looking ahead, we are forecasting real GDP growth of around 2.0% in 2013 as Singapore receives a boost from the global cyclical upturn. But we reckon that economic restructuring (which entails tighter foreign worker restrictions) as well as a strong Singapore dollar will likely continue to weigh on Singapore’s manufacturing sector. A low growth and high inflation environment is typically a negative for equities.

In Japan, the Nikkei 225 has been lethargic in recent days. Yesterday, the Nikkei slipped but still perched above its 10dma support level.

The broader question is: Can the Nikkei challenge the 14,000 resistance level (attained in mid 2008) before the after recently surpassing its 2011 pre-tsunami levels?

Well, much of it depends on how much more can the Yen weaken?

USDJPY rally has faltered and has been consolidating in a range in recent days, confronted with strong resistance at the 95 level.

Key event risks that could trigger a breakout from the consolidation range and jolt the sleepy Nikkei are as follows:

(i) upcoming nomination of the next BoJ Governor (to be announced by next week). Please refer to our 20th Feb morning commentary on how to enter tactical trading positions ahead of this particular event risk.

(ii) 4th April maiden monetary policy meeting (under the new BoJ leadership). Risks are to the downside. Markets might be left disappointed by the maiden monetary policy meeting outcome in view of high expectations of aggressive monetary easing already priced in.

But do note a weak Yen (more specifically cheap credit and fiscal pump priming) is not the panacea for Japan’s structural problems. Instead, Japan might be plagued with fiscal sustainability woes. If Japan tumbles down the hill with Abe failing to reflate the economy, these increased fiscal spending will merely add on Japan’s ballooning debt burden and consequently portend downsides to its AA- sovereign credit rating.

In Greater China, selling pressure is likely to intensify for the HSCEI as well as HSI if the indices continue to hug their respective lower bollinger band which they pierced through as of yesterday’s close. The CSI 300 is testing its 40dma support level.  Downward pressure is likely to persist after China affirmed that the government will likely continue with tightening measures to rein in increases in property prices.

In the US, the SPX and DJIA slipped for the second consecutive day on weaker-than-expected PMI readings in the US and EZ. Chart technicals suggest that the bears overwhelmed the bulls throughout the trading session overnight. At this juncture, we reckon 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 -in the immediate near term- owing to lingering uncertainties in view of macro risk events ahead (such as a disorderly sequestration) 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.

Immediate macro risks on the horizon –this weekend and next week- which would trigger short bouts of volatility in the markets are as follows
(i) 24th -25thFeb Italian elections this weekend. A governing majority by Berlusconi (though not our base case scenario) will cast doubt on Italian reform commitments.
(ii) Political gridlock (again!) in negotiations over the impending 1st March sequestration in the US.

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

Macro Data:

In the US, the Markit manufacturing PMI slipped 0.6pts m-m to 55.2 in Feb (flash est). The Philadelphia Fed manufacturing survey headline registered a sharper decline, slumping from -5.8 in Jan to -12.5 in Feb. Nonetheless, we expect manufacturing activity to continue to expand in view of a capex rebound.

Separately, housing data indicate that existing home sales rose 0.4% to 4.9 mn saar in Jan. Recall housing starts declined 8.5% to 890,000 saar in Jan, reversing from a 15.7% surge in Dec. The NAHB survey headline slipped down 1 pt m-m to 46 in Feb. Though the reading was weaker-than-expected, we reckon that it is consistent with Dec's decline in new home sales, thus a housing inventory bubble of sorts is actually avoided.

In the EZ, the economy continues to contract. Composite PMI  slipped from a reading of 48.6 in Jan to a two-month low of 47.3 in Feb (flash est), larger due to weaker activity in the services sector.

In Singapore, the economy expanded by 1.3% y-y for the whole of 2012. On a q-q saa basis, growth came in at 3.3% in 4q12, reversing from the 4.6% contraction in 3q12.

Regional Market Focus

Singapore

• The benchmark STI closed lower to 3,287.60 (-0.64%). The 5.7bn shares traded were worth S$1.7bn in value. 
• The key positive from Genting Singapore’s results is the strong VIP rolling volume in the final quarter of the year. Capitaland reported a stronger than expected set of results with our analyst expecting stronger sales out of China in the next 2 years. Prior to market opening, Wilmar International reported a better than expected set of results with core profits increasing by 52%y-y on better refining and crushing profits. 
• Top picks for the year are Pan United (Buy, TP: S$0.88), SIAEC (Buy, TP: S$6.10) & Capitaland (Accumulate, TP: S$4.05). 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 fell sharply on Thu after minutes of the Federal Reserve’s most recent meeting suggested that the US central bank might end QE3 sooner than expected and liquidity drain by Chinese central bank also hurt sentiment in Asia. Selling emerged in big-cap bank, energy and telecoms counters.
• Thai stocks slid into correction territory yesterday after minutes of the Federal Reserve’s most recent meeting hinted that the US central bank may end QE3 sooner than expected. The composite SET index fell as much as 18 points yesterday. We believe some intraday rebound could be in cards today after yesterday’s sharp sell-off and return of foreign buying in Thai shares worth around Bt700mn. Buying interest from funds would also continue to lend support to market. However, a steep fall in crude oil prices may continue to weigh on energy stocks today. Overall we think any gains would be limited by risk aversion selling especially in late market trading as the Thai stock market will be closed on Mon for Makabucha Day while some investors may stay on the sidelines before major external events, especially Italian national elections this weekend and the resumption of negotiations in US Congress over budget cuts early next week. Today we expect the composite SET index to trade in a range of 1520-1535 points. 
• In the near term, we advise investors to look for good earnings and dividend plays as long as the composite SET index continues to hold above 1520 but investors should pare back equity holdings if the main index closes below 1515. 
• Today we peg resistance for the SET index at 1535-1540 and support at 1527-1520.

Indonesia

• Indonesian stocks finished mostly lower on Thursday (21/02), amidst lower closes on stock markets in Asia, following the release of US central bank’s meeting minutes that sparked concerns about the continuance of the Fed’s asset purchase program. The Jakarta Composite Index (JCI) shed 2.047 points, or 0.04%, at 4,632.404. The decline included six of the 9 major industry groups, with commodity sectors weighed the most on the index. Mining sector lost 1.22%, agriculture sector slipped 0.45%, and basic industry sector fell 0.27%. Blue-chip stocks also closed mostly lower, as the LQ45 index trimmed 0.284 points, or 0.04%, to close at 790.711 with 22 of its 45 components down. For every stock that advanced, more than two declined Thursday on the Indonesia Stock Exchange, where 6.897 billion shares valued at IDR 5.525 trillion traded on the regular board. Foreign investors posted net purchases worth IDR 761.96 billion.
• The Jakarta Composite Index (JCI) may turn lower today, with negative leads from US markets overnight that may further dampen sentiments in Asia stock markets. We estimate the JCI will be traded with support and resistance at 4,597 and 4,674, respectively.

Sri Lanka

• The Colombo Bourse concluded the trading day displaying an adverse momentum which resulted in the indices to dropping for the fourth consecutive day to close within the negative terrain; this was mainly as a result of the sluggish participation of the investors and the continued selling pressure which was quite prevalent during most parts of the trading day. The
• Benchmark ASPI index dipped by 4.43 points or marginal 0.08% intraday to close at 5726.11 recording its lowest value in almost 8 weeks and the S&P SL20 price index closed at 3212.56 losing 12.29 points or 0.38% recording the lowest value since the 5th 0f February. The day recorded an aggregate turnover of LKR 484.4Mn; this was a decrease of 36.56% against the prior trading day.
• Under the Sectorial summary Diversified Holdings and Bank Finance & Insurance stood out at the top by contributing LKR 341Mn and LKR 77Mn respectively. Shares totaling up to 14Mn were traded during the day recording a decrease of 19.07% compared to the previous trading day. The market capitalization as at the day’s closure stood at LKR 2.2Tn indicating a year to date gain of 1.49%.During the day, price losers outnumbered the price gainers by 97:72. The foreigners appeared to be bullish during the day having recorded an outflow on the previous day, resulting in a net foreign inflow of LKR 296.6Mn while reducing the year to date net foreign outflow to LKR 542Mn. The USD closed the day at a quoted price of LKR 129.03/-.

Australia

• On Thursday, the Australian share market wiped almost $36 billion and posting its largest one-day decline in nine months. The fall, generated by investor concerns over a big drop on Wall Street overnight and weaker metals prices, took the local market below the 5,000 point barrier that it broke through on February 13. The benchmark S&P/ASX200 index tumbled 118.6 points or 2.33 per cent, to 4,980.1.
• Today, the Australian market looks set to open lower after a global sell-off over concern about a possible end to US stimulus measures and as data showed slumping business activity across the Eurozone.
• In economic news on Friday, Reserve Bank of Australia (RBA) governor Glenn Stevens is to appear before the House of Representatives Standing Committee on Economics in Canberra.
• In equities news, Crown, Sims Metal Management and Transpacific Industries are due to post first half results, while Santos and Macquarie Atlas Roads are expected to announce full year results.

Hong Kong

• Local stocks slumped, following China Market as we expected before. The HSI and HSCEI dropped 400 points and 256 points to 22906 and 11426 respectively. Market volume was 81.139 billion.
• We believe the market is going to consolidate, as some of the technical indicators shows the HSI is overbuying.
• Technically, the HSI is expected to gain a support from 22500 level, major resistance will be 23000 level.

Morning Note

Company Highlights

Abterra Ltd. expects to report a further loss for FY2012 due to: 1. Substantial increase in currency translation loss from the deposit paid for the acquisition of 54.42% of equity interest in Zuoquan Xinrui Metallurgy Mine Co., Ltd which is  denominated in RMB, due to weakening in RMB. 2. Decrease in revenue due to the the inadequacy of suitable credit facilities held by the Group, which limited trading activities in FY2012. (Closing price: S$0.700, -2.1%)

Adventus Holdings Limited wishes to announce that the results for FY2012 have been affected by operating losses, provisions for non-trade receivables, and impairments to fixed assets. The continuing adverse market conditions in the advanced materials industry throughout 2012 have had a negative impact on the Company’s subsidiaries’ financial results, and consequently, the Company’s consolidated financial results. (Closing price: S$0.029, -6.5%)

China Sunsine Chemical Holdings Ltd is expected to report a significantly lower profit for FY2012. due to the decrease in gross profit margin resulted from higher cost of raw materials and reduced selling price. (Closing price: S$0.225, -%)

Frencken Group Limited wishes to inform that it now expects to report a  higher than anticipated loss for FY2012  due  mainly  to the  impairment losses for  goodwill and deferred development costs coupled with an increase in income tax expenses arising from the reversal of deferred tax asset recognised in previous financial years for a subsidiary within the EMS Division. The aforesaid items have no impact on the Group’s cash flow. (Closing price: S$ 0.210, -2.3%)

Midas Holdings Limited wishes to inform the shareholders of the Company and potential investors that the Company expects to record a significant drop in its unaudited revenue and net profit for the year ended 31 December 2012 (“FY2012”) as compared to the last year (“FY2011”).  This is mainly due to:   Lower revenue; Higher operating expenses and finance costs; and Share of loss from its associated company, Nanjing SR Puzhen Rail Transport Co., Ltd. (Closing price: S$ 0.550, -1.8%)

Source: PhillipCapital Research - 22 Feb 2013