Morning Market Commentary

- STI: -0.90% to 3239.95                                 - SET: +0.07% to 1540.7
- JCI: -1.04% to 4761.5                                    - KLCI: -0.09% to 1635.98
- HSCEI: -2.11% to 11104.6                           - Hang Seng: -1.50% to 22537.8
- Nikkei 225: +0.40% to 11652.3                   - ASX200: -0.50% to 3341.5
- India NIFTY: -0.37% to 5698.5                     - S&P500: +0.46% to 1525.2

Tiger Airways – Rights Issue & Perpetual Convertible Capital Securities Offering
By Derrick Heng, Transport Analyst

Tiger Airways (Sell, TP: S$0.65) announced a proposal to undertake a renounceable Rights Issue and a non-renounceable Preferential Offering to raise gross proceeds of c.S$297mn. For the Rights Issue, new shares will be issued at S$0.47 on the basis of 1 Rights Share for every 5 existing ordinary shares (would raise c.S$77mn). For the Preferential Offering, up to S$220mn in aggregate principal amount of 2.0 percent Perpetual Convertible Capital Securities will be issued at S$1.07 for each Convertible Security. SIA (Accumulate, TP: S$13.00) will subscribe for excess Convertible Securities and/or excess Rights Shares provided its resultant shareholding will not exceed 49.9% of the enlarged issued share capital of Tiger Airways. We expect a negative initial stock reaction for Tiger Airways, but see a neutral reaction for SIA to this announcement. We will provide more updates after a conference call in the morning.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

In our previous morning commentaries, we suggest clients to keep a look out for Kuroda’s maiden monetary policy comments this week as that might provide a short-term boost to the Nikkei. Indeed, it did. The Nikkei continued to rally after BoJ Governor nominee Kuroda expressed his commitment to end deflation asap, reaffirming Abe’s plans of aggressive monetary policy.

What’s next? Beware; the Nikkei 225 might eventually “sell the fact”.
Furthermore, the Nikkei might struggle to clear the 14,000 resistance level as a weaker Yen (or specifically cheap credit and fiscal pump priming) is definitely not the panacea to Japan’s structural problems- to end the deflationary cycle and kick start the virtuous cycle of investment. It will be an uphill task -especially without other micro reforms-to revive the Japanese economy that has been plagued by prolonged deflation and unfavourable demographics. Furthermore, there is a significant possibility of 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.

Meanwhile, China’s equity indices saw bloodshed on account of new property tightening measures by the government – which included a hike in down payments as well as mortgage rates (for cities deemed to be ‘overheated’), in addition to the 20% capital gains tax on property transactions.

Looking ahead, we reckon further downward bias for China – HK equity indices in the near term. Specifically, the HSI and HSCEI slipped below their respective 10dma support levels. Meanwhile, the CSI 300 pierced through its 50dma support level and hugged its lower bollinger band.

In the US, the S&P 500 and DJIA shrugged off the sequestration and marched higher to just a whisker away from their record highs, on track to challenge their strong technical resistance levels of 1575 (triple top) and 14200 (double top) respectively.

Psst..but Italian yields crept higher by 9bps to around 4.9%, in view of the political impasse there where reform commitments are under threat.

STI collapsed below 3250 support level and pierced through its 50dma support level, portending possibly further downside ahead. Near-term support now pegged at 3200 level.

STI might take cue from risk events ahead for this week: (i) developments on the political impasse in Italy, (ii) China's 5th March National People’s Congress where the government's 2013 economic targets will be unveiled. Do look out for announcements of reforms as well as possible property stabilisation blueprint, (iii) central bank meetings this Thurs (Malaysia, EZ, Japan, Indonesia)

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

Macro Data:

In Singapore, manufacturing activity contracted in Feb -albeit marginally- after expanding for the first time in seven months in Jan. Specifically, the headline PMI declined by 0.8pts m-m to 49.4 owing to a slump in new orders as well as output. By contrast, electronics PMI rebounded to expansionary territory, registering a 2.2 pts m-m increase to 52.1 in Feb.

In the EZ, producer price inflation eased from 2.1% y-y in Dec to 1.9% in Jan (the lowest level in 6 months),  on account of lower prices of energy and goods.

In Hong Kong, retail sales rose by 10.5% y-y in Jan, exceeding the market expected 9.8% y-y pace, after the 8.8% y-y gain in Dec. The city’s economy has benefited from China’s economic recovery, which we expect to continue lending support to Hong Kong’s domestic economic growth.

In South Korea, inflation rose by 0.3% m-m in Feb, trailing the market expected 0.5% m-m pace, after the 0.6% m-m pace in Jan. On y-y basis, CPI rose by 1.4% y-y in Feb, after the 1.5% y-y pace in Jan.  Bank of Korea Governor Kim Choong Soo said in an interview last month that while the low pace of inflation would in theory allow room for monetary easing, the impact of such a move would be muted because of the abundant liquidity in the market. The central bank kept its benchmark interest rate unchanged at 2.75% for a fourth month on Feb 14. A separate report shows that the nation’s HSBC manufacturing PMI rose to 50.9 in Feb, indicating a mild expansion in manufacturing activities, after the 49.9 reading in Jan.
 
In Australia, building approvals unexpectedly fell by 2.4% m-m in Jan, while the market was predicting a 2.8% m-m gain, after the 4.4% m-m fall in Dec. On y-y basis, building approvals rose by 9.9% y-y, compared to the 9.3% y-y pace in Dec 2012. A separate report shows that the nation’s inflation stepped down slightly to 2.4% y-y in Feb, after the 2.5% y-y pace in Jan. The central bank has said there’s evidence its rate reductions are beginning to take effect.

Regional Market Focus

Singapore
 

• The benchmark STI closed lower to 3,239.95 (-0.90%). The 4.6bn shares traded were worth S$1.7bn in value.  
• Market sentiments were weak with 22 out of 30 index components closing lower for the day. The stock of Tiger Airways opened marginally lower after announcing fund raising plans to raise gross proceeds of S$297mn.  
• Top picks for the year are Pan United (Buy, TP: S$1.21), 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. 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 SET index zigzagged between positive and negative territory on Mon. Concerns over US automatic sequestration cuts and China’s stricter measures to cool its property market weighed on sentiment across Asia but the main index however managed to finish the session slightly higher.
• The extreme level of volatility continued to be the name of the game in the Thai stock market but overall sentiment remained strong. Yesterday the SET index managed to finish the day slightly higher, bucking losses in other Asian bourses and foreign buying spree in Thai stocks continued but in a small amount. We believe the rebound is likely to continue today as other regional markets regained ground this morning and technical indicators pointed to a rebound. The upside may however be limited as investors remained cautious in trading amid economic uncertainties in the US, Europe and China and a continued sharp fall in global oil prices would weigh on energy stocks. PTT, the biggest market-cap stock on the Thai stock market will also trade ex-dividend (XD) of Bt8/share tomorrow. Overall we expect the SET index to trade in a range of between 1535 and 1550 today.
• In the near term, investors could continue to selectively buy stocks with focus on dividend plays.
• Today we peg resistance for the SET index at 1545-1555 and support at 1537-1530.

Indonesia
 

• Most Indonesian stocks declined on Monday (04/03), as the majority of stock markets in Asia fell after China imposed regulations to put halt on climbing home prices. The Jakarta Composite Index (JCI) plunged 50.152 points, or 1.04%, to close at 4,761.461. The decline included eight of the 9 major industry groups, led by financial sector with 1.83%-loss, infrastructure sector with 1.43%-drop, and infrastructure sector with 1.43%-decline. The majority of Indonesia’s blue-chip shares also dropped on Monday, as the LQ45 index shed 9.819 points, or 1.19%, at 818.152, with 26 of its 45 components ended in negative territory. More than 170 shares plummeted, 79 shares climbed, and the remaining 217 shares finished unchanged Monday on the Indonesia Stock Exchange, where 5.609 billion shares worth IDR 5.568 trillion changed hands on the regular board. Foreign investors accumulated net purchases worth IDR 208.29 billion in total.
• The Jakarta Composite Index will likely to rebound moderately today, as higher closes on US markets may lift sentiments in Asia. We are looking at 4,696 and 4,858 as the composite index’s support and resistance in today’s sessions.

Sri Lanka
 

• The Colombo Bourse dips amidst selling sentiment…
• The Colombo bourse concluded the first trading day of the week on a negative sentiment amidst heavy selling pressure and sluggish participation of the investors which prevailed throughout the day. The benchmark ASPI Index closed at 5,631.89 losing 20.80 points or 0.37%; the S&P SL20 Index stood at 3,203.78 dropping 3.07 points or 0.10%. As at the day’s closure, the market capitalization stood at LKR 2.16Tn recording a year to date loss of 0.18%.The aggregate turnover for the day amounted to LKR 1.08Bn; this was an increase of 59.70% compared to the prior trading day. During the day, shares totaling up to 19.40Mn changed hands  noting an increase of 17.76% against the previous trading day. Price losers outperformed the price gainers by 121:57. The foreigners appeared to be bullish during the day resulting in a net foreign inflow of LKR 858.31Mn; resulting in a year to date net foreign inflow of LKR 319.24Mn, an inflow since the 29th of January. On the Foreign Exchange front, the USD closed the day at LKR 129.05/- selling and LKR 125.89/- buying.

Australia
 

• The Australian share market on Monday finished sharply weaker dragged down by resources stocks that went ex-dividend, including mining heavyweight BHP Billiton. Every sector, except property, finished in the red as transport groups Brambles and Toll also traded ex-dividend.  At the close, the benchmark S&P/ASX200 index was 75.6 points, or 1.49 per cent, down at 5,010.5.
• Today (05/03/13), the local market looks set to open higher after falling sharply on Monday dragged down by the resourses sector and following mixed results on international bourses. The SFE Futures 200 is pointing upwards 45 points or 0.89 per cent to 5,066.
• In economic news on Tuesday, the Reserve Bank of Australia December board has its monthly board meeting to make its interest rate decision. The Australian Bureau of Statistics releases the balance of payments and international investment position for December quarter along with retail trade data for January and government finance statistics for the December quarter.  Meanwhile, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) for month just ended is due out, while the Insurance Council of Australia is slated to hold a regulatory update with a panel discussion featuring APRA member Ian Laughlin and IAG direct insurance chief executive Andy Cornish.  
• Locally, no major equities news is expected on Tuesday.

Hong Kong
 

• Local stocks slumped. The HSI and HSCEI dropped 342 points and 239 points to 22537 and 1104 respectively. Market volume was 82.837 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 22500 level, major resistance will be 23000 level.

Morning Note

Company Highlights

CSC Holdings Ltd announced that it has secured foundation contracts aggregating in excess of $100 million in the past 4 months.  Total contracts secured since the start of the current financial year has exceeded $400 million. Among the notable awards are foundation contracts for the Klang Valley Mass Rapid Transit (“KVMRT”) projects in Malaysia, whereby  the Group will construct diaphragm walls, bored piles and install foundation piles via the jack-in method at Bukit Ria MRT station, as well as a launching shaft for the MRT  project.  Construction is expected to commence in March 2013 and be completed by mid 2013. (Closing price: S$0.117, -2.500%)

Sunright Limited announced a profit guidance for the first half financial year ended 31 January 2013. Based on the preliminary financial figures available, the Group is expected to report a loss for the 1HFY2013 compared with a profit for the corresponding period in 2012. This is mainly attributable to weaker sales in burn-in, testing and electronic manufacturing services segment and provision for impairment on certain assets with excess capacity.  (Closing price: S$ -, -%)

China Minzhong Food Corporation Limited announces the increase in shareholding interests by PT Indofood Sukses Makmur Tbk (IDX: INDF) (“Indofood”) from 14.95% to 29.33% of the Company’s total issued share capital, through the acquisition of 94,245,382 shares from Tetrad Ventures Pte Ltd at S$1.12 per share. (Closing price: S$1.19, -0.833%)

Phileo Capital Limited has  agreed  to acquire pursuant to a married deal an aggregate of 65,000,000 ordinary shares  (the  "Shares")  in  the  issued and  paid-up  capital  of  HSR  Global  Limited (the  "Company"),  representing  approximately 65.99% of the total number of issued Shares, of which 55,000,000 Shares are owned by Ms. Lim Sook  Lin and  10,000,000  Shares  are  owned  by  Mr.  Liew  Siow  Gian  Patrick, at  a consideration of S$0.21 per Share (the "Acquisition"). As a result of the Acquisition, the Offeror is required to make a mandatory unconditional cash offer (the "Offer") for all the remaining Shares, other than those Shares owned, controlled or agreed to be acquired by the Offeror as at the date of the Offer (the "Offer Shares"), pursuant to Rule 14 of the Singapore Code on Take-overs and Mergers (the "Code"). For each Offer Share: S$0.21 in cash. (Closing price: S$ -, -%)

Source: PhillipCapital Research - 05 Mar 2013