Morning Market Commentary

- STI: +0.13% to 3321.8                                     - SET: -1.94% to 1520.5
- JCI: +0.49% to 4981.5                                     - KLCI: +0.02% to 1685.4
- HSCEI: -0.49% to 10758                                 - Hang Seng: -0.14% to 22337
- Nikkei 225: +2.99% to 12362                         - ASX200: -0.68% to 4923.9
- India NIFTY: -1.31% to 5672.9                        - S&P500: -1.05% to 1553.7

Pan United (S$0.935, TP:S$1.21):
By Joshua Tan, Head of Research

An announcement by Macquarie Int’l Infrastructure Fund (MIIF) to list its key asset Taiwan Broadband Communication takes Pan United (PUC) one step closer to what we believe to be a catalyst for it – that MIIF may soon also divest its 38% stake in Changshu Xinghua Port (CXP) to PUC, who owns 51.3% of CXP. PUC has right of first refusal. While we reckon that PUC has the balance sheet for an all cash deal, which would be EPS accretive of about S 1c (our FY13f EPS: S$0.087), it would all depend on an agreeable valuation at the end of the day for it to happen.

MARKET OUTLOOK:
By Joshua Tan, Head of Research

The STI is looking promising as the uptrend is re-asserting itself again after a long consolidation at 3300, now having closed above the 3320 cycle high. We like the chart pattern and would pick this index for building long trading positions.

The S&P500 sold off 1%, but we reckon its more a reaction against Tuesday’s all time closing high of 1570.25 than the fact that services PMI and the ADP private payrolls came in below expectations (see macro data). The consensus is for this Friday’s non-farm payrolls to come at 200k – tall order if you ask me given that 1H GDP growth is going to be weaker than the 2H. Short term gyrations aside in all likelihood we are headed higher this year.

The near term bias for the CSI300, HSCEI is still lower as markets there continue to reel from the wave of tightening in property and shadow financial services. The real economy in China continues to gain traction though as services PMI corroborates. The Hang Seng has regained some footing compared to the other two.

The Nikkei (MW) has put in an interim top which suggests some “selling of the fact” already in anticipation of the 4th April meeting perhaps disappointing. Thus a positive meeting now could therefore spark a resurgence. Japan is seeing economic rebounds in both manufacturing and services.

In ASEAN, the SET took a tumble as the central bank voiced concerns of a property bubble. We will consult our Thai Research colleagues on the significance of this latest development and update clients accordingly.

Global manufacturing is holding up well, with the US, China, Japan and Asia posting expansionary data points. EZ however remains mired in contraction. We continue to be overweight equities, marketweight bonds, marketweight commodities, underweight gold for 2013.

(All equity indices mentioned in this note are tradable with Phillip CFDs or ETFs – see Global Macro Asset Strategy reports; As for stocks/sectors in focus please see our Equity Strategy reports)

Macro Data:

In US, ISM non-manufacturing PMI reported a decline to 54.4 in March, down from the one year high of 56.0 in Feb, indicating a slower expansion in the nation’s service industry. The reading is below the market consensus 55.5. A separate report shows that US companies added 150,000 to the payroll in Mar, marking the smallest gain since Oct last year, compared to a market expected 200,000 gain and a revised 237,000 in Feb. The shortfall is mainly attributable to the stagnation of hiring in construction sector as the boost from rebuilding efforts following superstorm Sandy faded.

In Euro zone, inflation fell slightly to 1.7% in Mar, less compared to the market expected 1.6% pace, after the 1.8% reading in Feb. The ECB’s Governing Council meets later today to decide on action on benchmark interest rate, which is currently at historical level of 0.75%, after a month in which euro-area leaders fumbled a bailout of Cyprus and the euro fell to its lowest level of the year against the dollar. ECB President Mario Draghi said on March 7 that underlying price pressures remain contained, with an average inflation rate of about 1.6 percent forecast for this year given the weak economy.

In China, official non-manufacturing PMI rose to 55.6 in Mar from 54.5 in Feb, indicating a faster expansion in the nation’s services sector. This improvement is aligned with the reading of HSBC service PMI, which reported 54.3 in Mar, after the 52.1 reading in Feb. These readings, together with the earlier announced improvement in manufacturing PMIs add to our case that the nation’s economic recovery is continued.

In Singapore, manufacturing PMI rose to 50.6 in Mar, beating the market expected 49.8, after the 49.5 reading in Feb. The reading indicates a mild return of manufacturing sector to expansion territory from the slight contraction earlier. The sub reading for key electronics sector eased slightly to 51.9, while the market was expecting an improvement to 52.5, after the 52.1 reading in Mar, but still marks a growth for a second straight month.

In Thailand, the central bank held the benchmark interest rate unchanged at 2.75% for a 4th straight meeting, citing it would be vigilant about asset-price risks, even as the government calls for monetary easing. Given the central bank is concerning about credit growth due to the rising inflow and the long term inflation outlook, the central bank is likely to stay put despite the pressure from the government.

Regional Market Focus

Singapore

• The benchmark STI remain stuck in a range with little material movement. The index closed at 3,321.77 (+0.13%). The 3.3bn shares traded were worth S$1.4bn in value.
• A catalyst is in sight! Our analyst believes that Macquarie Infrastructure Fund would soon divest its 38% stake in Changshu Xinghua Port to Pan United, which could be a catalyst for the stock. 
• Top picks for the year are Pan United (Buy, TP: S$1.21), SIAEC (Buy, TP: S$6.10) & Boustead Singapore (Buy, TP: S$1.80). 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. There are hidden gems within Boustead Singapore and we believe that the stock would continue to re-rate as the market appreciates the economic moat in its businesses.

Thailand

• The composite SET index finished the session down 30.02 points at 1,520.52 points on Wed after BOT’s decision to leave policy interest rate on hold at 2.75%, citing the risk of property bubbles and due to domestic political tensions.
• More volatility could be in store for Thai stocks today and the bias will remain to the downside on domestic worries and overnight sharp falls in US equities and commodities markets after data showed the pace of growth in the vast US services sector slowed in Mar to the lowest level in seven months and private-sector jobs showed less than expected hiring in Mar. We advise investors to pare back equity holdings to 30% of the short-term portfolio from 50% to limit risk exposure.
• Today all eyes will be on policy meetings of major central banks especially BOJ, which will holds its first policy meeting under a new governor amid expectations of more aggressive monetary easing.
• Today we peg resistance for the composite SET index at 1532, 1540 and support at 1508, 1480.

Indonesia

• Most stocks listed on the Indonesia Stock Exchange finished in green on Wednesday (03/04), amidst mixed closes on stock markets in Asia. The Jakarta Composite Index (JCI) rose 24.215 points, or 0.49%, at 4,981.466. The advance included six of the 9 major industry groups, led by infrastructure sector that surged 2.26%, mining sector gained 1.35%, and financial sector added 0.39%. 21 of the 45 blue-chip shares advanced on Wednesday, bringing the LQ45 index to 843.491, up 6.475 points, or 0.77%. Shares of Astra Agro Lestari (AALI), a plantation unit of Astra Group, rose 100 points, or 0.55%, at IDR 18,400, after reporting 0.86% increase in 2012 profit to IDR 2.52 trillion. 120 shares rose, 140 shares fell, and 213 shares stagnated Wednesday on the Indonesia Stock Exchange, where 7.27 billion shares worth IDR 6.08 trillion traded on the regular market. Foreign investors posted net purchase of IDR 554.65 billion. The Rupiah fell 7 points, or 0.07%, at 9,745 per US dollar. Indonesian government 10-year bond yield dropped 2.9 basis points, at 5.558%.
• The Jakarta Composite Index (JCI) potentially will decline today, following leads from US markets overnight and Asia markets this morning that turned lower. We estimate the composite index to trade lower, with support and resistance at 4,934 and 5,009 respectively.

Sri Lanka

• The Colombo Bourse concludes on a mixed note. The Colombo bourse closed the day on a mixed sentiment resulting in the indices to float between both spaces in many times. The benchmark ASPI Index closed within the red terrain for the 5th successive trading day at 5,704.62 losing tiny 0.58 points or 0.01%.However, the S&P SL20 Index closed positive at 3,289.37 indicating an upsurge of 7.74 points or 0.24% having closed red for two consecutive trading days. The turnover for the day totaled up to record LKR 1.01Bn indicating a significant increase of 150.72% against the prior trading day. Bank Finance & Insurance (BFI) and Diversified Holdings (DIV) topped the list under the sectorial summary contributing LKR 488.20Mn and LKR 356.97Mn respectively, while collectively making an 83.61% contribution to the daily aggregate turnover. Further BFI turned out to be the highest traded counter under the sectorial review with 1,867 out of the total 4,317 trades being recorded for the day. During the day, a total of 14.54Mn Shares changed hands resulting in a drop of 5% against the previous trading day. Price losers outpaced the price gainers by 97:65. Foreign participants appeared to be bullish during the day for the 2nd successive trading day resulting in a net foreign inflow of LKR 339.62Mn, while extending the year to date net foreign inflow (LKR 5.32Bn) to cross the 5Bn mark for the first time during the year 2013. In regard to local FOREX market, the USD closed at LKR 128.10/- selling and LKR 124.95/- buying.

Australia

• The Australian share market closed lower on Wednesday as institutional investors looked to lock in profit following a strong performance in early 2013. The benchmark S&P/ASX200 index fell 27.8 points, to 4,957.7.
• Today (04/04/2013), the Australian market looks set to open lower after falls on Wall Street. The SFE Futures 200 is currently pointing downwards 21 points or 0.42 per cent to 4,933.
• In local economics news for Thursday, the Australian Industry Group will release its Performance of Services Index. The Australian Bureau of Statistics (A.B.S) will also release retail trade and building approvals figures.
• In equities news, Macquarie Atlas Roads will hold its annual general meeting.

Hong Kong

• The Hong Kong market is closed for a public holiday.

Morning Note

Company Highlights

Lian Beng Group has secured two construction projects amounting to S$201 million, for the building of two multiple-user light industrial developments for Oxley Holdings Limited. One contract, worth S$112 million, involves the design and erection of a multiple-user light industrial development comprising a block of nine-storey factory building, staff canteen and other facilities at a land plot bordered by Sunview Road, Jalan Buroh and Pioneer Road. The construction for this project is expected to commence in April 2013 and will take about 24 months to complete. The other contract, worth S$89 million involves the design and erection of a three-storey building and a seven-storey building forming a multiple-user industrial development with ancillary staff canteen and substation at a land plot bordered by Tampines Industrial Crescent, Tampines Avenue 10 and Tampines Expressway. Similarly, the construction for this project is expected to commence in April 2013 and will take about 24 months to complete. (Closing Price: S$0.450, -1.099%)

Logistics Holdings has been awarded 2 contracts amounting to S$50.9 million by the Housing & Development Board. Both contracts are for the designing and building of electrical substations and switch rooms, and to carry out related works in Clementi, Aljunied and Eunos. Both contracts are not expected to have any material impact on the net tangible assets per share and earnings per share of the Group for the current financial year ending 30 June 2013. (Closing Price: S$0, 0%)

Sunlight Group has entered into a placement agreement with UOB Kay Hian Pte Ltd and Canaccord Genuity Singapore Pte. Ltd. for the placement of up to 130,000,000 new ordinary shares in the capital of the Company at an issue price of S$0.038 for each placement share to raise gross proceeds of up to S$4,940,000 on a best efforts basis. If fully issued, the placement shares will represent approximately 49.8% of the total number of issued shares of 260,935,000. Sunlight Group intends to use the net proceeds from the placement to fund possible acquisitions and/or investments when opportunities arise and for general working capital purposes. (Closing Price: S$0, 0%)

Yoma Strategic Holdings has through its wholly-owned subsidiary SPA Project Management Pte. Ltd. (“SPA PM”) entered into a shareholder’s agreement to form a joint venture with Dragages Singapore Pte Ltd (“DSPL”). The joint venture company BYMA Pte. Ltd. (“BYMA”) is 60% held by DPSL and 40% held by SPA PM. BYMA will combine the design expertise and local knowledge of SPA PM with the large-scale international construction experience of DSPL. BYMA will construct 1,043 apartments, and associated areas, of the Zone B condominium development in Star City in Myanmar. At a total cost of approximately US$94 million, construction works are targeted to commence by the end of April 2013 and will last for around 33 months. (Closing Price: S$0.755, -0.658%)

Macquarie International Infrastructure Fund has proposed the divestment and spin-off of its 47.5% interest in Taiwan Broadband Communications, at a minimum valuation of $469.5 million payable in units that will be listed and traded on SGX. Special General Meeting will be convened to seek shareholder approval. (Closing Price: S$0.575, -0.877%)

Source: PhillipCapital Research - 4 Apr 2013