Morning Market Commentary

- STI: +0.39% to 3361.9                                 - SET: +0.13% to 1584.9
- JCI: +0.43% to 4999.8                                 - KLCI: -0.19% to 1707.97
- HSCEI: -0.45% to 10785.6                          - Hang Seng: +0.15% to 22580.8
- Nikkei 225: -0.30% to 13884.1                    - ASX200: +0.44% to 3403.5
- India NIFTY: +0.56% to 5904.1                  - S&P500: +0.72% to 1593.6

OCBC – 1Q13 results 1st take
By Ken Ang

OCBC reported 1Q13 Net profit of S$696 million, a decline of 12% y-y, but 5% increase q-q. NIMs were a negative, declining from 1.70% to 1.64% q-q. At first look, this was due to weaker pricing power and lower interest on interbank balances, mitigated by lower expenses incurred on deposits and other borrowings. Loans growth was healthy at 3% q-q, while CASA deposits continue to grow positively. Fees and commission q-q increase was driven by strong wealth management performance. Other non-interest income was lower q-q due to weaker net trading income. Asset quality remains healthy, with NPLs declining from 1.0% to 0.7% q-q.

OCBC’s results were in-line with our forecast of S$693 million. The decline in NIMs was mitigated by stronger loans growth and lower cost of funding. Net interest income was therefore within expectations. The weaker-than-expected net trading income was mitigated by extremely low loans allowance. More details will be provided in our report after the management briefing held later in the day.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

We have said the global economy is in a soft patch. But what is the extent of this weakness? We will get a better sense ahead of the data dump this week (various regional PMI releases, ECB and Fed policy rate decisions as well as US non-farm payroll data).

But markets have shrugged off the soft patch, likely in anticipation of further liquidity boost from G4 central banks. Specifically, the S&P 500 continued to rise to a record high on Mon. Household consumption -after stripping out weather-related boost- has eased along with a deceleration in personal income, corroborating with our view that the US economy is entering a soft patch owing to the payroll tax hike, sequester and a sluggish labour market. However, forward looking indicators suggest that the 2H will be stronger – investment, housing are still on positive trends, plus the trade deficit is narrowing steadily. Thus we maintain OW on the US with one eye that any correction represents a buying opportunity.

In Italy, the formation of the Italian government removes the uncertainty overhang and Italian equities have responded emphatically, with 10yr bond yields declining. But we are skeptical as we reckon that odds are high that this positive market sentiment might dissipate. The new government will once again face the same difficulties in guiding the Italian economy through the much-needed structural reforms.

In China and Japan, markets were closed for public holidays on Mon.

Softer US data will likely cap the ascent of the USD/JPY to below the 100 level –which has remained elusive thus far. Also with BoJ possibly keeping its gun powder dry after its shock and awe campaign earlier in April, there might be a lack of impetus for the Nikkei to decisively clear above the 14,000 level for now. Nonetheless, we are cautiously optimistic about Japan (Nikkei) as we are seeing incipient signs of attempts at implementation of structural micro reforms (economic and fiscal) which are essential ingredients for a structural bull run in Japan to materialise.

Main key risk event ahead will be the release of China’s PMI on 1 May, though markets will have the public holiday to digest the news before reacting on 2nd May. While we expect manufacturing activity to continue to expand in April, the pace of expansion will likely have eased on the back of weak April export orders.

As shared during our Mon webinar yesterday, we are seeing sign of a bullish upturn in the HSI. HSI looks set to challenge the 23k level next after breaking above the 22.5k key resistance level as well as 50dma.

STI continues to trudge towards fresh highs (5yr high).  Looking ahead, STI is on track to challenge the 3400 psychological hurdle and subsequently 3485 peak as long as it remains above 3250 key support.

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

Macro Data:

In US, the mild increase in consumer spending during March suggest that economic growth is losing momentum. Specifically, personal consumption expenditures (PCE) gained 0.2% m-m sa in March, easing from a 0.7% increase in the preceding month. Personal income decelerated from 1.1% in Feb to 0.2% in March, owing to softness in the labour market. The PCE price index also moderated from 1.3% y-y in Feb to 1.0% in March, almost half of the Fed's target (~2%). Recall the Uni. of Michigan consumer sentiment index was revised upwards by 4.1pts from prelim estimates to 76.4 in April, but still declined 2.4pts m-m from March. (by Ng Weiwen)

In Euro zone, economic confidence index fell to 88.6 in Apr, more than the market has expected, after the 90.1 reading in Mar. Business confidence and investor sentiment in Germany, Europe’s largest economy, dropped more than expected in April. European Central Bank President Mario Draghi said on April 19 that the economic situation in the bloc hadn’t improved since the beginning of the month. At the same time, Draghi expects the economy to recover from a recession later this. A separate report shows that Germany’s CPI grew by 1.0% y-y in Apr, slower than the 1.3% y-y pace in Mar. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI traded above its trading range to close at 3,348.87 (+0.33%). The 2.2bn shares traded were worth S$1.4bn in value.
• Our analyst maintained his positive view on Capitaland and expects strong revenue recognition in the next 2yrs due to sales achieved over the past quarters. Continued interest in dividend yielding stocks has prompted our analyst to upgrade his recommendation on M1 to Accumulate (previously Neutral).
• 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

• Thai stocks rose as much as 10 points at the open on Mon before the composite SET index gradually gave up earlier gains throughout the session as concerns about possible measures from the Bank of Thailand, which will hold a special meeting today to stem the rapid rise of the baht weighed on investor sentiment.
• Lots of wild swings are likely to continue in the Thai stock market today. External factors look favorable on better-than-expected US housing data and new Italian government but possible baht measures would continue to keep investors on edge.
• Foreign and institutional sell-offs in Thai shares with institutions building up heavy short positions in futures yesterday may likely put a cap on potential market gains and bring a lot of volatility to the market especially when the composite SET index approaches a key psychological level of 1600.
• Resistance for the composite SET index is seen at 1587-1600 and support at 1576-1564 today.

Indonesia

• The Jakarta Composite Index (JCI) moderately gained on Monday (29/04), along with most stock markets in Asia that pushed higher as cautious investors bought into shares ahead of key global economic data this week. The JCI added 21.245 points or 0.43%, to close at 4,999.752, after briefly reaching the intraday high at 5,001.887. The advance on Monday included six of the 9 major industry sectors, led by Miscellaneous Industry sector which jumped 2.20%, followed by Basic Industry sector with 0.88%-gain, and Construction, Property and Real Estate sector with 0.79%-advance. The LQ45 index rose 6.501 points or 0.77%, at 848.435, with 22 of the 45 blue-chip shares finished in green. Shares of Astra International (ASII) reclaimed 2.78%, and finished at IDR 7,400, after falling significantly in the past two trading days. 121 stocks rose, 132 stocks fell, and 218 shares unchanged Monday on the Indonesia Stock Exchange. Volume on the regular board reached 3.6 billion shares worth IDR 3.8 trillion. Foreign investors’ transactions accumulated to a net purchase of IDR 102.971 billion.
• The Jakarta Composite Index (JCI) will likely trade sideways today, as investors may take cautious stance amidst mixed leads from US markets overnight and negative starts in Asia today. Indonesian government’s decision to increase fuel price which will be effective on May 1 may also prompt profit takings today. We expect the Jakarta Composite Index (JCI) to trade sideways with negative bias, and move with support and resistance at 4,973 and 5,015 respectively.

Sri Lanka

• The Colombo bourse concluded the day with an optimistic outlook resulting in both indices closing within the green terrain. Favorable movements were observed prior to mid-day mainly as a result of the lively participation of the investors, thereafter the positive trend reversed mainly as a result of the selling pressure being observed which could have possibly arisen due to the profit taking behavior of retail investors. The benchmark ASPI Index closed positive for the 4th successive trading day at 5,967.62 having gained 5.45 points or marginal 0.09%. The S&P SL20 Index too closed positive for the 5th consecutive day at 3,363.14 indicating an upsurge of 3.78 points or 0.11%. The recorded turnover for the day amounted to LKR 846.57Mn indicating a drop of 37.06% against the prior trading day. During the day investor attractions were vastly on Bank Finance & Insurance (BFI) sector with 2,741 trades out of the total 12,810 trades been noted hence assisting BFI emerge on top under the sectorial summary having provided LKR 197.32Mn which alone accounts to 23.31% of the day’s total turnover. Construction & Engineering (C&E) also made a noteworthy contribution worth LKR 154.24Mn. The two sectors BFI & C&E collectively made a 41.53% subscription to the total turnover. During the day, a total of 65.32Mn shares changed hands resulting in a drop of 38.08% against the previous trading day. Price losers outperformed the price gainers by 134:76. Foreign participants appeared to be bullish during the day for the 2nd successive trading day resulting in a net foreign inflow of LKR 114.95Mn while extending the year to date net foreign inflow to record LKR 8.70Bn. In regard to the local FOREX market, the USD closed at LKR 128.35/- selling and LKR 125.30/- buying.

Australia

• The Australian share market on Monday closed on a positive note as the four major banks lifted the market. The benchmark S&P/ASX200 index was 28.3 points higher or 0.56 per cent to 5,125.8 points.
• Today (30/04/13), the Australian market looks set to open higher following gains on international markets after the formation of a new government in Italy boosted confidence in the debt-riddled euro zone. The SFE Futures 200 is pointing upwards 21 points or 0.40 per cent to 5,150 points.
• In economic news on Tuesday, the Reserve Bank of Australia (RBA) is due to release financial aggregates for March data.
• In equities news, ANZ Bank is expected to post half-year results, the NSW Supreme Court is expected to rule in Nathan Tinkler matter. Tinkler's Mulsanne Resources has been taken to court after failing to pay for a $28.4 million stake in junior coal miner Blackwood Corporation. Houseware products marketer McPherson's has its general meeting.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI rose 33 points and dropped 48 points to 22580 and 10785 respectively. Market volume was 42 billion.
• Even the HSBC PMI in April was lower than market expectation, investors may concern the growth of China may slowdown. We believe the market is going to rebound due to China’s CPI in March is lower than market expected and stocks recovered, especially for the Mainland insurance and cement sectors, investors expected the level of tighten monetary policy will not be further enhanced, we believe HSI will start a wave of rebound in short term.
• However investors are suggested to maintain attention to the development of two Korea conflicts, which is a major uncertainty to the market recently, we suggest a cautious bullish view in short term. 
• Technically, the HSI is expected to gain a support from 21800 level, major resistance will be 22800 level.

Morning Note

Company Highlights

Armarda Group Limited advised that the Group expects to remain loss making for 4Q2013 and report a loss for the financial year ended FY2013 ended 31 March 2013. The loss relates inter alia, operational losses as well as possible impairment for investments and assets. (Closing price: S$0.024, -4.000%) 

Sinostar PEC Holdings Limited issued a profit guidance with respect to its first quarter results ended 31 March 2013. Based on a preliminary review of the unaudited financial results, the Group is expected to report a loss for 1Q2013. Price volatile especially for gasoline and diesel oil products contributes to weak overall markets demand during the first quarter of financial year 2013. Furthermore, festive holiday seasons also reduce overall sales of the refined oil products.  (Closing price: S$0.105, -%)

Thakral Corporation Ltd announced that that the Group anticipates to report an overall marginal loss for the first quarter of FY2013. The Group is taking all necessary measures to return to profitability. The Investment Division has already embarked on a major new project in the current year, and its pipeline of present and potential investments is expected to result in increased contribution towards the financial performance of the Group in FY2013. (Closing price: S$0.032, -3.030%)

Tiger Airways Holdings Limited (Tiger Airways) today announced the appointment of Rob Sharp as the new CEO for Tiger Airways Australia Pty Limited (Tiger Australia).  Rob will commence work at Tiger Australia on 1 May 2013.   (Closing price: S$0.66, -2.222%)

Combine Will International Holdings Limited announce that, in view of a slowdown in sales due to lower consumer demand, the Group expects its overall revenues and earnings to be lower in the first quarter ended 31 March 2013 (“1Q2013”) as compared to the corresponding financial period in 2012. Accordingly, based on the information currently available, the Group expects to record a loss for 1Q2013. (Closing price: S$-, -%)

Hu An Cable Holdings Ltd announced that the Group expects its overall revenues and earnings to be significantly lower for the three months ended March 2013 (“1Q2013”) as compared to the three months ended 31 March 2012 (“1Q2012”), and will report a loss for 1Q2013. This was mainly due to: i) the decrease in sales volumes of cable and wire products, copper rods and aluminium rods as a result of China’s economic slowdown; and  ii)  the overall increase in expenses due to the full operation of the Group’s new plant in Yixing City, Jiangsu Province. (Closing price: S$0.126, -8.696%)

The construction order book of Lian Beng Group has reached a new high of S$1.2 billion after being awarded three new contracts worth a total of about S$211 million. (Closing price: S$0.530, +1.923%)

Source: PhillipCapital Research - 30 Apr 2013