Morning Market Commentary

- STI: +0.03% to 3383.2                                 - SET: +1.41% to 1601.2
- JCI: +1.02% to 5042.8                                 - KLCI: +1.41% to 1776.73
- HSCEI: +1.03% to 11115                            - Hang Seng: +0.58% to 23047.1
- Nikkei 225: +3.55% to 14180.2                   - ASX200: +0.46% to 3451.5
- India NIFTY: +1.21% to 6043.6                  - S&P500: +0.52% to 1625.96

Wilmar 1Q13 Update: First take
By Nicholas Ong, Investment Analyst

Wilmar International Limited’s (Accumulate, TP: S$3.70) 1Q results were in-line with expectation; albeit 1Q13 revenue fell 3% yoy and 12% qoq) to US$10.2bn, meeting 21% of our full-year forecast, net profit rose 23% yoy (but fell 34% qoq) to US$315mn; core profit rose by a larger 53% yoy to US$314mn, meeting 24% of our FY12 forecast. While volumes have increased in 1Q13, we note that Wilmar saw weaker margins in Palm & laurics (which turned in resulted in a 7% yoy drop in PBT at US$219mn); Plantations also posted lower PBT of US$72mn (-27% yoy) on lower CPO selling price. That said, Wilmar saw improved margins from Consumer products as well as Oilseeds & grains segments; sugar also posted a lower loss of US$9.5mn before tax versus US$47.9mn in 1Q12, mainly due to higher earnings from merchandising & processing activities. More details will be provided in our report after the management briefing held later in the day.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Some might be baffled: Why have equities rallied and hitting record highs amid a slowdown in the global economy? Well, with Australia joining the race to debase with a 25bps rate cut yesterday, currencies are largely consolidating and most pairs are trapped in a range. This contrasts with the equity rally which has been trending higher. Thus, investors are likely to be more attracted to hopping onto the equities bandwagon as compared to participating in the staid currency markets.

Amid a lack of key US macro data, the DJIA continued to drift higher, ending the session above 15k ( a record high!). Ditto for the S&P500 which stayed above the psychological 1600 resistance (record high).

While we are cognisant that the global economy is in a soft patch, we are still OW equities as (i) economic activity has not really fallen over the cliff (ii) tail risks have actually receded and (iii) G4 central banks are undertaking synchronised monetary easing. Thus, equities should still command a decent risk premium over fixed income (specifically Treasuries and investment grade issues).

Even if markets sell off in May, please don’t go away. Pull-back in equities offers an attractive opportunity to accumulate our OWs in US, China-HK and ASEAN economies such as ID, PH, TH and SG.  

In Japan, the Nikkei gapped up on Tues, clearing the psychological 14k resistance to register a multi-year high. But we wish to highlight that this might be a knee-jerk reaction as markets might be responding to last Friday’s better-than-expected US non-farm payrolls data  when markets re-opened after the Golden week holidays. Though the USD/JPY 100 level remains elusive, we are nonetheless 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. Already, there are signs of the Japanese economy humming again with better-than-expected readings in manufacturing (PMI at 13-mth high) as well as household consumption.

In Greater China, the HSI has broken through the 23k level (consistent with our guidance). Looking ahead, the case for a bullish upturn in the HSI remains intact and as long as the HSI remains above the 22k support level, the HSI is on track to challenge the 23.5k level next. Separately, HSCEI broke above the 11k strong resistance level. For both indices, expect the 23k level (HSI) as well as 11k level (HSCEI) to be re-tested again. Upcoming macro risk events ahead- upcoming Chinese trade (today) and inflation (Thurs) data will determine whether the HSI and HSCEI can decisively break above these levels.

For the STI, continue to expect some struggle along the 3400 psychological hurdle. If the 3400 level is decisively cleared, STI is on track to challenge the 3485 peak as long as it remains above 3250 key support.

Key monetary policy meetings tomorrow (9 May): Bank of Korea and Bank Negara will meet and we reckon both central banks are likely to stand pat.

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

Macro Data:

In Philippines, inflation eased (more-than-expected) from 3.2% in March to 2.6% in April (13-month low) on the back of lower commodity prices. Recall the the central bank (BSP) stood pat in April, maintaining the key policy rate while cutting the rate on its special deposit account (SDA) by 50 bps, likely in an attempt to temper the appreciation of the Philippine peso, rather than stimulating growth per se. Looking ahead, the BSP is likely to adopt an interest rate corridor framework with the lower bound being the SDA rate (2%) which is below the reverse repo rate (3.5%). (by Ng Weiwen)

In Australia, RBA cut the benchmark rate by 25 bps to record low at 2.75%, in order to drive down a strong Aussie that has damaged manufacturing and employment. The cut is justified by weak domestic consumption and an increased scope of monetary easing due to eased inflation. According to the central bank governor Glenn Stevens, "a further decline in the cash rate was appropriated to encourage sustainable growth in the economy". (by Roy Chen)

In Taiwan, exports unexpectedly fell by 1.9% y-y in Apr, compared to the market expected 3.1% y-y and prior 3.3% y-y pace achieved in Mar. The drop is mainly attributable to a fall in shipments to UK. The island's economy recorded a 1.54% y-y GDP growth in 1q13 preliminary estimate and the central bank is currently holding benchmark rate at 1.875% for a seventh straight meeting. The eased inflation has granted plenty scope for a benchmark rate cut if necessary. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI closed relatively unchanged at 3,383.16 (+0.03%). The 2.4bn shares traded were worth S$1.7bn in value.
• Our analysts maintained positive views on OUE, ST Engineering & PCRT after their latest results announcements.
• 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 yesterday broke 1600 key resistance to end the session at 1601.15 points, tracking gains in overseas markets, after Thai bourse was closed on Monday and the ECB would further cut its refinancing rate if necessary.
• The market sentiment remains bullish after the 1600 key resistance was taken while several overseas markets hit record highs.
• Chinese trade data is due out this morning which would cause volatility from selling pressure during the session if the data disappoints the market. Technical bearish divergence from MACD would cap any gains. Investors should keep eye on the red-shirt protest against the Constitutional Court, thought the situation appears to be under control.
• ‘Sell into strength and buy on weakness’ is advised until the SETI manages to firmly hold above 1600 and investors may increase investment portfolio to 75%. Key resistance is pegged at 1620 and 1660, respectively.

Indonesia

• The Jakarta Composite Index (JCI) climbed back to above 5,000 on Tuesday (07/05), as stock markets in Asia continued advancing after central-bank decisions and better-than-expected US employment situation data. The JCI rose 50.918 points, or 1.02%, at 5,042.789. Almost all sectors finished in green, except Mining sector that closed 0.06% lower. Construction, Property and Real Estate sector surged 2.47%, Financial sector climbed 1.34%, and Consumer Goods sector gained 1.33%. The LQ45 index added 7.904 points, or 0.93%, to 853.844. For every stock that fell, almost two gained Tuesday on the Indonesia Stock Exchange, where 4.78 billion shares worth IDR 5.42 trillion traded on the regular board. Foreign investors accumulated net sale of IDR 305.13 billion.
• The Jakarta Composite Index (JCI) will likely continue climbing today, as sentiments rise amidst positive closes on US markets overnight that brought the Dow Jones index to a new record high. Moody’s downgrade on Indonesia’s sovereign debt outlook that followed the same move by Standard & Poor’s did not affect sentiments in Indonesia’s stock market on Tuesday (07/05). We expect the JCI to continue advancing today, with support and resistance at 4,966 and 5,081 respectively.

Sri Lanka

• The Bourse continues to move forward. The Colombo Bourse maintained its forward momentum and concluded the day on a positive sentiment. This was mainly as a result of the active participation of the investors and the buying pressure which prevailed throughout the trading day. Within the day, most counters witnessed considerable price appreciations hence the gainer to loser were recorded as 166:48.The benchmark ASPI index gained 1.32% or 80.51 points to close at 6,201.68; this was the highest index value recorded after 14th of November 2011. The S&P SL20 price index stood at 3,511.95 having gained 50.83 points or 1.47%, recording yet another all-time high index value. The market capitalization as at the day’s closure stood at LKR 2.38Tn resulting in a year to date gain of 9.66% and the market PER and PBV stood at 16.76 and 2.28 respectively. The recorded turnover for the day was LKR 1.39Bn resulting in a 66.46% reduction compared to the previous trading day. Under the sectorial summary, Bank Finance & Insurance (BFI) witnessed highest investor interest with 4,335 traded out of the total 16,333 trades being recorded hence topping the list providing LKR 662.88Mn (47.79%). Diversified Holdings (DIV) stood second contributing LKR 254.46Mn.Moreover, the two sectors BFI & DIV collectively made a 66.14% contribution to the day’s total turnover. During the day, a total of 54.45Mn shares changed hands resulting in a drop of 19.25% against the previous trading day. Foreign participants appeared to be bullish during the day for the 7th consecutive trading day resulting in a net foreign inflow of LKR 248.78Mn, while extending the year to date net foreign inflow (LKR 9.21Bn) to cross the LKR 9Bn mark for the first time during the year. In regard to the local FOREX, the USD closed the day at LKR 127.95/- selling and LKR 124.90/- buying.

Australia

• The Australian share market on Tuesday closed lower despite recovering some ground after the Reserve Bank of Australia cut the cash rate by a quarter of a percentage point to a record low of 2.75 per cent. The banks were being sold leading in to the surprise interest rate move and had dragged down the overall market by day's end. The benchmark S&P/ASX200 index was down 12.5 points, or 0.24 per cent, at 5,143.7 points.
• Today (08/05/12), the Australian market looks set to open higher after the Dow Jones closed above 15,000 for the first time and European markets rallied following Australia's central bank rate cut.
• No major economic news is expected on Wednesday.
• In equities news, Sigma Pharmaceuticals has its annual general meeting while Seven West Media hosts an Investor Day in Sydney.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI rose 132 points and 113 points to 23047 and 11115 respectively. Market Turnover 56.73 billion.
• Due to the RQFII details is going to confirm, market expected the total RQFII size will be about 200 billions, Mainland securities corporation outperform the market. Apart form that, the market expected China 4G licenses will be issued on 17th May 2013, favor telecommunication equipment producers, we maintain a cautious bullish view in short term. 
• Technically, the HSI is expected to gain a support from 22800 level, major resistance will be 23800 level.

Morning Note

Company Highlights

TRIYARDS Holdings Limited announced that they have become one of only three Singapore yards able to design and build its own proprietary drilling jack-ups and self-elevating units with the introduction of the new Premium Class 400 HPHT (high pressure, high temperature) Drilling Jack-up Rig, the TDU-400. This latest design comes on the heels of the Group’s recently launched BH 450 series –proprietary-designed 450ft (approx 130m) leg length self-elevating units – and stands as a testament to its strong design and engineering capabilities in the oil and gas sector. (Closing price: S$0.750, 0%)

SingTel’s subsidiary, Optus, confirmed its success in bidding for 4G 700 MHz and 2.5 GHz spectrum, as announced today by the Australian Communications Media Authority. Optus successfully bid for 2 x10 MHz of paired spectrum in the 700 MHz band nationally and 2 X 20 MHz of paired spectrum in the 2.5 GHz band for a total amount of A$649 million, reflecting the reserve price for both spectrum bands. Optus’ approach reflects the growing global trend for multi-band 4G networks, which combines low band 4G frequency for strong coverage with high band spectrum to increase network capacity. With a variety of bands and different Long Term Evolution technologies, Optus will gain the flexibility needed to deal with the growing demand for additional capacity and faster network speeds. (Closing price: S$3.82, -0.779%)

F J Benjamin Holdings Ltd announced that its fashion label, RAOUL, which is also Singapore’s most international fashion label, will be sold in RAOUL stores in China from mid-September this year under a franchise agreement. The agreement with Chongqing-based Budy (Chongqing) Import & Export Trading Co. Ltd, owned by entrepreneur Anderson Wang, is for an initial five years, with an option to renew subject to compliances. Under the agreement, Budy (Chongqing) Import & Export Trading Co. Ltd will open a total of 27 stores in key cities in China including Shanghai, Beijing and Chengdu by 2017. (Closing price: S$0.275, 3.774%)

Global Logistic Properties Limited, one of the world’s leading providers of modern logistics facilities, with a market leading presence in China, Japan and Brazil, today announced that it has leased approximately 48,000 square metres (517,000 square feet) to a number of third party logistics providers at GLP Misato III, a multi-tenant development in Greater Tokyo. These new lease agreements, all catering to domestic consumption, bring the lease ratio at GLP Misato III to 65%, ahead of the projected lease-up schedule and prior to building completion later this month. Four out of the five 3PL providers were new customer relationships for GLP. Tenants were attracted by GLP Misato III’s strong environmental and business continuity features. (Closing price: S$2.900, 0%)

Singapore Exchange and China Beijing International Mining Exchange have signed a Memorandum of Understanding to cooperate in the development of both Chinese and international iron ore markets. CBMX operates the iron ore spot trading platform in China. Under the MOU, both exchanges will jointly explore areas of cooperation including product development, market development and information sharing. CBMX and SGX will also explore a medium-term roadmap towards improvement of interaction and risk-transfer between the spot and derivatives markets. An important “first” in the global iron ore market, this landmark agreement brings together an international derivatives clearing platform with a Chinese physical spot trading platform. The physical iron ore seaborne market in Asia has seen significant growth in the last few years, driven by China’s continued industrial development and consequent demand for steel production. The derivatives market has developed alongside as the complementary risk-management and hedging tool against price volatility. (Closing price: S$7.610, 0.528%)

Interra Resources Limited announced that its jointly controlled entity, Goldpetrol Joint Operating Company Inc., has commenced drilling infill development well YNG 3254 in the Yenangyaung oil field in Myanmar. Interra has a 60% interest in the Improved Petroleum Recovery Contract of the Yenangyaung field and also owns 60% of Goldpetrol which is the operator of the field. YNG 3254 is being drilled using Goldpetrol’s LTO 350 rig and thus drilling costs are expected to be comparatively low. Interra’s share of the cost of drilling will be funded from existing funds on hand. Interra estimates that the results of the drilling and completion should be available in approximately six weeks. The Company will announce the results as soon as they may be ascertained. (Closing price: S$0.470, 1.075%)

AusGroup Limited has entered into a conditional Sale and Purchase Agreement under which the Company has agreed to purchase 100% of the share capital in Kebun Sedenak Sdn Bhd and 100% of the share capital in Tropik Sentosa Sdn Bhd. The signing of the SPA is a key step in the proposed demerger of AusGroup’s subsidiaries into a 100%-owned subsidiary, which is intended to be listed on the Australian Securities Exchange (ASX),and a proposed Reverse Take Over of AusGroup Limited involving the acquisition of the Target Holding Companies. The purchase consideration under the SPA will be via the issue of new ordinary shares in the capital of AusGroup Limited, which remains listed on the Singapore Exchange (SGX). (Closing price: S$0.465, 5.682%)