Morning Market Commentary

- STI: +0.58% to 3432.8                          - KLCI: -0.45% to 1766.1
- JCI: +0.92% to 5089.3                          - SET: +0.43% to 1621.1
- HSI: -0.14% to 23211                            - HSCEI: -0.16% to 11266.9
- Nikkei: -0.66% to 14191                       - ASX200: -0.28% to 5198.4
- Nifty: -0.32% to 6050.2                         - S&P500: -0.37% to 1626.7

MARKET OUTLOOK:
By Joshua Tan, Head of Research

With weak output data coming out of China, reinforced by the low inflation and dropping manufacturers’ prices, we could have an impending rate cut on our hands. Why not, China? The whole world is doing it! But China’s other problem lies in the property market, which a rate cut could reignite. Thus our guess is that, if there is a rate cut, it would be paired with some rather draconian sector specific measures to keep a lid on the housing market in the event. In terms of implications to Greater China markets, we view a rate cut as a positive event.

The picture for rate cuts however seems less likely in ASEAN though, as domestic policy factors have largely been responsible for stronger inflationary pressures in ASEAN, quite the opposite from the rest of the world. Nonetheless, growth in ASEAN, although slower than last year’s is respectably robust on strong public and private infrastructure investment.

SG stocks earnings have been largely in line with expectations with outperformance in Banking earnings. One of our top picks SIAEC (S$5.29) has had a fantastic run this year (and last year!) returning +20% this year, our target price is S$6. We continue to like Pan United (S$0.94, TP S$1.21), Boustead (S$1.415, TP S$1.81), and our recently added initiation, Cordlife, has returned 26% already (S$0.805, TP S$0.84).

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Macro Data:
By Ng Weiwen & Roy Chen

In China, CPI rose by 2.4% y-y in Apr, still a subdued reading, after the 2.1% y-y in Mar. PPI fell by 2.6% y-y, a higher drop than the 1.9% y-y drop in Mar, indicating a softer demand. We do not rule out the possibility of loosening in the monetary front by central bank despite the risk of inflating housing price.

In South Korea, the central bank unexpectedly lowered its benchmark rate by 25 bps, following similar moves of ECB and RBA, to 2.5%, to counter the negative impact from weakened yen. This move, in an attempt to soften Korea Won against Japanese Yen, would help bolster the nation’s exports sector.

In Australia, unemployment rate fell to 5.5% in Apr, compared to the 5.6% reading in Mar. Full time employment rose by 34.5K, after the 7.4K drop in Mar. The improved employment and the recent benchmark rate reduction would help safeguard the nation's growth in the near future.

In the US, the labour market is healing (slowly but surely). Initial jobless claims slumped by 4k wk-on-wk to 323k (a 5yr low!) for the week ending May 4th. Consequently, the 4-week moving average of claims continued to inch lower.

Bank of England stood pat, maintaining repo rate at 0.5% and asset purchase programme amount unchanged at �375bn. We expect no major policy shift by BoE till the arrival of incoming  BOE Governor Carney.

In Malaysia, industrial production declined by 0.2% y-y in March, weighed down by lower manufacturing and mining output. Bank Negara (BN) met on Thurs and stood pat (consistent with our expectations). Looking ahead, we reckon BN will likely continue to maintain the Overnight Policy Rate at 3%, barring any extreme deterioration in the global macro environment or upside in inflation.

Regional Market Focus

Singapore

• The benchmark STI closed higher at 3.432.78 (+0.58%), further building on yesterday’s increase
• The 2.7bn shares traded were worth S$1.5bn in value. While trading activities were mostly led by speculations on penny stocks in the earlier part of the year, we see a shift towards higher mid and big cap participation in recent weeks.
• Our analyst maintained “reduce” on Starhub on high current share price, and maintains preference for M1 and SingTel for the Telecom Sector.
• 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 on Thu took a roller coaster ride before the composite SET index broke above the 1620-point resistance to finish the session at 1621.12 points, cheered by an interest rate cut by Korea’s central bank to 0.5% despite an unexpectedly higher-than-expected Chinese CPI data. 
• More choppy range-bound action could be on the cards. Even though the SET index could maintain its upside bias over the past sessions, we believe sharp gains of more than 40 points in just three trading days may limit room for further upside but earnings plays would continue to be one of the key drivers for the market.
• Given that the current rally was rather driven by buying from local institutions and proprietary accounts than foreign investors, which were on the selling side, we think more bouts of short-term profit-taking could bring volatility to the market along the way.  
• Following a breakout above an initial resistance level of 1620, the next resistance target level is seen at 1650 but it is unlikely to break through, in our view. Short-term positive factors are about to fade as quarterly earnings season will come to an end during the middle of next week. 
• Resistance for the composite SET index is pegged at 1630-1635 and support at 1610-1600 today.

Indonesia

• The Jakarta Composite Index (JCI) finished at another record high on Wednesday (08/05), amid positive moves among stock markets in Asia after data from China showed better-than-expected trade balance and exports in April rose significantly. The JCI climbed 46.546 points, or 0.92%, at 5,089.335. The advance on Wednesday included all but two of the major industry groups, with shares in Mining sector fared best and Agriculture sector performed worst. Index of Mining sector surged 2.15% and Financial sector advanced 1.93%. The LQ45 index gained 5.526 points, or 0.65%, at 859.370. Bank Indonesia on Wednesday reported foreign reserves rose to USD 107.27 billion in April, from USD 104.8 billion a month earlier. 181 shares rose, 93 shares fell, and 200 shares stayed unchanged Wednesday on the Indonesia Stock Exchange, where 5.61 billion shares worth IDR 5.94 trillion traded on the regular market. Transactions by foreign investors accumulated to a net purchase totaling IDR 175.6 billion.
• Indonesian stocks will likely move higher today, amid positive sentiments in Asia as the Japanese Yen dropped significantly overnight. We expect the Jakarta Composite Index (JCI) to trade higher, with support and resistance at 5,025 and 5,122 respectively.

Sri Lanka

• The Colombo Bourse maintains its positive trend. The Colombo bourse concluded the day in a confident manner having surged positive for past six trading days as well, further the ASPI touched the 6,250 levels during the day. This was mainly as a result of the active participation of the retail investors seen on most parts of the trading day. The benchmark ASPI Index closed positive for the 6th successive trading day at 6,238.71 having gained 28.61 points or 0.46%. The S&P SL20 Index too closed positive for the 12th consecutive day at 3,526.51 indicating a gain of 5.21 points or 0.15%.The Market capitalization as at the day’s closure leaped to record LKR 2.39Tn resulting in a year to date gain of 10.32% and the market PER and PBV stood at 16.86 and 2.30 respectively. The recorded turnover for the day was LKR 2.14Bn, a gain of 45.90% from its previous day. The best performers under the sectorial review were Bank Finance and Insurance (BFI) and Beverage Food & Tobacco (BFT) contributing LKR 1.15Bn and LKR 343.5Mn respectively. Investor interest was vastly seen on BFI where 5,463 trades were noted out of the aggregate trades amounting to 17,440 hence assisted BFI secure the position on top. Moreover BFI and BFT managed to account to nearly 69.84% of the total turnover value. Shares totaling up to 74Mn changed hands during the day observing an increase of 45.49% against the previous trading day. Price gainers outpaced the price losers by a ratio 159:62. Foreign participants appeared to be bullish during the day opposing to the outflow recorded on yesterday, resulting in a net foreign inflow of LKR 194.10Mn while extending the year to date net foreign inflow to record LKR 9.31Bn. In regard to the local FOREX market the USD closed at LKR 127.70/- selling and LKR 124.65/- buying.

Australia

• The unemployment rate fell to 5.5 per cent in April, with the total number of people with jobs rising by 50,100, figures released by the Australian Bureau of Statistics on Thursday showed.
• On Thursday, the benchmark S&P/ASX200 index was down 1.4 points, or 0.03 per cent, at 5,198.4 points.
• The broader All Ordinaries index was up 2.7 points, or 0.05 per cent, at 5,180.6 points.
• National turnover was 1.64 billion securities worth $6.42 billion.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 32 points and 17 points to 23211 and 11266respectively. Market Turnover 56.07 billion.
• As we expected, the HSI rebounded from the bottom of 21500 points level, nearly 2000 points rebounded, we believe it is time for the market to consolidation, we suggest investors to increase the weighting on cash, aggressive investors are also suggested to use derivatives for grasping the short term downward trend. However, we believe it is a short term correction, we maintain a cautious bullish view for long term.
• Technically, the HSI is expected to gain a support from 22800 level, major resistance will be 23800 level.

Morning Note

Company Highlights

Cordlife Group Limited announced the launch of a new umbilical cord tissue banking service in Singapore, in partnership with Thomson Medical Pte. Ltd. The new offering, commencing on Mother’s Day on May 12, 2013, will be the first such service to be launched in Singapore. Following the first two months from the launch, the service will also be available at other hospitals islandwide. Cordlife will be offering the new service through its wholly-owned subsidiary, Cordlife Technologies Pte. Ltd., which has the rights to use patented technology and expertise pertaining to umbilical cord tissue banking. Cordlife first launched the provision of cord tissue banking to clients in Hong Kong in March 2011 through the Group's wholly-owned subsidiary, Cordlife (Hong Kong) Limited. Within a short span of time, the Group saw an increase in the number of parents opting for the service in Hong Kong. From July 2012 to December 2012, the number of new clients who signed up for the service increased 27.8%, compared to the same period in 2011. (Closing price: S$0.805, -1.227%)

CNA Group Ltd. has received a Letter of Intent (“LOI”) to be appointed as the main Engineering, Procurement and Construction contractor for two projects in Thailand’s real estate sector. The aggregate contract value of the two projects is THB1.5 billion (approximately S$63.6 million). The two projects which mark the Group’s first foray into Thailand’s real estate sector are on the back of its collaboration with Thailand real estate agent and financial consultancy, West East International Ltd. The Group has received an LOI from West East International to be appointed as the main EPC contractor for both the Palm Island by Le Raffin in Pattaya and the Tub Tai Valley Condominium in Hua Hin. The Palm Island Project and Tub Tai Project have an aggregate gross construction area of approximately 20,000 square metres and 41,000 square metres respectively. The Palm Island Project is expected to commence in June 2013 and be completed by July 2014, whereas the Tub Tai Project is expected to commence in July 2013 and be completed by August 2014. (Closing price: S$0.129, -0.781%)

StarHub Ltd announced the retirement of Kwek Buck Chye as its CFO by end September 2013. Stepping into the position will be Nicholas Tan from Singapore Technologies Telemedia, as elected by the StarHub Board. Nicholas Tan, 54, will become StarHub‟s CFO in July 2013. He is currently the Senior Vice President of Corporate Planning at ST Telemedia. His other previous appointments include Vice President of Finance at StarHub Ltd. (Closing price: S$4.720, -0.211%)

Source: PhillipCapital Research - 10 May 2013