According to the Macquarie Equity Research (MER) research paper released on 25 July (Thurs), the first two weeks of earnings season have been uneventful, with the REITs ‘doing their thing’, reporting in line results. MER expects a more mixed performance from here, with Banks and Agri likely to underwhelm. MER does however expect strong showings from its Top Picks (as mentioned below). Big picture, it is still too early to draw a line under the earnings downgrade cycle for Singapore, in MER’s view.

REITs steady as ever
12 of the 19 earnings reports MER have tracked for the June quarter so far came from REITs. All have been in-line, while CapitaCommercial Trust came in much better than expected. This lends bottom-up support to MER Property team’s recent upgrades. From a top-down perspective, MER stays more cautious on the sector given the outlook for bond yields and the SGD exchange rate, and see better value in its Top Picks, which include three developers with exposure outside Singapore. Of those, CMA has already reported a very strong set of results.

Looking for good results from Top Picks
Semcorp Marine: MER is looking for Sembcorp Marine to follow Keppel’s lead with strong O&M margins, driving 12% YoY profit growth. MER will be looking for confirmation of MER’s pipeline analysis, which shows strong Semisub demand for 2H13.

MER hopes Genting Singapore can avoid another weak hold rate, as this caused 1Q13 profits to be ~55% “understated”. MER also looks forward to management’s comments on Japan, where MER thinks the gaming market has taken another step towards opening up post the recent Liberal Democratic Party win.

HongkongLand should get a boost from the rising rental reversions in Central, which are now coming through. For GLP, MER is looking for signs that development completions have accelerated, which is the only blot on this compelling Chinese logistics play’s equity story.

For the midcaps MER is most excited by new Top Pick Ezion, which MER thinks is set to report a record quarter, with more momentum behind it heading into 2H13. Genting HK has postponed the listing of Travellers, but a strong 1H13 (+58%) should reignite this compelling Sum-of-the-parts story. China Minzhong should see better gross margins, and is set to report a maiden dividend, MER expects. ARA is set for another strong showing (+39%) on the back of AUM growth. NOL’s expected 117m loss sticks out, but MER’s call is premised on being early ahead of a better 2014.

MER sees underwhelming results from the Banks (slowing volumes, net interest margins still weak) and the Agri players (weak CPO prices impacts upstream, midstream ROE remains persistently below cost of equity). IFAR would be most likely to surprise on the upside, should it finally revive its upstream margins.

Outlook
MER thinks it is still too early to draw a firm line under the earnings downgrade cycle for Singapore, which has been in place since 2011. MER remains Neutral on the FSSTI.

Key Macro Data this week
Mon 29 July: US pending home sales
Tue 30 July: US S&P Case Shiller home price index, consumer confidence; Eur consumer confidence
Wed 31 July: US GDP; Eur CPI; Singapore unemployment rate
Thu 01 Aug: US FOMC, construction spending, ISM manufacturing; Eur PMI; ECB announces rates; China Manufacturing PMI; HK retail sales; Singapore PMI
Fri 02 Aug: US non-farm payroll, unemployment rate, personal income/spending; Eur PPI

Source: Macquarie Research - 29 Jul 2013