KLCI: -0.01% to 1804.2
JCI: -0.78% to 4441.7                           SET: +0.06% to 1405.9
HSI: +1.43% to 23069                           HSCEI: +1.85% to 10582
Nifty: -1.01% to 6078.8                         ASX200: -0.25% to 5387.1
Nikkei: +1.30% to 14269                      S&P500: +0.07% to 1771.9
      
MORNING COMMENTARY:

Valuetronics – 2QFY14 Results – Non-rated note
(By Ken Ang and Benjamin Ong)

Valuetronics reported NPAT of HKS$39.6m, up 18.9% q-q, and 14.8% y-y (excluding loss from discontinued operations in 2QFY13). This was due to a few factors, including an increase in revenue (3.4% q-q, 6.1% y-y) from a broad base of customers, while Net profit margins improved to 6.3% (1QFY14: 5.4%, 2QFY13: 5.8%) due to an increase in contributions from the higher margin customers. Valuetronic’s balance sheet remains healthy with zero debt financing with a cash balance of HK$288.7m. Previous dividend yields range from 4.7% (FY07) to highs of 11.9% (FY12).

Key takeaways from meeting with management

• 85% of total revenue comes from core customers. Of this, 65% of total revenue comes from a certain large MNC, for which Valuetronics manufactures products in two of their business units. While there is concentration risk, most of these customers have a long-term relationship with Valuetronics. These customers also provide more stable recurring revenue, ignoring some seasonality and q-q volatility.
• Revenue growth potential includes 1) Higher sale volume from a new mass market product being launched by the large MNC. 2) Growth of new customers in the higher margin Industrial and Commercial Electronics segment. Valuetronics highlighted that two new customers have relocated their productions to Valuetronics’ premises and they contributed 4%-5% of total revenue for 1HFY14. Vacant factory space continues to be ample at 40,000 sqf.
• Rising PRC operator costs (staff expense) is a constant concern, but management has been able to minimise impact through higher productivity, including process automation and lean manufacturing. Management guides that operator costs in calendar year 2013 increased >20%, and expect another 10% increase in calendar year 2014. This trend is likely to continue for a while, based on the targeted wage levels set by the Central Government a few years ago. Management is able to tackle staff expense increases through improving productivity levels. Higher sales volumes, and continued increase in new customers are also expected to help mitigate the higher operator costs.
• Management appears upbeat, and expects Gross profit margins to continue in the range of 11% - 13%, and Net profit margins of 5% - 6% despite headwinds in the macroeconomic environment.    

DBS Group – Update on sale of remaining 9.9% stake in BPI – One-off gain of approximately S$447m
(By Ken Ang)

DBS Group announced the further divestment of its remaining 9.9% stake in The Bank of the Philippine Islands (BPI) to GIC Private Limited and Ayala Corporation, for a total consideration of S$850m in cash. This transaction will realize a net one-off gain of approximately S$447m, likely recognised partially in 4Q13, and the remaining in 2Q14. This follows the partial divestment of a 10.4% interest in BPI in October 2012 to Ayala Corporation for S$757.3m in cash, and approximately S$450m in realized gains. DBS has been a strategic investor in BPI since 1999, but had initially divested its share in Oct 2012 to strengthen its capital position ahead of the introduction of Basel III. We view this final divestment of its remaining shares in BPI positively, as this will provide more cash for DBS to further invest in its core markets. 

MARKET OUTLOOK:
By Joshua Tan, Head of Research

Macro Data

China:

Chinese new yuan-denominated lending hit a 10-month low in October, as new bank loans stood at 506.1 billion yuan (equivalent to USD83.10 billion), 280.9 billion yuan lower as compared to the previous month, according to the People’s Bank of China (PBOC). New yuan loans for the first ten months amounted to 7.78 trillion yuan, and M2 (a broad measure of money supply that covers cash in circulation and all deposits) increased 14.3 percent year-on-year to 107.02 trillion yuan at the end of October, the PBOC added on.

India:
India’s trade deficit jumped to $10.56 billion in October, after dropping to a two-and-a-half year low of $6.7 billion in the previous month. The inbound shipments for gold picked up due to the festival season and clearing of air on a RBI norm for gold imports, said Commerce Secretary S R Rao. Exports for October expanded 13.47 percent year-on-year, while imports contracted for the fifth consecutive month by 14.5 percent.

Malaysia:
Malaysian industrial production grew at a slower pace in September as it fell to a seasonally adjusted annual rate of 1.0 percent from a revised 2.7 percent in the preceding month, based on data from the Department of Statistics. Manufacturing production climbed 2.4 percent on-year, decelerating from 5.2 percent growth in August. On a monthly basis, industrial production rose a seasonally-adjusted 2.2 percent.

Japan:
Japan’s current-account surplus exceeded economists’ forecasts in September as a weaker yen boosted the value of overseas investment income. The 14.3 percent gain from a year earlier to 587 billion yen ($5.9 billion) compared with a median estimate for a 401 billion yen excess in a survey of 24 economists. After seasonal adjustment, the surplus swung to a 125.2 billion yen deficit, a record low for data stretching back to 1996 and underscoring the drag on the economy from trade deficits exacerbated by swelling energy costs and the yen’s depreciation.

Australia:
Australia’s bond yields climbed, extending the steepest rise this quarter among developed markets, on signs of economic growth in China and the U.S. New Zealand’s dollar gained on the outlook for milk production. The Aussie dollar halted its biggest two-day slide since August after industrial output growth unexpectedly accelerated in China, the South Pacific nation’s biggest trading partner, and domestic home loans increased. The currency touched a five-week low on Nov. 8 after data showed the U.S. added more jobs than forecast last month.

---

Regional Market Focus

Singapore

• The benchmark STI closed 9.47 points higher at 3.186.72 (+0.30%). The 1.7bn shares traded were worth S$0.8bn in value.
• The FTSE ST Mid Cap Index declined -0.47% while the FTSE ST Small Cap Index declined -0.07%. The top active stocks were SingTel (+0.53%), Capitaland (-0.65%), Genting Singapore (-2.06%), DBS (+0.36%) and Keppel Corp (+0.64%).
• We peg key near term support at 3,100 levels.
• Top Picks are DBS (Accumulate, TP: S$17.50), SingTel (Accumulate, TP: S$3.99) and Keppel Corp (Accumulate, TP: S$12.07). Deep Value Plays are Amara (Buy, TP: S$0.74), Boustead (Buy, TP: S$2.05) and Courts (Buy, TP: S$1.03).

Thailand

• Thai stocks lost 20.2 points to 1,405.03 points last Fri amid domestic political worries after the Senate failed to reach a quorum to vote on the contentious blanket amnesty bill.
• More downside could be in store for Thai stocks amid heightening domestic political tensions ahead of two major political events today. The International Court of Justice (ICJ) will deliver its ruling on Cambodian-Thai Preah Vihear Temple dispute and the Senate will decide the fate of amnesty bill again today though the bill is expected to be rejected by the Senate. Democrats said they will escalate their anti-amnesty protests if the controversial bill is not dropped from the parliament’s agenda before 1800 hrs deadline today while opponents of the amnesty bill from several protest sites of Silom, Asoke, Ratchadapisek and Aree will march to join protesters at Ratchadamnoen Avenue.
• Even though stronger-than-expected US non-farm payrolls data boosted sentiment in Asia this morning, we believe street protests among opponents of blanket amnesty bill and red-shirts would weigh on Thai stocks today. We expect a trading range of 1380-1420 points for the SET index.
• Today we peg resistance for the SET index at 1415-1430 points and support at 1400-1380 points.

Indonesia

• The Jakarta Composite Index (JCI) declined Monday (11/11), amidst mixed closes in Asia, with emerging markets’ shares tumbled following stronger US dollar after the release of US jobs data. The JCI fell 34.996 points, or 0.78%, to finish at 4,441.724. The decline on Monday included seven of the 9 major industry groups, with property, construction and real estate sector dropped 1.68%, agriculture sector shed 1.40%, and finance sector lost 1.21%. Shares in mining industry and miscellaneous industry helped sustain further decline on Monday, with the index for these sectors gained 1.02% and 0.61%, respectively. The LQ45 index slid 6.433 points, or 0.86%, to end at 743.149. Decliners outran gainers 159 to 82 Monday on the Indonesia Stock Exchange, where volume on the regular board reached 3.64 billion shares worth IDR 4.52 trillion. Foreign investors posted net sale of IDR 869.36 billion.
• Indonesian stocks may inch up today, with positive momentums from upbeat starts in Asia today. But weakened Rupiah may limit gains, after recent rallies in the US dollar following better-than-expected US jobs report. Investors in Indonesia may also take cautions ahead of Bank Indonesia’s reference rate due for release later in the day. We peg near term support and resistance for the JCI at 4,401 and 4,505, respectively.

Sri Lanka

• CHOGM week starts & the bourse closes on a mixed note. The market ended on a mixed note, resulted by the sluggish participation of the investors and the selling pressure which prevailed on most parts of the trading day, further resulting in the low turnovers & volumes being logged. The benchmark ASPI managed to gain 7 points putting an end to its 6 day losing streak and settled within the positive side at 5,862.82. The S&P SL20 index witnessed a marginal drop of 2 points to close at 3,230.36, marking its 7th consecutive day of loses. The total market capitalization as at the daily closure stood at LKR 2.44Tn, charting a year to date gain of 12.52%. The market PER and PBV were 15.54x & 2.05x respectively. The turnover for the day amounted to record 197.44Mn indicating a drop of 87.95% against the previous trading day, was also the 2nd lowest turnover charted for the year. Under the sectorial summary, Diversified Holdings (DIV) sector provided LKR 52.85Mn, dominating the list while Bank Finance & Insurance (BFI) sector added LKR 41.03Mn to the daily turnover. Further on, the two sectors DIV & BFI collectively accounted to nearly half of the total turnover. The traded volume for the day amounted to 15.19Mn shares, indicating a drop of 68.29% as against its previously recorded. Looking at the movement in share prices, 95 companies lost while 64 companies gained. With regard to the foreign figures, a net foreign inflow of LKR 4.35Mn was recorded during the day, being a result of foreign purchases of LKR 46.1Mn and sales which amounted to LKR 42.36Mn. Currently the year to date net foreign inflow stands at LKR 22.70Bn. The local FOREX market closed with, the USD selling at LKR 132.71/- and buying at LKR 129.45/-.

Australia

• Australian shares rose 0.4 per cent on Tuesday morning, hovering at five-year highs, as investors worried the US Federal Reserve may start soon slowing its bond-buying stimulus drive.
• Federal Reserve Vice Chair Janet Yellen will be forced to defend the Fed's ultra-easy monetary policy when she faces anti-Fed rhetoric from Republicans at the Senate Banking Committee on Thursday.
• "The main support (for the ASX) for the moment is that the RBA (Reserve Bank of Australia) seems to be airing on the side of fairly dovish talk.

Hong Kong

• Hong Kong stocks swung between gains and losses as Chinese policy makers conclude a four-day summit to map out economic reforms.
• The Hang Seng Index (HSI) fell 0.2 percent to 23,033.29 as of 9:33 a.m. in Hong Kong after rising as much as 0.1 percent. The measure dropped 2.2 percent last week amid concern the Federal Reserve may cut stimulus sooner than expected amid signs of economic recovery. The Hang Seng China Enterprises Index rose 0.1 percent to 10,589.03
• President Xi Jinping and Chinese Communist Party leaders today conclude a four-day gathering aimed at mapping out a blueprint for reform. Chinese Politburo member Yu Zhengsheng said last month the meeting “will promote profound changes in every area of the economy and society.”
• China’s broadest measure of new credit fell by more than estimated in October, suggesting authorities are trying to keep shadow financing in check. Aggregate financing was 856.4 billion yuan ($140.6 billion), the central bank said yesterday, below all nine projections in a Bloomberg News survey. New local-currency loans of 506.1 billion yuan compared with the 580 billion yuan median estimate. Slower credit would constrain growth while limiting risks.
• The Hang Seng Index has advanced 16 percent from this year’s low on June 24 through yesterday amid signs China’s economy is stabilizing. Hong Kong’s benchmark index traded at 11 times estimated earnings today, compared with about 16 for the Standard & Poor’s 500 Index yesterday.

---

Morning Note
Company Highlights

Cordlife Group Limited announced that it has signed a non-binding term sheet with China Cord Blood Corporation (“CCBC”), to jointly explore and develop new services based on cellular technologies. C is the largest cord blood banking operator in the People's Republic of China and has exclusive licences to provide cord blood storage services in the Beijing municipality and the provinces of Guangdong and Zhejiang. On November 12, 2012, Cordlife completed the acquisition of 10% of issued shares in CCBC (Closing Price S$1.250, -0.8%)

Rowsley Ltd has appointed Tan Wee Tuck as Group Chief Financial Officer from 18 November 2013. Mr Tan, 44, will have direct oversight of the functions for Group treasury, financial reporting and risk management for Rowsley’s group of companies, including its two main subsidiaries, Vantage Bay and RSP. (Closing Price S$0.300, -%)

Interra Resources Limited announced that its jointly controlled entity, Goldpetrol Joint Operating Company Inc.(“Goldpetrol”), has completed development well CHK 1175 in the Chauk oil field in Myanmar as an oil producer. CHK 1175 was drilled as an up-dip offset development well to producing oil well CHK 1153 which has been the only producing oil well in the fault block. CHK 1175 is the first well drilled in over ten years in the South Moolla fault block with the primary objective of accelerating production from the supra-thrust reservoir that produces in CHK 1153. (Closing Price S$0.420, 2.4%)

Global Logistic Properties Limited announced that the net proceeds of US$1.0 billion raised from the sale of properties to J-REIT, an aggregate amount of approximately US$162 million (being the US$ converted amount equivalent to JPY14 billion as at the time of conversion), has been primarily utilised for capital injections, acquisitions and shareholders’ loans to support the business growth in China and Japan. (Closing Price S$2.980, -0.7%)

Sarin Technologies Ltd announced the signing of a strategic agreement between the New York Diamond Dealers Club (DDC), the leading diamond trade organization in the United States, and its North American subsidiary – Sarine North America.  The two entities have entered in to a 5 year collaboration, where Sarine North America will provide the Group's latest rough and polished diamond technology for the use of DDC's members, and the DDC will exclusively promote and market those solutions to the U.S. diamond industry. (Closing Price S$1.90, 2.4%)