KLCI: -0.22% to 1794.7
JCI: -0.56% to 4326.21                          SET: -0.22% to 1375.86
HSI: 10.51% to 23580                            HSCEI: -0.91% to 11333
Nifty: -2.02% to 5999                              ASX200: -0.36% to 5288.3
Nikkei: +1.92% to 15365                        S&P500: +0.81% to 1795.9

MORNING COMMENTARY:
ValueMax – Experience is Key – Non-rated Note
(By Colin Tan)

We met up with management of ValueMax recently. ValueMax’s main revenue is derived from

1. Pawnbroking (79% FY12 Gross profit)
2. Retail and Trading (21% FY12 Gross profit)

Key Takeaways
Investment strengths

• Industry experience with skilled Chief valuers in SG and MY. ValueMax guides that they have many Chief valuers relative to their competitors due to their longer experience operating in the pawnshops. The Chief valuers have 10-50 years of experience in handling jewellery, with an approximate average of 30 years experience. This allows ValueMax to be able to access a wider range of valuables, including different grades of diamonds, various branded watches and platinum. ValueMax guides that existing technology does not completely guarantee that a gold item is genuine and not manipulated, besides physically cutting it up. The experience of Chief valuers therefore play a role in reducing cases of manipulation, and increasing the variety of valuables ValueMax can accept as collaterals.
• Overseas presence in Malaysia (MY). Interest rates are capped higher at 2% per month (SG: 1.5% per month). Demand is healthy as ValueMax is able to accept a wider variety of items as compared to the other pawnshops per above.  
• Trading business complements the Retail and Pawnbroking business. The higher trading volumes, resulting from larger number of relationships, benefit ValueMax by

1. Close relationships with fellow traditional pawnbrokers, thus higher opportunities for acquisitions should the chance arise.
2. Greater variety of pre-owned jewellery to choose from, to cater to its Retail customers. We think this can potentially lead to higher Retail margins due to the potential for more attractive and varied offerings.
3. Good source of pre-owned jewellery should ValueMax want to expand its pre-owned jewellery retail only stores. This caters especially to customers who might not want to enter a pawnshop.
4. Ability to discard obsolete pieces of jewellery, or unredeemed pledges.

• Growth opportunities from

1. Opening of new stores. 2-3 stores have been opened in Singapore per year recently, and are likely to continue. New stores are also expected to open in Malaysia.
2. Inorganic growth through acquisition of other pawnshops.
3. Increase in revenue per store through organic growth.

Investment concerns

• Impact from potential decrease in gold prices. That said, management is confident of sustaining its profitability, citing its on-the-ground observations from the recent sharp decrease in gold prices. Management guide that demand for gold was particularly strong when gold prices were down. The impact of falling gold prices include

1. Lower trading revenue from lowered gold price
2. Lower pawnbroking revenue from lower maximum loan quantum that can be dispersed due to the lowered value of collateral.
3. Higher impairment allowances from potential unredeemed pledges. This is mitigated by higher gold purchase, from both Retail and Trading. 

MARKET OUTLOOK:
By Joshua Tan, Head of Research

Macro Data

USA:
The 0.2 percent drop in the producer-price index followed a 0.1 percent decline the prior month, a Labor Department report showed today in Washington. The decrease matched the median estimate in a Bloomberg survey of 75 economists. The so-called core measure, which excludes food and energy, increased 0.2 percent as the cost of cars jumped by the most in four years.

U.S. jobless claims in the week ended Nov. 16 dropped by 21,000 to 323,000, the fewest since the week ended Sept. 28, from a revised 344,000 the previous week, the Labor Department said today in Washington. The median forecast of 47 economists surveyed by Bloomberg called for a drop to 335,000.

Eurozone
A factory index rose to 51.5 from 51.3 in October. That’s in line with the median forecast in a Bloomberg News survey of 37 economists. A reading above 50 indicates expansion. Markit’s services gauge unexpectedly fell to 50.9 from 51.6,
China China’s manufacturing activity expanded in a slower pace in November as the HSBC Manufacturing PMI preliminary reading eased to 50.4 following the seven-month high of 50.9 in October. The country’s growth momentum softened as exports eased and factories put off restocking owing to weaker demand, said HSBC’s economist.

Malaysia
Unemployment rate remained unchanged at 3.1 percent in September, although the labour force participation rate edged up to 69.6 percent in September from 69.1 percent in the previous month, according to data from the Statistics Department.

Hong Kong
Inflation rate eased to a four-month low in October as consumer price index (CPI) edged to a 4.3 percent gain after a 4.6 percent rise in September, the Census and Statistics Department said.

Singapore
The Ministry of Trade and Industry (MTI) raised its full-year growth forecast for 2013 to 3.5-4.0 percent from the previous expectations of 2.5-3.5 percent growth as the third quarter GDP figures exceeded prior expectations. GDP growth rate accelerated to 5.8 percent y-o-y in the quarter ended September from the 4.4 percent expansion in the preceding quarter. On a quarter-on-quarter seasonally adjusted annualized basis, the economy grew at a slower pace of 1.3 percent, following a 17.4 percent gain in the previous quarter. The ministry added that next year's growth is expected to be between 2 and 4 percent, on the back of a slow recovery in the United States and Eurozone.
 

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Regional Market Focus

Singapore

• The benchmark STI closed 11.85 points lower at 3.172.38 (-0.37%). The 1.4bn shares traded were worth S$0.9bn in value.
• The FTSE ST Mid Cap Index declined -0.57% while the FTSE ST Small Cap Index declined -0.15%. The top active stocks were SingTel (+0.54%), DBS (unchanged), Hutchison Port Holdings Trust (-4.23%), CapitaLand (-0.33%) and OCBC (-0.10%).
• We peg key near term support at 3,100 levels.
• Top Picks are DBS (Accumulate, TP: S$17.50), SingTel (Accumulate, TP: S$4.06) and Keppel Corp (Accumulate, TP: S$12.07). Deep Value Plays are Amara (Buy, TP: S$0.74), and Boustead (Buy, TP: S$2.05).

Thailand

• Thai stocks tumbled as much as 2.06% on fears about an earlier-than-expected tapering of the US Federal Reserve’s bond buying program after the release of minutes of the FOMC’s Oct meeting and amid domestic political pressure. 
• The Dow industrials closed above 16,000 points for the first time on Thu after data showed a bigger-than-expected drop in US initial jobless claims and several companies bought back stocks. 
• Thai stocks remained under pressure from domestic political factors, which discouraged foreign fund inflows in the near term. Foreign selling spree in the Thai stock market continued unabated with MTD net sales of Bt29bn. The anti-government protests on Nov 24 still bear close watching. If no violence occurs, the SET index may be poised for a rebound early next week. However, in view of high uncertainty, investors may take partial profits to limit risk exposure ahead of this weekend rally.
• Even though yesterday’s sharp losses may set the stage for some rebound in Thai stocks today, we believe the market would continue to go nowhere and the risks would remain to the downside. In our view, the 1380/1360 support levels could possibly trigger buying from LTF/RMF.
• Resistance for the SET index is expected at 1380-1400 points and support at 1360-1340 points today.

Indonesia

• Indonesian stocks declined Thursday (21/11), as the Rupiah fell responding to the release of Federal Reserve’s October meeting minutes that showed the US central bank is still considering scaling back stimulus in the next meetings. The Jakarta Composite Index (JCI) shed 24.581 points, or 0.56%, to close at 4,326.205. Consumer goods sector fared worst with 2.54%-fall, followed by finance sector with 0.90%-drop, and mining sector with 0.66%-decline. On the upside, miscellaneous industry sector gained 1.62%, and agriculture sector rose 0.53%. LQ45 – the index measuring Indonesia’s blue-chips shares – trimmed 5.077 points, or 0.70%, to end at 722.010. The Rupiah fell to record low of 11,700 on Thursday, following the release of FOMC minutes a day earlier that signaled the Fed is on track to reduce its bond purchase program – known as QE3. Capital outflow from emerging markets, including Indonesia, has been a looming concern since the US central bank hinted the possibility of winding down its stimulus. Smaller trade volume of only 2.48 billion shares worth IDR 3.52 trillion also contributed to Thursday’s decline. Losers outran gainers 167 to 83, and foreign investors posted a net sale of IDR 525.68 billion.
• The Jakarta Composite Index (JCI) looked set for a rebound today, with positive leads from US markets overnight and Asian markets this morning. We expect the JCI to trade higher, within 4,283 – 4,360 range today.

Sri Lanka

• The Colombo bourse commenced the day positively amidst the Budget 2014 to recover the losses witnessed on past trading days while reaching its intra-day peak of 5,824.94 during the latter part of the day and settled on a mixed note. The benchmark ASPI charted a gain of 8.32 points or 0.14% to settle at 5,801.85 and S&P SL20 witnessed a loss of 7.08 points or 0.22% to settle at 3,202.19. A total of 121 companies gained during the day whereas 56 companies posted drops in share prices. As at the daily closure, the total market capitalization as at the day’s closure moved up to LKR 2.41Tn, improving the year to date gain to 11.35%. The market PER and PBV were 15.39x & 1.99x respectively. The turnover for the day amounted to record LKR 948.3Mn, indicating a huge gain of 95.0% from its previously recorded. Moreover, the three prime contributors for the turnover COMB, DIAL & DIST accounted 59% of the daily aggregate turnover. Under the sectorial round-up, Bank Finance and Insurance (BFI) sector topped the list providing LKR 554.4Mn and Telecommunications (TLE) sector stood next in line providing LKR 144.4Mn to the daily aggregate turnover.  A total of 65.9Mn shares changed hands during the day resulting in a gain of 137.0% compared to the previous trading day. Foreign participants appeared to be bearish during the day resulting in a net foreign outflow of LKR 208.4Mn, resulted by foreign buying of LKR 336.8Mn and selling of LKR 545.2Mn. This assisted the year to date net foreign inflow to reach LKR 22.7Bn. Looking at the local FOREX markets, the USD is selling at 132.73 /- and is buying at LKR 129.47 /-.

Australia

• The market on Thursday fell for a fourth straight day. The benchmark S&P/ASX200 index dropped 19.4 points to 5,288.3 points.
• Today (22/11/13), the Australian share market is set to open higher as Wall Street rises on encouraging jobs data in the US.
• There is no economic news scheduled for Friday.
• In company news, Rio Tinto chairman Jan Du Plessis is due to speak at an Australian British Chamber of Commerce lunch. David Jones, Jetset Travelworld, AV Jennings and Capilano Honey are among the companies holding annual general meetings. Dairy co-operative Murray Goulburn is also holding its annual general meeting.

Hong Kong

• HSI dropped 120 points or 0.51% to 23,580. CEI lost 104 points or 0.91% to 11,333. Trading volume was HKD73.6 billion.
• Hong Kong market was weak yesterday, tracking the overnight weakness in US markets. For the macro-economic front, HSBC China manufacturing PMI (Nov) flash reading came in at 50.4, missed analysts’ estimate of 50.9, and added pressure to the market.
• China airline sector remained out-performing on RMB appreciation expectation. Air China (753.HK), China East Air (670.HK) and China South Air (1055.HK) surged 9.7%, 9.2% and 9.6% respectively.
• Yanzhou Coal (1171.HK) and China Coal (1898.HK) gained 5.3% and 3% respectively on surge of coal price. We don’t suggest to accumulate this sector until we the increase in coal price is sustainable.
• Prince Frog (1259.HK) lost 22.1% after the Company made announcement to clarify the allegations about the exaggerated sales and resumed trading.
• Technically, The next resistance and support for HSI are 23,945 and 23,500 respectively.

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Morning Note
Company Highlights

LMIRT Management Ltd., in its capacity as manager of Lippo Mall Indonesia Retail Trust, is proposing to carry out a placement of 246,913,000 New Units to institutional and other investors at an issue price range of S$0.405 per New Unit to raise gross proceeds of approximately S$100.0 million. Subject to relevant laws and regulations, the Manager intends to use the gross proceeds from the Placement in the following manner: (i) approximately 95.0% of the Gross Proceeds will be used to fund asset financing which includes asset acquisitions, asset enhancement initiatives and refinancing of existing asset linked debts, and for general corporate and working capital purposes; and (ii) approximately 5.0% of the Gross Proceeds will be used to pay the estimated fees and expenses, including professional fees and expenses, incurred or to be incurred by LMIR Trust in connection with the Placement. (Closing Price: $0.430, - %)
KLW Holdings Limited refers to its announcement dated 17 July 2013 and wishes to inform shareholders that the Group has entered into the definitive supply contracts for the supply and installation of doors for the two residential developments mentioned in the July Announcement. The residential developments comprise Hillsta and Water Bay EC. In addition, the Board wishes to announce that the Group has secured a contract to supply and install timber doors for the residential project known as The Topiary EC. The three projects are valued at a total of approximately S$6.4 million. (Closing Price: $0.280, -9.677%)

Linair Technologies Limited guided that due to fewer projects secured as well as some delay in the projects, the Group expects that its revenue from its engineering business segment for the financial year ending 31 December 2013 would not be maintained at levels achieved in 2012 despite previous guidance that it should be maintained. In providing this update, the Board has considered the completion schedules of its projects and its accounting policy on revenue recognition which is based on the percentage-of-completion method. In particular, the Company does not expect any project secured after 31 October 2013 to contribute materially to its consolidated revenue for FY2013 based on normal project completion schedules. (Closing Price: $ - , - %)

The Infocomm Development Authority of Singapore has approved the proposed sale of OpenNet to Singapore Telecommunications Limited-owned NetLink Trust, with additional conditions. These conditions, which include a monitoring board to ensure compliance and the need for regulatory approval of various major decisions, will be imposed to address the competition concerns raised by Internet service providers in September. The sale will take place in two phases, with the first phase to start no later than by year-end, during which OpenNet's assets and business will be transferred to NetLink Trust. This is to take no more than 12 months. SingTel will also give up its key subcontractor role for OpenNet. Phase two will see the consolidated entity rolling out the infrastructure and carrying out the activities that were previously done by OpenNet. (Closing Price: $3.730, 0.539%)

Zhongmin Baihui Retail Group Ltd. announced that it will open its new store along the popular Zhongshan Road shopping area in Xiamen City, Fujian province. It has a total GFA of approximately 172,000 sq ft. This store is the Group’s third store in Xiamen City, and its 11th store in China. The Xiamen Zhongshan Store will strengthen the Group’s presence in Xiamen City, adding to its existing Xiamen Wucun Store and Xiamen Jiahe Store. The new store is prominently located along Zhongshan Road, a busy commercial walking street which is popular among tourists and local shoppers. Additionally, it is close to the ferry terminal which is the only mode of transportation to the nearby Gulangyu island, one of the main tourist attractions of Xiamen City. (Closing Price: $1.740, - %)

Internet Technology Group Limited wishes to inform shareholders of the Company that it received a letter from WLH Holdings Pte Ltd dated 21 November 2013 pursuant to which the Offeror has proposed revisions to the Exit Offer, including a revision to the offer price from S$0.127 to S$0.138 for each share in the Company. (Closing Price: $ - , - %)