With yesterday's weaker than expected Singapore industrial production that raises the risk of a technical recession this quarter and the 3Q results season starting 2 weeks from now, sentiment is likely to stay subdued with investors likely to avoid stocks exposed to global trade and manufacturing. The hunt for yield continues. Interest in O&M stocks should also sustain but do be watchful of profit taking given recent price gains among the SMC O&M stocks as their upside potential to target price narrows. For the STI, the 3100 immediate resistance may continue to cap upside heading into the 3Q results season. For the current session, the immediate support at 3035 should hold.

K-reit announced last night that they will be acquiring a 50% stake in a new office building in Perth (former Treasury Building site) from Mirvac Group. The acquisition will be made via a trust ' Mirvac Old Treasury Trust (MOTT), which will be jointly held by K-reit and Mirvac Group. Targeted for completion in 2H 2015, the new office building located in Perth's CBD will have 331,500 sf of net lettable area and 203 car park lots. This is the second property K-Reit is acquiring from Mirvac.

The estimated purchase price will be A$165.0m (c.S$211.2m) Upon completion the building will be c.98% leased to the Government of Western Australian for 25 years with option to renew for another 25 years, limiting downside leasing risk. At the same time, K-reit also enjoys an annual step up rental of 3-5%. Meanwhile, portfolio WALE (Weighted Average Lease Expiry) will extend from 6.1 years to 7.2 years, providing good income visibility. Based on our analyst's estimation, this acquisition will lift FY 13/14 DPU by c.3.0% putting FY13/14 yields to c.6.7%, one of the highest in the reit sector. Post acquisition of MOTT, K-reit's portfolio value in Australia will increase from 7% to 12%. Maintain BUY, target price raised by 4% to S$1.28.

Singapore's factory output unexpectedly shrank 2.2% y-o-y in August - its first contraction in four months ' weighed down by weaker demand for electronics exports and transport engineering output. Market consensus forecast had been for 1.1% growth, vs +2.5% in July. Pharmaceuticals helped to cushion some of the decline, boosting biomedical output growth to 13% y-o-y, just under July's 13.8%. Stripping out biomedicals, industrial output fell a sharper 5.4% y-o-y. Electronics output fell a sharper 7.3% y-o-y compared to the 5.3% fall in July, due to continued weak export demand. Semiconductors, a key segment of the cluster, produced 12.3% less than a year ago in August. Also contracting sharply was the transport engineering cluster, which fell 20.1% y-o-y as a 34.5% jump in the land transport segment was more than offset by sharp dips in other segments. Marine and offshore engineering output fell 27.2% as oil rig projects contributed less in August.

Prime retail rents on Orchard Road continued to moderate to $37.66 psf per month in Q3 2012, while Orchard Road was in revamp mode. Data from Jones Lang Lasalle (JLL) shows rent stabilisation was slower because of weaker retail sales and fewer visitor arrivals. However, the decline was mitigated by healthy leasing activity among food and beverage operators and the entry of new retail players. Despite declining sales in key segments and fewer visitor arrivals, suburban prime rents have remained most stable at $28.20 psf per month since Q3 2011. This is in line with our expectations. We continue to like the suburban malls due to the strong domestic consumption from large population catchment at major housing estates supporting retail sale. Hence, this should continue to support healthy rental reversion at suburban mall. (Maintain BUY for Frasers Centrepoint Trust, at TP S$1.93).

Although retail rents in Orchard/Scotts Road revealed weakness, we observed that the slight rental decline of <5% is largely concentrated on malls that are undergoing renovation. Post renovation, rents should pick up again. As reflected in Wisma Atria (owned by Starhill Global Reit), occupancy strengthened from 95% to 99.5%, while committed leases in the last 12 months have risen by 33% on a blended basis post the completion of AEI works in June. (Maintain BUY for Starhill Global Reit at TP: S$0.81).

STATS ChipPACwill be divesting its entire 25% stake in Micro Assembly Technologies (MAT) for HK$80.8m. The group expects to receive a gain on disposal of US$2m in the current financial year. Proceeds from the divestment will go into general working capital and will be redeployed in its existing business.

Ryobi Kiso Holdingshas recently secured contracts worth approximately S$24m, bringing the total contract value secured since beginning of the calendar year 2012 to over S$132m.

Xpress Holdingswill record a net loss for 4Q12 and may record a consolidated loss for FY July 2012 due to higher bad and doubtful debts provisions, in view of the prevailing weak and uncertain global economic conditions and the weaker China business environment.

Singapore corporate bond issuance hit a record high in the third quarter of this year, and demand is expected to stay strong. Singapore-based issuers borrowed US$12.2bn in the three months ended September, preliminary data from Thomson Reuters showed. That is the highest quarterly volume on record, and more than treble the year-ago amount. Year-to-date, issuance by Singapore-based companies was US$26.9 bn, more than double the US$12.4 bn the same period in 2011 and an all-time high.

The government has put up two more 99-year leasehold executive condominium (EC) sites at Sengkang EastWay/Fernvale Link, and Pasir Ris Drive 3/Pasir Ris Rise for sale. The first site at Sengkang West Way/Fernvale Link (Parcel B) sits on a 151,779.6 sq ft plot, and has a maximum gross floor area (GFA) of about 455,338.8 sq ft. It is expected to yield 420 homes. The second site at Pasir Ris Drive 3/Pasir Ris Rise has a site area of about 297,729.5 sq ft, and a maximum GFA of 625,231.9 sq ft. It is envisaged to yield about 590 homes.

Elsewhere, an industrial site at Yishun Avenue 9 drew a total of five bids with a top offer of $31.7m or $100.48 psf ppr from Soilbuild Group, slightly above market expectations.

US and European markets fell overnight as concerns continued that the recent decisions by central banks (FED's QE3, ECB's OMT) to revive their ailing economies may well suffer from the law of diminishing returns. Germany, the Netherlands and Finland said Spain should bear the cost of problems in their banks, with the ESM assuming only a limited burden in recapitalizations. The Bank of Spain said the country's economy has kept falling at a 'significant pace' during 3Q.

Source: DBSV