The Singapore market is building a base as it awaits fresh catalysts. However, near term outlook is clouded by high inflation, slowing growth and structural changes on the domestic front. With the STI currently hovering just below 13.3x (-0.5SD) FY13F PE, we see the Singapore market on a slow decline towards year-end. We expect more downgrades in 3Q's report card, following consecutive cuts in Singapore's GDP growth to 1.8% and 3.2% for 2012 and 2013 respectively. Potential earnings downgrades could come from banks ' slower loan growth and NIM pressure - and real estate which are the key domestic proxies while technology and China shipyards will be affected by weaker  demand and slow ramp up in orders. The brighter spot is in oil and gas where we expect a stronger 2H as recognition of higher priced projects kick in. Premium 4G pricing and lower data caps could lead to upward revision in earnings for the telecoms sector in Singapore.

In terms of stock picks, we would sell on strength upstream planters - First Resources and Indo Agri - after cutting earnings for CPO stocks by 2% to 26% due to high inventories depressing CPO prices. REITS are preferred over property developers, as the possibility of more policy measures remains an overhang. However, we are selective on S REITS given the sector's strong performance over the past 6 months and recommend to BUY Suntec REIT, Frasers Commercial Trust and Far East Hospitality Trust. Our top dividend yield picks are Hutchison Port Holdings which will ride on recovery in trade  between US and China, and offers an attractive 8.3% dividend yield, and Silverlake Axis which has a strong recurrent earnings base and order book. Despite the outperformance of oil and gas stocks on a 3-month basis, the sector remains undervalued at 9.5x PE, offering recovery prospects with the offshore support supply fleet reaching equilibrium. Top picks are SembCorp Marine, Ezion, STX OSV and Nam Cheong.

Keppel Corporation's 3Q12 results above expectations; on higher-than-expected O&M orderbook drawdown and Property contributions. O&M margins were flat q-o-q but seem to have bottomed. Near term headwinds on the back of macro concerns but we believe these factors are  temporary and would not derail the longer term recovery in the sector. Nonetheless, we have trimmed our FY12 order wins to S$10.2bn but kept FY13 intact at S$6.0bn. Our FY12/13F earnings are adjusted by +10%/-4% on lowered O&M margins, adjustments to our orderbook recognition schedule and a cut in FY12 order wins assumption. Maintain BUY, TP revised to S$12.65 (Prev S$ 13.20), largely due to reduced FY13F O&M earnings.

Singapore Exchange's 1QFY13 net profit was 5% below our and consensus estimates. Key deviation arose from lower other revenues, which offset traction from securities and derivatives revenues. 4 Scts base DPS was declared, as expected. Our analyst continues to see a slower quarter ahead and the stock is not ripe for re-rating yet. Maintain HOLD and TP S$7.25. Current valuations are not enticingly attractive but we believe downside should be limited and supported by decent dividend yields of 4-5%.

Bumitama Agri has entered into an agreement to acquire Nabatindo Karya Utama (NKU) which has obtained a Location Permit and Plantation Business Permit for a total land area of 11,000 ha in Central Kalimantan. We are positive on the acquisition, as it underlines the group's continued effort to boost planted area and earnings growth going forward. Based on our preliminary estimates, this acquisition will impact Bumitama's FY13F and FY14F bottom lines by 0.5% and 1.4% respectively. BUY recommendation and TP of S$1.25 are unchanged for now.

Far East Hospitality is looking to double its portfolio between now and 2017, as it aims to expand its footprint across South-east Asia as well as Australia. The group is looking at 17 hotels and 17 serviced residences by 2017.

SATS' aviation operating data for 2Q shows the number of flights handled increased 5.5% y-o-y while unit services handled grew 6.1%, underpinned by an increase in services provided to bigger aircraft compared to a year ago. The number of passengers handled rose 4.9% in the quarter to nearly 10m. Gross and unit meals increased by 6.1% and 5.6% respectively, reflecting the passenger traffic growth momentum at Singapore Changi Airport. The rate of decline in cargo throughput abated in the second quarter. It fell 2.6% y-o-y in the second quarter compared to a 5.2% decline in the first quarter. In addition, cargo throughput in the second quarter improved 2.7% on a quarter-on-quarter comparison.

Changjiang Fertilizer Holdings expects to report a significantly lower revenue and profit for 3Q12 as adverse weather conditions continued to impact on the demand of its products.

SP Corporation is expected to report a loss for 3Q12, even though nine months ended for the same date is to remain profitable. The expected third quarter loss is attributable mainly to certain one-off costs incurred by the Geotechnical & Soil Investigation Unit in connection with the downsizing of its Singapore operations.

After the strong rebound earlier in the week, US markets fell with technology sector bearing the brunt of the selling after internet giant Google reported earnings that missed estimates. Sentiment was also affected by the jump in initial jobless claims to 388k that reminded investors that the previous drop to 342k may be just temporary. In after hours trade, Microsoft shares fell after reporting earnings that missed expectations.

Source: DBSV