DBSV S'pore Wired Daily 4 October 2013

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Publish date: Fri, 04 Oct 2013, 11:56 AM

Today's Focus

ARA Asset Management - An attractive proxy for REITs; upgrade to BUY, TP S$1.89

Stocks start the Friday session softer on the back of the overnight loss on Wall Street as concerns about the consequence of the budget impasse and a possible US debt default grew. The US Treasury issued a grim report on the consequent of a default that could last for more than a generation. We adopt a contrarian view on the latest alarm raised by the US Treasury - putting pressure on the lawmakers increases the likelihood of a last minute resolution in time to avoid default. While near-term stress lines are appearing, we maintain our view that STI should find support at c.3100.

We are upgrading ARA Asset Management to BUY, TP S$1.89 (Prev S$1.78). Backed by a strong cashflow generating and scalable business that is growing steadily, we believe that ARA offers an attractive investment proposition at current levels. ARA is an attractive proxy for REITs, without the interest rate risk. Fees derived from its REITs are resilient, transparent and growing. The group derives close to 66-67% of its revenues from its six managed REITs across major Asian markets.

M1 has been slapped with the industry's largest fine on record in the country's history - $1.5m - for the disruption of its 2G and 3G mobile phone services in January. These 2G and 3G mobile service disruptions lasted about 71 hours and 63 hours respectively in mid- January, affecting some 250,000 M1 customers.

Blumont Group has reached agreement on the commercial terms of a proposed takeover bid for the entire stake of a foreign-listed coal mining company for up to approximately S$145.9m. The consideration is to be satisfied by issue of up to approximately 72.2m new shares at an issue price of S$2.02 per share.

Technics Oil & Gas is expected to report an operating net loss for Q4 FY2013 and for FY2013.The Financial Supervisory Services of Korea (FSS) has imposed a fine of KWR2 billion (approximately S$2.3m) on China Gaoxian Fibre Holdings. In addition, the FSS has imposed fines of KRW50 million (approximately S$58,100) and KRW16 million (approximately S$18,600) respectively on Mr Cao Xiangbin and Mr Raymond Wong, who are, respectively, the former Executive Chairman and Chief Financial Officer of the Company as at the time of the Korean Listing. Furthermore, the FSS has referred the company and Mr Cao Xiangbin to the Prosecution in Korea.

Activity in China's services sector expanded at the fastest pace in six months in September as demand grew. The official purchasing managers' index (PMI) for the non-manufacturing sector rose to 55.4 in September - the highest reading since March - from 53.9 in August. The sub-index measuring new orders, from both home and abroad, rose to 53.4 in September from 50.9 in August, while input prices and services charges eased. The services industry, which has so far weathered the global slowdown much better than the factory sector, is an increasingly important pillar in China's economy, especially as the government seeks to expand domestic consumption to drive growth. Services accounted for about 45% of the economy in 2012 and is the biggest employer in China.

US stocks fell as concerns grew that the budget impasse and even greater consequence should the US default on its debt, leading to a recession or worse. A weaker-than-expected September ISM non-manufacturing index (actual 54.4, consensus 57) also dampened sentiment. The US Treasury said measures to avoid exceeding the USD16.7tril ceiling will be exhausted by Oct 17 and warned that a default caused by a failure to raise the cap could have catastrophic consequences that last decades. "Not only might economic consequences of default are profound, those consequences that include high interest rates, reduced investment, higher debt payments & slow economic growth could last for more than a generation", the Treasury said in the report. The USD dipped against major currencies while the 10-year treasury yield stayed at 2.61%.

Source: DBSV

Southern Arch (A33)

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