Towards Financial Freedom
DBSV S'pore Wired Daily 3 January 2014
2014 Outlook - Earnings growth to accelerate on external recovery. Focus on global proxies, China beneficiaries and Oil & Gas plays
Singapore equities will be underpinned by the recovery momentum in the US, and the anticipated shift out of recession in the Eurozone. In Asia, China's GDP slowdown should also stabilise in 2014. However, optimism will be capped by the extent of QE tapering and the weak market sentiment for ASEAN. STI is likely to range trade as sentiment gyrates between optimism in recovery in developed markets and uncertainties within ASEAN. We peg a STI range of 2950 to 3350 in the coming months, which coincides quite closely with 12.33x (-1SD) to 13.9x (Ave) blended FY14/FY15 PE. We expect the companies under our coverage to enjoy earnings growth acceleration in 2014. We see earnings (before EI) jumping 12.8% in 2014F compared with just 0.5% for 2013F.
Key themes for investment are centred around external recovery and global cyclicals, supported by earnings growth drivers in the industrial, oil and gas sectors. As QE tapering progresses, expectations of a steepening yield curve reduces investors' appetite for yield stocks. The rotation from yield sensitive sectors to growth stocks will gain momentum. As such, we Overweight Banks, Industrials, Oil and Gas, Consumer Services, Underweight Consumer Goods and REITS, and Neutral on Property and Telcos.
In terms of stock pick, global proxies, China beneficiaries and oil and gas plays are key focus. Proxies to global recoveries are Hutchison Port, Goodpack and Venture. With China's outlook stabilising, beneficiaries of China's reform efforts are Midas, Global Logistics and Osim. Domestic recovery proxies are Genting Singapore, Courts and OCBC. Rate of recovery in the OSV market will drive a re-rating for the sector, benefitting vessel owners like Pacific Radiance, while Ezion will continue to thrive on its niche product offerings. Turnaround plays to watch out for in 2014 are Ezra and Vard; resolving their execution issues and a sustainable recovery could see both stocks re-rating. Keppel Corp'sorder wins have surpassed expectations with more potential orders in the offing, while margins are recovering.
We initiate coverage on Pacific Radiancewith BUY rating and S$1.05 TP. Pacific Radiance is an established offshore support vessel (OSV) owner/operator with ambitious expansion plans. The Group will benefit from ongoing recovery in OSV market and presence through joint ventures, in markets protected by cabotage laws. We expect the Group to register strong 29% net profit CAGR over FY12-15 period.
Ezion Holdings is acquiring the entire stake in Teras Conquest 4 Pte Ltd for US$32.5m, to be fully satisfied by the issuance of 18.4m shares at an issue price of S$2.2407 per share. Teras Conquest 4 is a Singapore-incorporated company, with its sole asset being a Multi-Purpose Self Propelled Jack-up Rig (the "Liftboat") with a six (6) year chartering contract to the Group which commenced in February 2012.
Soilbuild Construction has been awarded a S$26.8m contract from Soo Kee Jewellery to construct their new corporate headquarters. This is the fourth Changi Business Park project to be awarded to Soilbuild Construction, leveraging on its extensive experiences across public and private sector projects. Current order book is $389.5m, expected to be substantially completed in the next 24 months.
Olamhas disposed its entire 50.0% stake in Lansing Olam Canada for a cash consideration of US$5.4m. The exit from Canada will allow Olam to concentrate its resources on the rest of its Grains businesses in line with the Company's refreshed strategy.
Noble Group had disposed of its 25% membership interests in associate company, Thunderbird Power Holdings for US$10.75m cash. Based on the latest financial statements as at 30 September 2013, the book value and net tangible assets value of Noble's 25% membership interests in Thunderbird is US$5.2m and US$6.4m respectively.
Prices of mass-market private condos - the mainstay of Singapore's private housing market - have finally eased for the first time since the market bottomed out in the second quarter of 2009 after the global crisis. Prices of landed homes, another pillar of strength of the residential sector, also registered the first decline since Q2 2009, according to the latest flash estimates from URA. URA's overall private housing price index fell 0.8% q-o-q in Q4 against a 0.4% increase in Q3. The Q4 index is still 1.2% higher than the year-ago period, though less than the 2.8% rise for 2012. Resale prices for HDB flats continued their decline in the last quarter of 2013, a trend which property consultants say is unlikely to reverse even by the end of this year. They attribute this to a convergence of measures imposed to cool the market and a continued supply of new flats. Flash figures released by the HDB indicated that the resale price index in the fourth quarter of 2013 was 202.1 (with 1998 being the base year when the index was 100). This was a fall of 1.3% q-o-q, and the second consecutive quarter of shrinking prices; the index dipped 0.9% in Q3 2013, making that the first contraction since 2009.
US stocks fell to start the year lower for the first time since 2008. A downgrade in Apple Inc. sent technology shares lower. Data indicated applications for U.S. unemployment benefits declined last week to the lowest level in a month. Weekly jobless claims fell by 2k to 339k, lower than consensus expectations for 344k. Meanwhile, the ISM factory index fell to 57 in December from November's reading of 57.3, which was the highest since April 2011. In Europe, data showed December factory output in the euro area expanded at the fastest pace since May 2011 as Italy's manufacturing beat estimates and Germany production grew for a 6th month.
Source: DBSV
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
