Towards Financial Freedom
DBS Equity Research: Wired Daily 25 Aug 2014
Singapore Strategy - Prefer stocks with margin expansion potential, property stocks with China exposure; take profit
on CPO stocks Post results, EPS growth for STI is decent at 8.4% for FY14F and 8.8% for FY15F. This compares favourably to the last two years' growth of +3% (2012) and -1%(2013). With the potential halt to downward earnings revision coupled with the high single digit EPS growth, this should support the STI at 3250 - 13.7x 12-mth forward PE - on a pullback. The STI could head towards 3500 or 14.48x (+0.5SD) in the event that earnings revision trend turns positive in subsequent quarters.
However, it is still early days to conclude an imminent upturn in the earnings revision trend given prevailing risks in the macro environment. The key risk lies in a weak global recovery which would derail earnings of global cyclical stocks, and closer home, there is no respite in rising cost pressures as a result of the government's restructuring initiatives.
Margin erosion was a key earnings dampener in 2Q. About half of the companies which disappointed, reported margin pressure due to rising costs. We like companies which have proven track record in outperforming its peers or delivering on margin enhancement despite challenging conditions. The key differentiating factors enabling these companies to outperform are: a) focus on improving brand equity through product innovations - Osim, Keppel Corp b) strong track record in project execution and achieving productivity gains - Keppel Corp and Yangzijiangc) niche market positioning - Eziond) early mover advantage to tap on new market opportunities -Pacific Radiance, Keppel Corp e) efficient cost management - Sheng Siong, OCBC.
Signs of selective relaxation of mortgage credit and Home Purchase Restrictions (HPR) over the past month in some cities in China will be positive for Singapore developers. SG- listed developers - Capitalandand Keppel Land - with significant exposure in China will benefit from positive newsflow and data-points are expected to continue providing support to share price going forward.
Jasper Investments warned of the potential breach of financial obligations under the five-year US$165m senior secured bonds issued by its subsidiary Jasper Explorer plc. The breach could happen as soon as Aug 31 as Jasper Explorer had failed to secure bondholders' approval for waivers and relief of its financial obligations. In the event of a breach of obligations, the bonds will be declared to be in default, and the Jasper Explorer vessel would probably be realised at a significant discount to its FY2014 audited net book value of US$358m. The company's controlling shareholder, Morton Bay (Holdings) Pte Ltd, has expressed its intention not to provide further financial support of the group's financial obligations.
Moody's Investors Service downgraded STATS ChipPAC corporate family rating and senior unsecured debt rating to Ba2 from Ba1. The credit-rating agency said that the outlook is stable, but added that the chipmaker's final rating of Ba2 benefits from a one-notch uplift due to expected support from its ultimate holding company, Temasek Holdings, in the event of stress.
Otto Marine is evaluating strategic options to grow its Subsea Services Division. It intends to focus on widening international profile and competitive position of the Group's subsea services unit. The evaluation of strategic options aims to capitalize on positive prospects of subsea segment. The SGX announced that it is delisting five Global Depositary Receipts (GDRs) on Aug 28 for violating its listing regulations. The regulator said that these companies were being delisted as they had not paid their annual listing fees for an extended period of time despite reminders, and were thus in breach of its listing rules. Since the GDRs of these five companies - Accentia Technologies, Bombay Rayon Fashions, Confidence Petroleum India, Karuturi Global and Visesh Infotechnics - were not deposited with the SGX and it had no access to them, their respective banks have been informed of their delistment.
Singapore Changi Airport handled some 4.58 million passengers in July 2014, an increase of 1% y-o-y. Flight movements dipped 2.6% to 28,200. Changi Airport said passenger traffic in July was supported by an increase in air travel between Singapore and North-east Asia and South Asia. This was, however, offset by weaker performance on some South-east Asian routes. Among Changi Airport's top 10 markets, Hong Kong, India and Vietnam registered double-digit increases. Cargo volume came to 155,000 tonnes, a decline of 2.4% y-o-y. From January to July 2014, 31.8 million passengers passed through Changi, 1.3% more than a year ago. Aircraft landings and take-offs grew by 2.1% to 199,900. Cargo shipments were stable at 1.06 million tonnes for the period.
At the Jakson Hole meeting, global central bankers led by FED Chair Janet Yellen said labor markets still have further to heal before their economies can weather higher interest rates. The Fed and Bank of England could tighten policy within a year with the focus on jobs as their economies show signs of strengthening. On the other hand, ECB President Mario Draghi and Bank of Japan Governor acknowledged they may be forced to deploy fresh stimulus. Yellen said while U.S. hiring has improved, the labour market has yet to fully recover from the GFC. Yellen added that assessing the health of the job market must depend on indicators beyond the main unemployment rate. Across the Atlantic, Draghi said ECB policy makers "stand ready to adjust policy stance further" as the Eurozone economy stalled in 2Q. Draghi's remarks reinforced speculation that the ECB will eventually start QE. Meanwhile, Japan expressed no hurry to tighten monetary policy.
Source: DBS
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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....
