DBS Equity Research: Wired Daily 28 Mar 2016

kiasutrader

Publish date: Mon, 28 Mar 2016, 10:43 AM

2 key events for April - MAS monetary policy statement & FED meeting

STI rally hits resistance, to turn sideways from 2720-2920

The 2 key events to watch for in April are the MAS monetary policy statement & outcome of the FOMC meeting. With inflation in Singapore likely to remain negative for most of 2016 and downside risks to growth, our economist expects MAS to ease the exchange rate policy by shifting to a zero (from gradual) appreciation path for the Sing NEER policy band. The outcome of the FOMC meeting on 27 April is the other event to watch. We expect the FED to hike rates once in 2Q that lifts the FED funds rate to 0.75%. This should occur either at the April or June FOMC meeting.

The rise since mid-Feb lifted the STI to a fair level of 12.09x (-1SD) 12-mth fwd PE at 2910. With Singapore's economic growth remains uncertain and local corporate earnings revision trend is still on a downward path, we see little justification for the recent rally to extend further in the short term. Our view is for the STI to hit resistance around the 2910 level and shift to a range from 2720-2920 over the next few weeks. The upcoming blue chips ex-dividend dates should lend support to stocks at the 2720-2770 level in April.

With StarHub now becoming a strategic investor with a 9.05% stake, mm2 Asia can tap on the former's strong brand name and this could raise its profile and pave the way for bigger opportunities ahead. Besides content creation, mm2 could also leverage on StarHub to attract more sponsorship for its productions. StarHub can choose to tap on mm2's cineplex business to showcase its content, as well as gain access to top-rated concerts and artistes through UnUsUaL, in which mm2 owns a stake. Earnings for FY17F and FY18F adjusted up by 11% and 9% respectively, after accounting for StarHub's collaboration. Maintain BUY, TP raised to S$0.63 (Prev S$0.52).

Sinochem International Corporation and Halcyon Agri Corporation have signed agreements to bring about a combination of their natural rubber assets to create the world's leading natural rubber supply chain manager with combined revenues in excess of US$2.3 bn. The businesses will be combined under Halcyon Agri, which will continue to be listed on the SGX. Sinochem International will become the majority shareholder in Halcyon Agri. It will acquire a 30.07% shareholding in Halcyon Agri for S$0.75 cents per share in cash and make a mandatory general offer to all shareholders of Halcyon Agri at the same price. Halcyon Agri will acquire Sinochem International's natural rubber business, including its 51% majority stake in SGX-listed GMG Global, trading business, and China and Malaysia processing factories. Halcyon Agri will make a voluntary general offer for GMG Global at an exchange ratio of 0.9333 Halcyon Shares for each GMG Global Share. The transactions are expected to close by Q3 2016.

Nearly a month after Singapore Exchange's (SGX) minimum trading price (MTP) rule kicked in, more than a fifth of Mainboard-listed firms on the local bourse still appear to be in the danger zone. There were 172 companies that had a six-month volume-weighted average price (VWAP) below the S$0.20 MTP as at March 23. Among these firms, 122 also had a last traded price that was below the MTP - which worked out to around 21.9% of the 556 Mainboard-listed companies for which VWAP data was available.

Singapore's manufacturing activity in February posted a larger-than-expected contraction of 4.7% y-o-y, versus street estimates of a 1.5% fall. Month-on-month drop in manufacturing output of 4.8%, after adjusting for seasonal factors, also disappointed consensus expectations of a mere 0.7% dip. Excluding biomedical manufacturing, output fell 7.4% and 2.1% on a yearly and monthly basis respectively in February. The contraction in the headline industrial production on a year-on-year basis was led by falls in four out of six industry clusters with the sharpest drop of 14.5% in transport engineering. Electronics cluster fell 8.4% in February compared to February 2015 with growth in data storage and other electronic modules and components segments offset by declines in other segments, chiefly semiconductor.

Source: DBS

StarHub (CC3)Halcyon Agri (5VJ)

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