Regional
Market Focus
Singapore
- STI: +0.36% to 2990
- MSCI Far East ex-Japan: -0.37% to 493
- Euro Stoxx 50: -0.19% to 2525.4
- S&P500: +0.31% to 1397.1
Singapore's headline inflation eased to 4.6%y-y in Feb from 4.8%, largely due to lower contributions from food and services. Ex costs of accommodation and private road transport, MAS Core Inflation slowed from 3.5% to 3.0% in Feb. However, MAS and MTI issued a hawkish statement, noting that inflationary pressures have been more persistent than expected and inflation will remain elevated over the next few months before moderating gradually. In Malaysia, headline inflation moderated from 2.7%y-y to 2.2% in Feb due to price declines in communication as well as clothing and footwear. In view of easing EU sovereign debt concerns as well as lingering inflationary risks, Bank Negara is likely to continue to stand pat in the near term. Underlying sticky inflation in Asia is still a common theme, preventing Asian central banks from easing despite external threats to growth.
In the west, US new home sales contracted m-m for the 2nd month in a row, we note however that the underlying trend still points to housing recovery, albeit a very very slow one. Italy and Spain are both encountering union resistance to labour market reform. Spain bears watching as it also faces the immediate prospect of rising yields due to missed deficit targets.
Friday's slight positive market action for the STI was no where near reversing the immediate bearish momentum and divergence put in, we are still in consolidation/correction mode. The S&P500 could be forming a bearish divergence as well. ASEAN indices - the KLCI, SETI, JCI - continue to look the most positive, while China, HK, and Europe were weak on growth concerns. Commodities (ex-crude oil!) continue their downtrend.
With global economic data coming in weak overall, the second part of our short-medium term (till 3q12 at most) thesis kicks in: for us to have another leg up requires a policy response - Operation Twist 2 after the current one expires Jun12, revival of QE3, China fiscal stimulus etc. China however, remains the most likely near term prospect of a fiscal policy announcement, as the economy has slowed on all fronts. The longer we wait though, brings nearer the complications 2013 will bring. Next year sees serious economic challenges, when the US and EZ debate massive fiscal withdrawal.
For our larger trend market outlook, which has been much less optimistic, see Strategy 15 Feb 2012.
For our Singapore Sector Strategy please see: Sector Strategy 5th Mar 2012.
Hong Kong
Local stocks declined. The HSI and HSCEI dropped 232.76 points and 109.42 points to 20668.20 and 10658.07 respectively. Market volume was 53.337 billion.
The decline could be due to investors concern over the election result of HK SAR chief executive, as the new chief executive of HK SAR may announce new property policy, which will harm local developer’s benefit.
Technically, as expected, the benchmark index closed below the 250 SMA (20774), but the 50 SMA (20791) breakthrough upward 250 SMA (20774), a “Golden Cross” formed, which is a positive signal for the long term trend. Investors are suggested to close the long position, if the benchmark index closes below the 250 SMA for 3 trading days.
We peg resistance for the HSI at 21000 and support at 20800
Thailand
Intraday volatility reigned supreme as the SET index lost as much as 11.51 points to 1179.49 points before it recouped earlier losses and finished the session up 3.44 points. Trading volume was moderate.
We expect the market to return back to trade in a range of 1189-1201 today after a strong run in late trading last Fri but extreme volatility is however expected to reign supreme along the way while the market is looking for fresh cues for direction. The lack of fresh factors would also make the market more sentiment to short-term news flow along the way. This week, investors should continue to keep a close watch on key US economic data as well as Spanish and Italian bond auctions.
In the near term, we recommend selective trading. We like auto-related stocks, benefiting from the recovery of the auto industry while brokerage shares are likely to see active trading today on news about the proposed rules to control commission rates.
Today we peg resistance for the SET index at 1201-1207 and support at 1189-1180.
Indonesia
The Jakarta Composite Index (JCI) climbed 5.325 points or 0.13% on Thursday (22/03). Five out of nine sectors rose, led by miscellaneous industry sector which index advanced 0.93%, followed by trade and services sector which climbed 0.53% and financial sector that rose 0.29%. LQ 45, Indonesia’s blue-chip stock index, also rose, adding 0.679 points or 0.10% to finish at 696.810. For every stock that rose, more than one fell Thursday, where 2.329 billion shares worth IDR 2.909 trillion changed hands on the regular board. Foreign investors accumulated a total net buy worth IDR 264.515 billion.
Benchmark index for Indonesian stocks would likely move higher with limited gains today, tracking its US equity market peer despite lingering slowdown in manufacturing activity in Asia. We set 4,015 and 4,055 as JCI’s support and resistance respectively.
Sri Lanka
The Colombo Bourse witnessed an improved activities compared to Thursday pervading in green territory. The investors reflected a mild of buying sentiment throughout the day which again led the indices to close back on a positive note. The main All Share Price index (ASPI) gained 72.63 points and closed at 5,422.33 points. The more liquid Milanka Price Index (MPI) gained 67.04 points to close at 4,847.86. The market capitalization stands at LKR 1.98Tn.
230 counters traded during the day to record a turnover of LKR 927Mn. The day recorded 7,394 trades which resulted in 39.7Mn shares changing hands. The price gainers outnumbered the price losers by 176:34. The market recorded a net foreign outflow of LKR 9.3Mn.
Australia
The ASX200 has quite an interesting trading day on Friday as the index started the day well down before rallying almost 40 points and finally losing a little ground late in the day to finish down 3 points. The banks were the major drivers of the recovery but QBE Insurance (QBE) continued its fantastic recent run to trade 3.6% higher for the day.
Wall St ended higher on Friday night and despite the SPI indicating a lower ASX, the Australian market is in positive territory today as the banks and energy stocks push higher.
Over the weekend, mining state Queensland held elections in which the governing Labor party was dealt a resounding defeat. The Liberal National Party’s Campbell Newman is now Queensland's premier-elect and he has pledged to fight against the federal Labor Party on issues such as the carbon and mining taxes.
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Morning Note
Company Highlights
Ascendas Real Estate Investment Trust announced the completion of FoodAxis @ Senoko and FedEx Singapore Regional Hub within budget and schedule. FedEx Singapore Regional Hub has been leased to Federal Express Corporation for a period of 10 years with option to renew for another two terms of five years each while FoodAxis @ Senoko is currently 23.1% occupied with another 33% of space under different stages of negotiation. In addition, the leasing pipeline has a list of enquiries for 5,700 sqm (12.8%) of space. (Closing price: S$1.985, unchanged)
Creative Master Bermuda has received a notification of delisting dated March 23 from the Singapore Exchange. The exchange informed the group to make the necessary arrangements to delist and provide a cash exit offer to its shareholders, as required under the listing rules. Trading of shares in Creative Master has been suspended and the suspension will remain until the completion of the cash exit offer. The contract manufacturer of high quality die-cast collectibles has been placed on the SGX watch-list of loss-making companies since March 3, 2010. (Closing price: S$0.055, unchanged)
KLW Holdings Limited announced that it has secured three orders worth a total of S$4.1 million to supply quality engineered doors to two projects in Singapore and one in Dubai. Two of the orders secured are for Singapore's residential development Coralis and Foresque Residences by Tiong Aik Construction Pte Ltd. The third order, a second project with UK-based Carillion Construction Limited, is for a development in Dubai named Burj Dubai (Downtown Dubai) Development. The latest orders are not expected to have a material impact on the group's earnings for the financial year ending Dec 31, 2012. (Closing price: S$0.010, unchanged)
Mapletree Logistics Trust is acquiring two cold storage warehouses in South Korea for S$71.3 million, marking a maiden entry into South Korea's growing cold storage warehouse market. Each of the properties will be leased back for a term of 10 years to the respective vendors, being Chungbu The First Logistics Co., Ltd. and Dooil Cold Store Co., Ltd., which are engaged in the cold storage logistics business and operations. With built-in rental escalation of 3% per annum, the long-term leases provide stability in income as well as organic growth. The acquisitions are expected to complete by April 2012 and funded with the proceeds raised from a recent issuance of Singapore dollar denominated perpetual securities. After taking into account all acquisitions announced to date, MLT's aggregate leverage ratio is estimated to be approximately 39%. Total portfolio will increase to 109 properties with a book value of approximately S$4.1 billion. (Closing price: S$0.925, -2.1%)
Q & M Dental Group (Singapore) Ltd, the largest private dental healthcare group in Singapore, has signed a memorandum of understanding with the National Taxi Association (NTA) to provide affordable dental care to its members and their families.
The pact, which will take effect immediately, will benefit 11,000 taxi drivers and their immediate family members. They get to enjoy quality and affordable dental care for two years with savings on basic dental treatments. (Closing price: S$0.770, unchanged)
SATS Ltd has confirmed acting CEO Tan Chuan Lye as its president and CEO with effect from April 1. SATS said it had decided to retain and promote Mr Tan following a rigorous selection process involving a number of outstanding internal and external candidates for this role. Mr Tan took over as acting CEO and executive vice-president, food solutions, of SATS, following the sudden and unexplained departure of previous CEO and president, Clement Woon, in July last year. (Closing price: S$2.480, +0.8%)
See Hup Seng Limited announced that it had invested US$10 million for a minority stake in Energy Drilling Pte Ltd. See Hup Seng Ltd entered into a binding term sheet with Energy Ventures IV LP, Energy Drilling Pte. Ltd. and Globalfund Capital Pte. Ltd. for the proposed investment. See Hup Seng's investment will allow Energy Drilling to meet the capital requirements for it to enter into a construction contract for two tender rigs and for setting up a professional operating organization for the construction management, marketing and operations management of the two tender rigs. The investment amount will be fully satisfied in cash and will be funded partly from the internal resources of the company and the remainder from borrowings. (Closing price: S$0.220, unchanged)
XMH Holdings Ltd said its wholly-owned subsidiary, Xin Ming Hua Pte Ltd, has received a writ of summons from a customer, Pacific Marine & Shipbuilding Pte Ltd. Pacific Marine is claiming for damages, expenses and losses in relation to a dispute relating to a 65.6 million yen (S$1 million) sales contract for marine diesel engines with gearboxes and related components supplied by Xin Ming Hua. (Closing price: S$0.161, -3.6%)
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Research Report
Singapore
Genting Singapore PLC – Update
Recommendation: Accumulate
Previous close: S$1.74
Fair value: S$1.89
We view the award of junket licenses as a game changer in our valuation on Genting. Though the operators are not significant in size, the approvals signify CRA’s willingness to allow them to operate in the Republic. More licenses may be awarded and small operators can become bigger over time.
We upgrade Genting from Neutral to Accumulate and raise target price from S$1.59 to S$1.89 as we forecast an increase of 20% in revenue and 14% increase for net income. We also raise the valuation from 12x to 13 EV/EBITDA to be in line with the multiple accorded by the market to Genting for the past 1 year.
Hong Kong
Comtec Solar System Group - Company Update
Recommendation: ACCUMULATE
Previous close: HKD$1.57
Fair value: HKD$1.31
Comtec’s performance increased significantly during the report period, both of gross profit and net profit showed considerable growth. Although the whole industry is still in recession, Comtec’s overall performance has been showing the momentum of bottoming out, and we estimate that the trend will be continue.
We believe that the effects of product renovation on performance increasing and avoiding excessive competition are obvious. Under the situation of fierce competition, the differentiation strategy could improve the competitive advantage of Comtec. As increase of proportion of new product, the performance will be improved constantly.
The product capacity will be increase in the first half of 2012. With stable customer base, the major part of product capacity could consume by them, plus the subsidiary from the government, Comtec could avoid loss even in the toughest time.
We estimate that the EPS of 2011 will be CNY 0.31, and considering the growth rate of Comtec, the EPS of 2012 could reach CNY 0.37 or HKD 0.45. The target price in the following 12 months is HKD 1.57 under 3.5x P/E we estimated. So the rating is “Accumulate”.
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Thailand
Airports of Thailand – Company Update
Recommendation: NEUTRAL
Previous close: Bt58
Fair value: Bt54.25
Number of flights and passengers increased 10.07% and 8.48% y-y in the first two months of 2QFY12 following severe flooding in 1QFY12. The positive outlook is expected to continue in Mar.
New PSC scheme is pending DCA’s approval after AOT’s board resolved to increase the PSC to Bt800 for international flight and Bt150 for domestic flight.
We expect pre-FX profit to come out better than earlier forecast on lower depreciation charges and an upward revision in our estimates for number of flights and passengers, despite post-flood repairing expenses and an adjustment in deferred tax assets. We therefore revised our target price up to Bt54.25/share and upgrade our recommendation to ‘NEUTRAL’.
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Banking Sector – Sector Update
Recommendation: NEUTRAL
Net lending at 11 Thai banks under our coverage grew sequentially by 0.6% m-m in Feb 2012. Feb bank deposits rose at a stronger pace of 1.5% m-m, offsetting a 0.9% drop in borrowings. The banking sector’s loan/deposit + borrowing ratio slipped 0.8% m-m to 83.5%.
In 2MCY12, bank loans rose 1.2% YTD. In our view, full-year loans are likely to grow in double digits.
SETBANK rallied by 21.8% in the year to Mar 23, 2012 but the impact from floods is likely to linger in 1QCY12. We reiterate our ‘NEUTRAL’ stance on the banking sector. Our top picks include KK and TCAP that are still trading at low P/Bs.
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Read the research report(s), available through the link(s) above, for complete information including important disclosures.