DJ MARKET TALK: Singapore's STI May Stall; 3020-3065 Range Likely 

0053 GMT [Dow Jones] Singapore's STI may stall, tracking generally flat regional markets, with players likely digesting recent earnings reports. Players may shrug off the U.S. jobless claims data that caused fretting on Wall Street. "Should we be alarmed by the surge in U.S. initial jobless claims? We reckon not. The surge was largely due to payback for the seasonal distortions in last week's data. In fact, compared to a month ago, the four-week moving average of claims have actually registered a decline of around 13,000," says Phillip Securities in a note. The index is likely to stick to a 3020-3065 range after ending Thursday up 14.69 points, or 0.5%, at 3060.36. Among stocks likely in focus, Keppel (BN4.SG) reported 3Q12 net profit fell 14.7% on-year to S$346.4 million as a rise in costs outpaced revenue growth. Singapore Exchange (S68.SG) reported its fiscal 1Q13 net profit fell 15% on-year to S$74.3 million on lower stock market trading volumes. Mapletree Logistics Trust (M44U.SG) reported fiscal 2Q13 DPU of 1.71 Singapore cents compared with 1.69 cents a year earlier.
 

*DJ Mapletree Logistics Trust 2Q DPU 1.71 Singapore Cents Vs. 1.69 Cents 
 

• Base building, waiting for next catalysts
• Uninspiring 3Q results – more downgrades than upgrades
• Prefer downstream consumer plays to upstream CPO planters, REITS to property developers; Oil and Gas stocks still in favour.

Base building, awaiting catalysts. The Singapore market is building a base as it awaits fresh catalysts. Equity markets are supported by green shoots of recovery in the US, while China signals a possible cyclical bottom in 4Q. However, near term outlook is clouded by high inflation, slowing growth and structural changes on the domestic front. The latest move by MAS to leave the Sing NEER currency band unchanged at a gradual and modest appreciation pace demonstrates its determination to combat inflation. The shadow of more property measures in Singapore, a lacklustre 3Q results season, uncertainty ahead of the November US Presidential Election and the year-end ‘fiscal cliff’ will deter investors from taking on excessive risk. Against this backdrop, valuation is fair at 13.3x (-0.5SD) FY13F PE, we see the Singapore market crawling forward towards year-end.

Slower GDP a drag on 3Q earnings outlook. We expect more downgrades in 3Q’s report card, following consecutive cuts in Singapore’s GDP growth to 1.8% and 3.2% for 2012 and 2013 respectively. Despite slower growth, the economy is also grappling with rising cost pressures especially higher wages due to constraints imposed on foreign labour. This could affect the healthcare, offshore and marine, and transport companies. Potential earnings downgrades could come from banks – slower loan growth and NIM pressure - and real estate which are the key domestic proxies while technology and China shipyards will be affected by weaker demand and slow ramp up in orders. The brighter spot is in oil and gas where we expect a stronger 2H as recognition of higher priced projects kick in. Premium 4G pricing and lower data caps could lead to upward revision in earnings for the telecoms sector in Singapore.

Pair trades, value remains in small and mid cap oil and gas. We would sell on strength upstream planters - First Resources and Indo Agri - after cutting earnings for CPO stocks by 2% to 26% due to high inventories depressing CPO prices. REITS are preferred over property developers, as the possibility of more policy measures remains an overhang. However, we are selective on S REITS given the sector’s strong performance over the past 6 months and recommend to BUY Suntec, FCOT and Far East HT. Key stock pick in property sector is
CMA as a proxy to ride on China consumption. Our top dividend yield picks are Hutchison which will ride on recovery in trade between US and China, and offers an attractive 8.3% dividend yield, and Silverlake Axis which has a strong recurrent earnings base and order book. Despite the outperformance of oil and gas stocks on a 3-month basis, the sector remains undervalued at 9.5x PE, offering recovery prospects with the offshore support supply fleet reaching equilibrium. Top picks are SembCorp Marine, Ezion, STX OSV and Nam Cheong.