DJ MARKET TALK: Singapore's STI May Open Up; 3065 Hurdle Eyed  

0047 GMT [Dow Jones] Singapore's STI may open higher, in line with regional markets' moderate gains, but any advance may be limited. "We'll probably be more sideways. We don't see many cues coming from Wall Street. Results over the weekend weren't really fantastic," says Carey Wong, an analyst at OCBC. "I don't think anybody has a very good handle on the market outlook at the moment. The consensus are still a little too bullish, so chances are people will continue to pare down estimates. The recovery story in the third and fourth quarter doesn't look like it's going to happen." The STI ended Thursday up 0.4% at 3057.51; the market was closed Friday for a holiday. If the index crosses 3060-3065 resistance, the next hurdle is around 3088. Among stocks likely in focus, Wilmar (F34.SG) entered a 50:50 JV with Clariant (CLN.VX) for production and sales of amines and amines derivatives. NOL (N03.SG) swung to a 3Q12 net profit of US$50 million from a US$91 million year-earlier loss, mainly on cost savings and improved operating performance. CapitaMalls Asia (JS8.SG) reported 3Q12 net profit rose 70.8% on-year to S$62.4 million. Mapletree Commercial Trust (N2IU.SG) reported fiscal-2Q13 DPU rose 16% on-year to 1.546 Singapore cents. 
 
 

*DJ Singapore 3Q Private-Home Prices +0.6% on Quarter Vs +0.4% in 2Q 

 

*DJ CapitaCommercial Trust Target Raised To S$1.35 From S$1.24 By Maybank-Kim Eng 
 
 

*DJ Neptune Orient Lines Target Raised To S$1.46 From S$1.35 By Maybank-Kim Eng 
 

.        Concerns of further cooling measures to weigh on residential property stocks – City Dev, Wing Tai, Capitaland, Ho Bee, & SC Glo

KEY POINTS

Straits Times Index FTSE Small Cap Index

 STI – Downside to 2985 or even 2930 on earnings concern, inflation worries and the approach of the year-end lull

 Concerns of further cooling measures to weigh on residential property stocks – City Dev, Wing Tai, Capitaland, Ho Bee, & SC Global

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Singapore’s 3Q corporate results season is still in progress. Thus far, the index’s 13.26x (-0.5 SD) FY13F PE

STI and 12-mth forward PE Brent Crude Oil

has been cut by 43pts to 3080 while that for 12.39x (-1

SD) FY13F PE is also lowered to 2880 from 2918. The downward revision came from Keppel Corp, SPH, UOB and OCBC.

At the same time, inflation pressure returned with September CPI of 4.7% (consensus 4.3%) solidly higher than the 3.9% in August. We note that STI began

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underperforming regional peers after OMT & QE3 were announced in September. The index has been resilient

thus far, likely because of the strong SGD and gradual growth prospect. But with STI currently trading at ‘fair’

valuation, the combination of earnings downward

revision, inflation worries and the approach of the seasonal year-end lull could see the STI consolidating

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13

Source: Datastream, DBSV Research

FTSE Indices 5-Day Performance

Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

lower. Technically, we see downside risk to 2985 or even as low as 2930.

We think Singapore residential property stocks will either underperform or in-line at best as policy concerns

continue to weigh after the HK government announced the latest measures, the 3rd in 2 months. Technically, we

see $11.07 downside risk for City Development shares or even as low as $10.50. Capitaland and Wing Tai

shares are near our fundamental TPs that make both susceptible to profit taking on further marginal upside.

Meanwhile, the rebound in the latest October HSBC

flash manufacturing PMI and September industrial profit add further signs that China’s economy is bottoming.

We stick to our mid-term positive view on the SSEC with the iShares FTSE A50 China Index (2823 HK ) as a good

proxy. Stocks that stand to benefit from the Chinese economy’s anticipated bounce off the 3Q bottom are

Noble Group and HPH Trust while CMA and Wilmar International should benefit from China’s focus on domestic demand.

FTSE Sectoral Indices 25-Oct-12 Chg Chg

STI 3,057.51 -0.1 15.5

Mid Cap 750.84 -1.2 27.9

Small Cap 494.09 -0.7 23.9

All Share 749.37 -0.3 18.0

China 219.47 -1.2 -0.4

Real Estate 732.71 0.3 38.0

Real Estate & Dev 708.95 0.5 39.8

Real Estate Inv Trust 779.04 0.1 35.8

Oil & Gas 747.59 -1.6 26.3

Basic Materials 198.49 -2.8 2.1

Industrials 797.40 1.3 25.4

Consumer Goods 502.98 -1.5 -18.2

Health Care 1,287.48 0.0 -8.1

Consumer Service 829.61 -0.9 3.1

Telecommunication 843.02 -0.2 5.3

Utilities 341.33 -1.3 11.5

Financials 761.96 -0.5 28.6

Technology 533.74 -1.7 7.1

Source: DBS Vickers, Bloomberg

Wired Weekly

Resilience, slow growth and inflation mixed together makes a dull environment

Earnings downgrade thus far

The 3Q results season has begun. So far, earnings for S- REITs have generally been in-line with expectations as usual.

However, several STI component stocks suffered FY13F earnings downgrade in either their 3Q results preview or review. KepCorp’s FY13F earnings were revised down 3.5%

on lower O&M margins, adjustments to order book recognition schedule and a cut in FY12 order wins assumption. SPH’s FY13F earnings were revised down 4.6% on lower ad revenue growth. OCBC’s FY13F earnings were

revised down 6.9% while that for UOB was cut by 1.6%, both on the back of Singapore’s softer GDP growth and NIM compression.

The reporting season is still in progress. If this trend of FY13F

downward revision continues for the rest of the STI

component stocks, the index’s forward PE levels that market watchers use to set index target will be negatively affected. Thus far into the 3Q results season, STI’s 13.26x (-0.5 SD) FY13F PE has been cut by 43pts to 3080 while that for

12.39x (-1 SD) FY13F PE is also lowered to 2880 from 2918.

STI at various FY13F PE levels

FY13F PE (-1SD) (-0.5SD) (Ave) Just before 3Q

results season 2918 3123 3328

Current 2880 3083 3285

Change (38) (40) (43)

Source: DBS Research

Inflation on the rise again

Earnings downgrade aside, there is also the matter of the worse-than-expected inflation pressure with September CPI

of 4.7% (consensus 4.3%, August 3.9%). Transport (+9.6% y-o-y) and housing (+6.4% y-o-y) related inflation remained the key drivers. The rapid increase in healthcare related costs

in recent months is also a concern. This sector is highly dependent on foreign labour. Our economist says this is a classic example of how the tightening of inflows of foreign labour will severely impact the cost of living in Singapore.

Life before and after OMT/QE3

The following charts show the relative performance of

global equity indices before and after September 6, the date that the ECB declared OMT and shortly before the FED announced QE3. Recall that equity markets precipitous decline in 2Q on the back of the Eurozone crisis touched an

important low on June 4. The first chart starts June 4 and ends September 6. During this period, STI sat next to the top

performer, second only to the JCI, as the Singapore market was seen as a safe haven and offered good yield. The SSEC

was the worst performer and that affected the performance of the Hang Seng Index.

Relative strength before OMT & QE3

Source: The Nextview

Post September 6, the tables have turned. The Hang Seng

Index is the top performer while STI is among the underperforming indices. Even the SSEC has outperformed the STI, albeit by just a marginal amount. Surprise surprise! The Dow, which performed well during the June to September period became the worst performer despite QE3.

Relative strength after OMT and QE3

Source: The Nextview

STI could continue to underperform regional equity indices going forward on the combination of lower earnings expectations and the rekindling of inflation worries.

Strong SGD and high single digit FY13F EPS growth rate limit STI downside

Still we do not see a big tumble in store for the STI. Firstly, FY13F earnings for the Singapore market are still improving at a high single digit growth rate (down from mid-teens)

despite the latest downgrades. Secondly, the Singapore market will likely be underpinned by the strong SGD. Despite slowing economic growth, MAS had recently kept the SGD on the currently appreciation path instead of

adopting a looser monetary policy because of concerns over rising inflation. Our currency strategist expects the SGD to strengthen against the USD at a rate of 0.01pt per quarter, to 1.18 by 3Q13 from the current 1.22.

USD-SGD exchange rate YTD

Source: Bloomberg

Historically, STI’s 14.1x (average) 12-mth forward PE is a major resistance. With economic growth slowing, forward

earnings still in downward revision and inflation worries resurfacing, we do not see the STI rising to this level anytime soon. The 12.4x (-1SD) 12-mth forward PE forms a major support. However, a negative shock event is necessary to

pull the index down to that level. There is currently none.

STI currently rests slightly above the mid-pt 13.3x (-0.5SD)

12-mth forward PE. Sufficiently resilient to withstand the recent 3.5% tumble on Wall Street last week but unable to sustain a good rally because earnings are still being toned

down, inflation worries have resurfaced, valuation is ‘fair’ and the seasonal year-end lull period approaches. It seems the combination of resilience, slow growth and inflation worries mixed together has created a dull market environment.

Technically, we see the risk of STI declining to 2985 or even as low as 2930.

STI and various 12-mth forward PE levels

Source: DBS Research

Concerns about more measures to weigh on residential property stocks

Concerns about more property measures could weigh on

Singapore residential property stocks after the HK

government announced another attempt to cool prices, the

3rd set of curbs in 2 months.

The FED’s QE3 and record-low interest rates have raised the risk of an asset bubble as HK home prices almost doubled

since 2009. In the latest round, the HK government introduced new taxes on home sales and targeted foreign buyers. Foreign or non-resident buyers will pay a 15% tax upon purchase. The stamp duty on short-term property transactions will also be raised to dampen speculation.

Singapore’s latest property measure that attempted to cap

the tenure of new home loans was announced on October 5. Property stocks suffered a knee jerk reaction but soon stabilized after September private-home sales jumped

83.7% m-o-m and 60.7% y-o-y.

Even comments by Trade Minister Lim Hng Kiang that the government stands ready to act on the property market if necessary, failed to weigh down further on property stocks

as market watchers say property sales will remain strong and defiantly believe that the Singapore government will not

introduce fresh measures until at least 6 months later. The

latest measures in HK, the 3rd in 2 months, could tame this confidence.

The table below shows performance of residential property stocks since the latest measures were announced earlier this

month. The impact is mixed. SC Global suffered most while

City Developments was moderately lower. Ho Bee shares were almost in-line with STI’s 1.6% decline since October 5.

Capitaland, which benefited from the hope that China’s economy is bottoming and Wing Tai even outperformed the STI.

Going forward, we think residential property stocks would either underperform or in-line at best as policy measure

concerns continue to weigh. Technically, City Development shares see resistance at $11.70 with downside risk to

$11.07. If this level fails, the next level is $10.50.

Capitaland shares are now a mere 2.6% from our fundamental TP of $3.42. Technically, the TP coincides with

technical resistance. Look to take profit into strength near

$3.40 and wait for a pullback before re-entry, preferably near $3.20.

Wing Tai shares are also near our fundamental TP of $1.75. Technically, the TP also coincides with technical resistance at

$1.77. Look to take profit into strength as well.

Singapore Traders Spectrum

Wired Weekly

Residential property stocks performance since Oct 5

STI -1.6%

CityDev 11.41 11.42 0.1 FV -4.5% 11.50 11.05

CapitaLand 3.33 3.42 2.6 Buy 0.9% 3.12 2.95

Ho Bee 1.47 1.22 -17.0 Hold -3.0% 1.39 1.31

SC Global 1.13 1.19 4.9 Hold -8.5% 1.09 1.07

Wing Tai 1.70 1.75 3.1 Hold -0.9% 1.58 1.42

Source: DBS Research

China bottoming theme gathers traction

More signs of a bottoming in the Chinese economy

emerged last week. China's September industrial profits rose

7.8% y-o-y to RMB464.3bil, up from a 6.2% drop in

August. Separately, the October HSBC flash manufacturing PMI rebounded for a second month to 49.1 from 47.9 in September and 47.6 for August. This adds to the better- than-expected September retail sales and industrial

production figures. Interest in North Asian markets have picked up post QE3 announcement.

During the past 1 month, we had positioned investors to a positive turn in the SSEC. We notice that consensus view on such a turn also picked up gradually. We maintain our view

for the SSEC to rise to 2370 followed by 2582 in coming months.

The iShares FTSE A50 China Index (2823 HK) is a good proxy to the SSEC. Stocks that stand to benefit from the Chinese economy’s anticipated bounce off the 3Q bottom are Noble

Group and HPH Trust while CMA and Wilmar International should benefit from China’s focus on domestic demand.

Straits Times Index Technical Outlook

STI stayed within a narrow range 50pt range from 3030-

3080 for the past 2-3 wks. The daily MACD gives no indication on where the eventual break out from this narrow

band may be. However, we note that the market breadth

McClellan Oscillator dipped from -12 to -17 last week despite STI’s resilience (by gaining 9pt) to Wall Street’s

decline. That is, the broad market is not following the STI’s resilience.

Our view remains for the STI to turn lower as it further consolidates the 400pt gain from June-Sept. 2985 is the

initial downside if STI declines below 3030 (65-day EMA). Below this, the next downside is 2930.

Technicals aside, on-going earnings downward revision, the emergence of inflation concern and the approach of the year-end seasonal lull period are other factors that should see the STI consolidating lower.

Straits Times Index (Daily)

Source: DBS Research

Singapore Traders Spectrum

Wired Weekly

Top large and small / mid cap picks for the coming week

prope rty cooling me a sure s

Com pa ny Re c om Pri c e Ta r ge t P r i c e U ps i d e Ca ta l y s t

2) Limite d upside to funda me nta l ta rge t price

Wired Weekly

Major research reports released last week

Singapore Banks - - 1) NIM pres s ure to pers is t while loan growth expected to be s lower in 3Q12

2) FY13-14F earnings trimmed by 4-7% on s ofter macro outlook; TPs lowered

3) Banks ’ balance s heets remain s trong

4) Prefer OCBC over UOB

Hutchis on Port Holdings

Trus t

BUY US$ 0.88 (Prev US$

0.85)

1) Healthy volume growth did not trans late to s imilar revenue and earnings growth in 3Q12

2) FY12F DPU of 6.6UScts looks s afe; FY13 DPU may be affected by abs ence of capex deferral

3) Macro indicators trending up in US and China, and yield compres s ion continues in Singapore

4) Maintain BUY with higher TP of US$0.88

Cache Logis tics Trus t HOLD S$ 1.26 (Prev S$ 1.21) 1) 3Q12 res ults in line

2) Strong earnings vis ibility; further uplift from potential acquis itions in 2013

3) Maintain HOLD, TP rais ed to S$1.26

Mapletree Indus trial

Trus t

HOLD S$ 1.43 (Prev S$ 1.35) 1) 2Q13 res ults held s teady q-o-q

2) Operational res ults s table while revers ions remained pos itive at c19-23% y- o-y

3) Maintain HOLD with revis ed TP of S$1.43

Fras ers Centrepoint Trus t BUY S$ 2.04 (Prev S$ 1.93) 1) A s et of in-line res ults

2) Steady performance s upported by healthy rental revers ion and acquis itions catalys t in the pipeline

3) Maintain BUY at a higher TP of S$2.04

CapitaRetail China Trus t HOLD (Downgrade from

BUY)

S$ 1.67 (Prev S$ 1.57) 1) In line with expectations

2) Strong rental revers ions s upported by healthy retail s ale

3) Ups ide catalys ts to come from pos s ible acquis itions

4) Downgrade to HOLD on valuation grounds , TP rais ed to S$1.67

As cott Res idence Trus t BUY S$ 1.39 (Prev S$ 1.29) 1) 3Q12 res ults in line with es timates

2) RevPAU boos ted by recently completed refurbis hment exercis es in UK and

China

3) BUY maintained, TP rais ed to S$1.39

Yoma Strategic Holdings BUY S$ 0.65 (Prev S$ 0.60) 1) 2Q13 core profits below expectations but margins , property s ales and prices continue to ris e

2) Only 9% of Star City recognis ed, look forward to more s ales and recognition

3) Cut FY13/14F on non-operating charges and extended cons truction period

4) Maintain Buy, TP rais ed to S$0.65 as better margins and ASP pus hed up

RNAV

Sheng Siong Group HOLD S$ 0.51 (Prev S$ 0.47) 1) 3Q12 res ults s lightly ahead on better margins and improved SSS

2) Driven by les s intens e pricing pres s ure and growth in s tores ’ addres s able population s izes

3) FY12F dividend yield of 5.8% s upports s hare price

4) Maintain HOLD on limited ups ide to S$0.51 TP bas ed on 20x FY13F PE

OKP Holdings HOLD S$ 0.49 (Prev S$ 0.54) 1) Headline 3Q12 earnings of S$2.4m were below expectations on s lower order wins , higher cos ts and provis ions

2) FY12F/FY13F earnings cut by 34%/14% on s lower order wins , lower margins

3) Maintain HOLD with lower TP of S$0.49, forecas t dividend yield of 3.7% no longer attractive

Source: DBSV Research