SG Market (01 Aug 14)

US Market: US shares skidded in heavy trading as a combination of weak Eurozone data, disappointing US corporate earnings and Argentina default triggered a broad selloff. The DJIA tumbled 317 pts to 16,563 (-1.9%), wiping out its gains this year, while the S&P 500 sank 39 pts to 1,931 (-2%), closing below its 50-dma, and the Nasdaq Composite dropped 93 pts to 4,370 (-2.1%). Market volatility rose after a longest stretch of calm since 1995. The VIX index, often dubbed as Wall Street’s fear gauge, jumped 27.2% to 16.95, its highest level since Apr. The rout followed a dready day on European bourses after Eurozone data revived concerns about deflation. Lufthansa and Adidias both warned of dimming prospects over the unrest between Russia and Ukraine. Banco Espirito Santo plunged after the Portuguese bank was ordered to raise capital following a €3.6b loss. Adding to the presuure was Argentina, which defaulted on its debt for the second time in 12 years. Investors also weighed the implications of robust economic growth and sings of rising wage inflation, which showed 2Q US labour costs recording its biggest gain in 5½ years. Separately, weekly jobless claims climbed 23,000 to 302,000 after hitting a 14-year low the previous week. Concerns grew that the improving economy may force the Fed to change course sooner than expected. All main sectors fell into the red with energy, financial, telecom, healthcare and biotechnology companies all declining more than 2%. Oil giant ExxonMobil (4.2%) was among the biggest key losers after its reported a 5.7% drop in oil and gas output despite posting a 28% rise in 2Q earnings. Other drags included Chevron (-2.5%), as well as Murphy Oil (-6.9%) after it lowered its production forecast as earings trailed estimate. Leading tech firms were not spared with Apple (-2.6%), Facebook (-2.7%), Google (-2.7%) all closing lower. Memory chip maker Micron Tecnology slumped 6.1% after Samsung posted the lowest quarterly profit since 2012. Nike declined 3.1% after European rival Adidas slashed its full year forecast. Kraft Foods crumbled 6.4% after its 2Q sales missed forecast, while Yum Brands slid 4.9% after cutting ties with meat supplier OSI Group globally. Wireless carrier Sprint lost 5.3%, while T-Mobile rallied 6.5% amid a bidding war for the latter between Japan’s Softbank and France’s Iliad. S’pore shares are likely to take a hit following the selldown on Wall Street and steep losses in Europe. The STI also appears overstretched and is primed for a short term correction to downside support at 3,320 level. Results from DBS, UOB and SGX all beat expectations but much of the positives may have been priced in by the recent rally. Stocks to watch: *UOB: 2Q14 earnings of $808m (+2.5% q/q, +3.2% y/y) beat expectations, but were of low quality, boosted by lumpy volatile investment income of $118m. Key positives: i) broad-based loan growth (+2.4% q/q, +11.7% y/y), and ii) strong USD deposit growth (+4% q/q, +32.6% y/y). Nevertheless some discouraging trends have surfaced: i) weaker than expected net interest margin of 1.71% (-2bps q/q, flat y/y), ii) slight deterioration in asset quality with non-performing loans rising to $2.3b (+11.2% q/q, +7.3% y/y) and a doubling of impairment charges to $150m, and iii) weaker deposit franchise arising from sequential contraction of SGD deposits (-3.4% q/q, +2.6% y/y). Interim dividend maintained at $0.20. NAV at $16.18. Given the mixed signals, the majority of analysts have retained their ratings and target prices post-results. *DBS: 2Q14 net profit beat expectations, rising 9% y/y to $969m. Net interest income rose 13% to $1.56b, from higher loan and deposit volumes, as well as better net interest margin of 1.67% (+1bps q/q, +5bps y/y). Fee income edged up 5% y/y to $503m, as higher wealth management and card fees were partially offset by lower brokerage commissions. Other non-interest income fell 44% to $253m due to a decline in net trading income and also due to absence of a $44m gain from the sale of fixed assets last year. Asset quality remained strong, as non-performing loan rate improved to 0.9% (1Q14: 1.0%, 2Q13: 1.2%) due to loan resolutions, however allowance coverage of non-performing assets rose to new highs of 162%. The loan-deposit ratio was stable at 86%, and Tier 1 capital adequacy ratio remained strong at 13.5%. Interim dividend maintained at $0.28. NAV at $14.32. *SGX: 4QFY14 net profit dipped 12% y/y to $77.4m, but still came in broadly in line. Revenue fell 15% to $172.6m, dragged by a big drop in the Securities business (-32% to $53.3m). Derivatives revenue also contracted 12% y/y during the quarter to $52.2m, reversing from the 9% growth chalked up over 9MFY14. Final dividend of $0.16 brings total FY14 dividend to $0.28, unchanged y/y. *OSIM: 2Q14 results were broadly in line. Revenue rose 10.4% y/y to $182.7m and net profit climbed 12.1% to $29.4m to a new record, driven by higher sales across its key OSIM products, and new contribution from TWG Tea (subsidiarised in Oct ’13). EBITDA grew 21% and cash flow from operating activities rose 14% to $35m on better working capital management. Balance sheet remains strong, backed by net cash of $239m. Interim dividend maintained at 2¢. . *Dairy Farm: 1H14 net profit flat at US$234m (+2% y/y), while sales rose 4% to US$5.3m. The Health and Beauty, Home Furnishings and Restaurants divisions achieved growth in sales and profits, but profits for the Food division were lower due to challenging market conditions in SE Asia and increased costs. *Viva Industrial Trust: 2Q14 DPU of 1.723¢ slightly beat forecast at IPO by 0.3%. Revenue came in at $15.2m (6.7% above forecast) and NPI was $10.2m (10.2% above forecast), driven by highly positive rental reversion at UE BizHub EAST but partially offset by subpar rental contribution from Technopark@Chai Chee. Going forward, there are AEI plans for Technopark@Chai Chee. Management is positive on the outlook for industrial leases and indicates potential target acquisitions beyond Asia-Pacific. *Roxy-Pacific: 2Q14 results beat expectations. Revenue surged 49% y/y to $102.6m, bolstered by growth in the property development segment, overcoming the unfavourable macro conditions in Singapore. Net profit rose 16.5% to $22.7m. Rre-sales revenue of $955.4m should underpin earnings visibility through to FY17. Interim dividend of 0.616¢ maintained. Separately, the group is acquiring land (940 sqm) and the existing six-storey Hotel Harvest KYOTO (total floor area of 4,780 sqm) for ¥2.26b. *Soilbuild Construction: 2Q14 net profit slipped 11% y/y to $5.2m, dragged by lower JV income due to absence of project completion by Solstice Development this year. Revenue dipped 0.3% to $67.7m, although gross profit margin expanded 2.4ppts to 12.1%, due to revenue recognition on variation orders for various projects. Order book stood at $676.9m, expected to be completed over the next 24 months. Interim DPS maintained at 0.5¢. *CH Offshore: FYJun14 turned a net profit of US$25.1m (FY13 net loss: US$7.1m), given the absence of US$44m of doubtful receivables allowance made last year. However, revenue fell 26.5% to US$35.1m, as two vessels secured bareboat charters, which have lower rates than time-charters. Final dividend of 2¢ and special dividend of 2¢ proposed, brings full year payout to 4.5¢ (FY13: 1.5¢). *China Aviation Oil: 2Q14 revenue rose 4.4% y/y to US$3.9b, as income from other oil products continued to increase but offset by persistent declines from middle distillates. Gross margin narrowed from 0.35% to 0.28% and operating expenses ballooned but a 176% jump in associates’ contribution helped bump up net profit by 32.4% to US$17.7b. *GKE Corp: Subsidiary Wuzhou Xing Jian Readymix successfully tendered for 29,640 sqm land at Wuzhou City, Guangxi Zhuang Autonomous Region, China, at a price of Rmb7.4m. The land will be used for the construction of a cement mixing plant which will be producing and manufacturing environmental friendly lightweight brick, building material and cement products. *SinoTel Tech: Profit warning. Expects net loss for 2QFY14 on reduced sales due to rising competitiveness, and potential allowance for doubtful receivables. *OUE Hospitality Trust: 2Q14 marginally weaker, as DPU was down 2.4% q/q to 1.64¢. Revenue dipped 1.5% q/q to $28.3m, due to weaker tourist arrivals and accelerated renovation at Mandarin Orchard Singapore. RevPAR was $242 (-2.4% q/q). On the bright side, occupancy at Mandarin Gallery remained strong at 99.7%, with strong positive rental reversion of 33%. NAV per unit at $0.90.