SG Market (05 Aug 14)

US Market: US shares recouped some lost ground with the S&P 500 bouncing back from its biggest weekly drop since 2012 as markets stabilized after last week's selloff amid a Portuguese bank bailout and solid earnings. The DJIA rose 76 pts to 16,569 (+0.5%), while the S&P 500 advanced 14 pts to 1,939 (+0.7%), and the Nasdaq Composite added 31 pts to 4,384 (+0.7%). All three major indices have stubbornly resisted a large correction for more than two years. Markets recovered early losses and pushed the S&P 500, Nasdaq and Russell 2000 back into the green for Aug, as investors took advantage of the recent market rout to bargain hunt, partly aided by news that Portugal’s central bank has unveiled a rescue plan for troubled Banco Espírito Santo. Technology stocks began the week with broad gains, with Groupon jumping 8.7% ahead of earning on Tue. Others that scored impressive gains include Amazon (+2.2%), Yahoo (+2.6%), Facebook (+1.6%) and Priceline (+4.3%). Anadarko Petroleum (+4.8%) and Noble Energy (+5.2%) led a 1.6% rally among energy companies following a move to remove anti-fracking initiatives from a voting ballot. Michael Kors plunged 5.9% after its earnings forecast for the upcoming quarter came in shy of estimates. Berkshire Hathaway advanced 3.1% to an all-time high as a rebounding US economy boosted the value of its stock portfolio Walt Disney gained 2.2% after its latest action film, Guardian of the Galaxy, smashed ticket sales forecasts with its best Aug opening ever. Time Warner rose 2% after Fox was reportedly preparing a higher bid of US$90-95/share for the company. S’pore shares may find some support at the 3,320 level on the STI although the correction phase is still in progress with some MACD triggering a short term sell signal. A downward break of the 3,320 level could take the index to next support at 3,280. Stocks to watch: *Sembcorp Marine: 2Q14 results below expectations, as net profit rose 5.4% y/y to $131.6m. Revenue climbed 19.3% to $1.3b, mainly due to higher recognition for rig building projects (+39.1% to $873.6m), but was slightly offset by a decline in Offshore and Conversion revenue (-10% to $295.4m) and reduction in Repair revenue (-5.1% to $149.8m). Operating margins softened by 1.5ppt to 11.5%, likely dragged by a challenging shipping sector environment. Year-to-date, the group secured a total of $2.5b worth of new rig and offshore conversion contract, lifting net order book to $12.7b, with deliveries stretching into 2019. Management cautioned on a slowdown in new order outlook and margin pressure arising from competition. Interim DPS maintained at 5¢. *OCBC: Record 2Q14 net profit of $921m (+54% y/y) soundly beat consensus estimate of $801m, underpinned by higher net interest income (NII), strong non-interest income growth, mark-to-market gains in the insurance business and continued cost discipline. NII climbed 17% y/y to a new high of $1.13b, led by broad-based growth in customer loans to $177b (+12%) and net interest margin expansion (+6bbsp to 1.7%) driven by higher loan spreads. Non-interest income jumped 40% to $850m, boosted by higher fee and commission income from wealth management and trade-related activities. Meanwhile, cost-to-income ratio dropped 7.3ppt to 38.5%. Credit quality remained sound, with net allowances for loans at $66m (-20%) and NPL ratio unchanged at 0.7%. CET-1 capital adequacy ratio was 14.7%. Increased interim DPS to 18¢ (1H13: 17¢). Management focus will shift to integration of Wing Hang Bank following completion of its full privatisation. NAV per share at $7.31. #Capitaland: 2Q14 results were broadly in line, with net profit at $438.7m (+15% y/y) taking 1H14 net profit to $586.1m (+17%). Excluding revaluation gains, core net profit was $136.5m (+31%). Revenue fell 13% to $875m, weighed by lower contributions from the Singapore (-21%) and China (-38%) operations, offset party a rise in revenue from its Serviced Residence division (+8.0%). Bottom-line was partly aided by a rise in other operating income to $241.2m (+4.5%) and contributions from associates and JVs to $374.7m (+6.1%). NAV per share at $3.69. *GLP: 1QFY15 net profit declined 12% y/y to US$179m, mainly due to earnings dilution following the introduction of the China investor consortium’s 24.4% stake in GLP China during the quarter. Otherwise, adjusted for the GLP China investment, and excluding revaluation gains, core net profit would have grown 27% to US$61m. Revenue climbed 18% to US$169m, on the back of higher rents and continued lease-up of development projects in China, while Japan revenue was up 9%, driven by sustained growth in the group’s fund management platform. NAV per share at US$1.89 ($2.36). *GLP: JV with China's largest state-owned warehouse logistics provider, China Materials Storage and Transportation Development Company (CMSTD), to develop modern logistics facilities, with land sourced by the Chinese group. GLP will invest US$324m for a 15.3% stake in CMSTD to become its second largest shareholder. CMSTD has land resources of 9m sqm in premium locations across China, twice the size of GLP's land held for development (4.9m sqm). #Far East Hospitality: 2Q14 distributable income dropped 4.9% y/y to $22.1m, interim DPU is down 13.3% to 1.24¢ with additional dilution from enlarged unit base. Revenue rose only 1% to $29.6m even with the addition of Hotel Rendezvous and NPI was down 1.3% on higher property tax and retail and office expenses. FEH’s office and retail rental grew but hotel revenue is affected by Chinese withdrawal from SE Asian tours and austerity measure on government officials. Occupancy was 7.6ppt lower at 80.1%, ADR 2% lower at $188 and RevPAR 10.5% lower at $150. AEIs are underway at Regency House and Village Hotel Changi. Management thinks Singapore’s tourism landscape should support demand going forward. FEH-REIT trades at 1.1x P/BV with NAVPS 97.56¢. *ARA Asset Management: 2Q14 net profit jumped 36% y/y to $20.8m, on the back of a 17% rise in revenue to $40.4m. Top line was driven by an increase in recurring management fees (+6% to $31.3m), attributable to higher REIT management fees, fee contribution from various REIT acquisitions, and higher portfolio management fees arising from the launch of a new fund platform, MIP, and higher valuation of the existing ARA Harmony Fund. In addition, finance income surged 67% to $6.4m due to net gains on fair valuation and disposal of financial assets. Assets under management grew 3% year-to-date to $25.8b. Interim DPS maintained at 2.3¢. *BRC Asia: 3QFY14 net profit dropped 28% y/y to $6.5m, as gross margin declined 1ppt to 14%. Revenue slipped 5.5% despite higher sales volume, as an oversupplied steel market pulled down the per unit price of steel. Other operating expenses increased as doubtful debts increased six-fold. *Yongmao: 1QFY15 net profit swelled 177% to Rmb36.2m, boosted by a Rmb12.1m one-off gain associated with the restructuring of its JV with Tat Hong. However revenue fell 11% to Rmb229.6m, driven by a 32% decline in PRC sales on weaker domestic demand, partially mitigated by growth in Europe, Middle East, and the rest of Asia. Gross margin improved to 31.6% (+7.8 ppt) buoyed by higher overseas sales and rental income, and absence of provision for obsolete stocks. *Riverstone: 2Q14 net profit advanced 11.3% to RM16.1m while revenue rose 7.1% to RM 96.8m on higher demand for its specialized cleanroom and healthcare gloves. Interim dividend of 2.35sen declared. *Ezra: its subsea services division, EMAS AMC has been awarded several projects around the world worth close to US$110m, including options. The scope of work include the transport and installation of subsea structures in Africa, inspection, maintenance and repair work in the Gulf of Mexico, and support services for a deepwater project with an oil major in the Asia Pacific. *Noble: The International Finance Corporation (IFC) is considering an investment in Noble Agri through the co-acquisition of 51% shares with COFCO via a JV company. Total consideration of the joint-acquisition is estimated at US$1.5b. *Sinija Land: Signed a 10-year lease agreement to supply Singapore-based Tembusu Industries with a complete set of power generation equipment with a production capacity of 6MW. The plant will provide the town of Myeik, Myanmar with a third of its electricity requirements. The project is expected to break even by the third year of the contracted period, and installation is expected to be completed within three months of equipment delivery.