SG Market (06 Aug 14)

S Market: US shares resumed its selloff, sending benchmark indices to their lowest levels since May on anxiety about a potential Wall Street correction and worries over mounting tensions in Ukraine. The DJIA dropped 140 pts to 16,529 (-0.8%), while the S&P 500 fell 19 pts to 1,920 (-1%), and the Nasdaq Composite lost 31 pts to 4,353 (-0.7%). The VIX Index, which is a measure of market volatility, jumped 12% to 16.87. Sentiment was weak for most of the session as investors were wary that markets have been due for a possible 10% correction, after avoiding such a drop for more than two years. Fresh economic data showing that US service industries expanded at its fastest pace since Dec ’05 for the month of Jul and factory orders rising 1.1% in Jun, topping estimates, fuelled speculation that the improving economy would force the Fed to raise interest rates sooner than expected. The selling accelerated in the afternoon on reports that Russian troops were massing near the Ukraine border for a possible invasion, and President Putin stepped up the heat by ordering his government to prepare relatilatory measures against US and EU for imposing economic sanctions against Russia. Energy stocks (-2.1%) were amongst the biggest losers as oil prices fell to their lowest levels in six months, dragged by concerns over the weak gasoline demand in US and lacklustre economic data from China. Pioneer Natural Resources (5.6%), Halliburton (-3.4%), Chevron (-2.5%) and ExxonMobil (-1.9%) all slid lower. Amongst other stocks in focus, Delta Airlines (-2.8%) and United Continental (-3.4%) declined on reports that Russia may ban trans-Siberian flights by European airlines. Retailer Target Corp fell 4.4% after its quarterly earnings trailed estimates, marred by weak sales in US and Canada, as well as expenses associated with a widespread data breach, while discount retailer Dollar General gained 3.4% as it weighed a bid for Family Dollar Stores (+2%) to challenge the rival US$8.5b takeover offer by Dollar Tree (-2.2%). Motorola dropped 4.2% after its 2Q results fell short of forecast. After the bell, Groupon tumbled 17% following the release of its quarterly results, while Time Warner slumped 12% after 21 Century Fox (-8.3%) withdrew its US$75m takeover offer. More than 6.5b shares changed hands on the US exchanges, 13% above the three-month moving average. Stocks to watch: *StarHub: 2Q14 results were below expectations. Net profit dropped 6.3% y/y to $94.3m, as revenue dipped 1.8% to $576.4m on lower prepaid mobile and broadband revenue, and lower NBN adoption grants. The main reason for the depressed mobile revenue appears to be sharply declining voice and SMS that offset strong data monetisation. Meanwhile, broadband revenue fell sharply as ARPU declined further, and is unlikely to reverse as StarHub intends to continue to build its subscriber base as part of its home hubbing strategy. Management has downgraded its service revenue guidance from “low single digit growth” to “about 2013’s level”, and expects the new iPhone to depress 2H14 margins. 5¢ interim DPS maintained. *SingPost: 2Q14 net profit rose 5.1% y/y to $39.2m, buoyed by a one-off disposal gain on property. Otherwise, core net profit would have been flat at $36.2m (-0.2%). Revenue grew 4.8% to $210.9m, as growth in e-commerce related activities continued to offset declines in the traditional post business. However, operating margin slipped 0.7 ppt to 23.4%, mainly due to diversification into lower margin businesses. Total expenses expanded 8.5% to $179.7m due to higher wage cost and additional headcount to support the growth. Interim dividend maintained at 1.25¢. Management intends to invest additional capex of $100m over the next three years to upgrade its postal infrastructure and will also expand its end-to-end e-commerce logistics solutions network in Asia Pacific. *Yangzijiang: 2Q14 results were largely buoyed by one-off gains, and were otherwise broadly in-line. 2Q14 net profit at Rmb1.2b (+52% y/y) lifted 1H14 net profit to Rmb2.0b (+33% y/y), despite a dip in revenue to Rmb4.3b (-3%). Gross margin was roughly flat at 27.7%, though bottom line was boosted by a 317% jump in other income to Rmb215.0b due to interest income from the release of restricted cash deposit, and a Rmb85.3m tax credit. Order book stood at US$5.0b, underpinning revenue visibility of the next two to three years. *PRCT: Flat 2Q14 DPU of 0.95¢. PCRT posted revenue of $4.5m and NPI of $0.8m, boosted by new contribution from Jihua mall ($2.1m, commenced Aug ‘13) and Qingyang mall ($2.4m, commenced Apr ‘14), against nil revenue last year. Share of JV profit, which reflects the operating performance of the Shenyang assets, doubled to $2.1m. Occupancy for the portfolio retail assets remained broadly stable at 91.4%, while the effective occupancy for one tower of its Shenyang offices increased from 92.4% to 93%. Leasing of the second tower has commenced. Aggregate leverage stood at 29.3%, with weighted average interest rate of 4.41%. NAV per unit at $0.73. *BBR Holdings: 2Q14 net profit surged 83% y/y to $5.3m, keeping pace with the 84% jump in revenue to $191.6m, due to outstanding performance in the construction and property development segments, partially offset by lower revenue in the specialised engineering segment. Orderbook stood at $850m. NAV per share at $0.434. *NeraTel: Excluding the one-off negative goodwill boost from last year, core net profit was flat at $3.5m (+0.9% y/y). Revenue dropped 7.2% to $43.8m due to lower revenue from telecom (-14.8% y/y to $16.4m) and network infrastructure (-4.3% y/y to $17.8). Payment solution registered small gains of 2.9% to $9.6m. Interim DPS maintained at 2¢. *Rex International: 2Q14 net loss widened to US$3.6m from US$0.7m, weighed by higher admin expenses related to the group's rapid expansion of operations. No revenue recorded, as the group remains only involved in exploration and drilling activities. Jointly-controlled entities Caribbean Rex, HiRex, Rexonic and Lime continued to incur expenses for its E&P activities. NAV per share at US$0.1565 ($0.195). *ComfortDelgro: Acquiring the assets of the Blue Mountains Bus Company, which operates an Outer Metropolitan Bus Services contract in the Blue Mountains Region, Sydney, for A$26.5m. *Vard: Received a ~NOK200m tax claim from the Brazilian tax authorities relating to transfer pricing of goods and services delivered from the group’s Norwegian entities to Vard Niterói in FY10. Vard will file an appeal, and no payments are expected to be made before a final conclusion of the case, which may take several years. No provisions have previously been made for this claim. *Linc Energy: Signed an MOU with the National Development Corporation (NDC) of Tanzania and Olympic Exploration for the development of a 400MW underground coal gasification plant to deliver power into the Tanzanian electricity grid. Commercialisation of the plant could take place in late 2017. Further details to be negotiated over the coming months. *Wee Hur: Entered into two JV agreements with four individuals to invest a combined $24m for a 37% stake in each of two mixed-use property developments in Huai’an, Jiangsu, China. *CCM Group: Received approval to diversify into the IT business and change its name to Singapore eDevelopment. Shareholders also gave their blessing for CCM to undertake a 12-for-1 rights issue at 0.3¢ each, which come with one free bonus share for every rights share subscribed. Maximum net proceeds of $129.1m will be used to fund new businesses in real estate and IT, as well as investments in securities. *Mun Siong Engineering: Proposed a 4-for-10 renounceable non-underwritten rights issue of warrants at 0.15¢ apiece, with exercise price of 1¢ each. Gross proceeds of $1.7m (upon full exercise of the warrants) will be applied to working capital. *OKH Global: Positive profit guidance. Expects to record a net profit for FY14 versus a net loss in FY13, mainly attributable to revenue recognition of the development project, PrimzBizHub, which received TOP in Jun '14. *A-Sonic Aerospace: Expects 2Q14 net profit compared to net loss in 2Q13, but expects 1H14 to be in the red due to the absence of profit from discontinued operations recorded in 1H13. *Armarda: Profit warning. Expects to report a higher loss for 1QFY15, due to lower sales and share of loss from an associate.