SG Market (07 Aug 14)

US Market: US shares ended relatively flat, erasing early losses as investors remained cautious in the wake of heightened geopolitical risks, downbeat European news and disappointment over failed mergers in US. The DJIA gained 14 pts to 16,443 (+0.08%), while the S&P 500 was flat at 1,920 and the Nasdaq inched up 2 pts to 4,355 (+0.05%). After early weakness, the S&P 500 found support at its 100-day MA after dipping below that level for the first time since mid-Apr but was unable to build much off the rebound. NATO reported that Russia has amassed 20,000 troops on the eastern border with Ukraine. Retaliating against Western sanctions, Russian President Putin slapped one-year bans and limits on agricultural and food imports against US and other European countries. Further souring sentiment, news that Italy unexpectedly fell back into recession in 2Q and German manufacturing orders dropping a surprising 3.2% in Jun weighed heavily on European markets. In corporate news, Time Warner tumbled 12.9% after 21st Century Fox (+3.3%) withdrew its US$75b takeover bid, while wireless carrier Sprint slumped 19% after abandoning its US$32b plan to acquire T-Mobile (-8.4%), citing regulatory concerns. Among other stocks in focus, BofA rose 1.3% after the group increased its quarterly dividend, for the first time in seven years, while drugstore chain WalGreens plummeted 14.3% after releasing dismal profit forecast, and unveiling plans to buy the remaining 55% stake in Alliance Boots in a deal worth US$5.3b. Groupon sank 12.7% after giving a weaker-than-expected 3Q earnings guidance. AOL advanced 7.5% after revemue topped forecasts. A lack of risk appetite pushed prices of safe haven assets higher as US Treasuries and gold rallied, sending the 10Y bond yield slightly lower to 2.47%. About 6.5b shares changed hands on the US exchanges, 12% above the three-month moving average as advancing issues outpace declines one by 1.5 to 1 on the NYSE. S’pore shares may take a pause from itsrecent selloff as the STI faces some support at the 3,320 level. Topside resistance is capped at 3.380, while a downward break of the 3,320 could take the index to next support at 3,280. Stocks to watch: *Biosensors: 1QFY15 net profit declined 18% to US$9.9m, significantly falling short of consensus expectations. Revenue rose 5% to US$80.2m, driven by growth in critical care, interventional cardiology and cardiac diagnostic products, though partially offset by a 16% drop in licensing and royalties to US$9.7m. Product gross margins slipped 4ppt to 71%, dragged by lower margins from the distribution of Nobori stents in Japan and the cardiac diagnostic businesses, as well as ASP erosion in various geographic regions. The street does not see a near term turnaround for the group. *Sembcorp Industries (SCI): 2Q14 net profit rose 8.3% y/y to $179m, generally in line. Revenue edged up 1.4% to $2.5b, driven by 19% increase in Marine revenue to $1.3b, however utilities was a drag, with contribution falling 13% to $1.1b following deconsolidation of Salalah and on lower electricity sales in Singapore. Utilities earnings declined 17% to $92.3m, as competition in Singapore drove spark spreads lower for the Energy operations. Management intends to focus on growing its regional utilities business to offset further expected weakness in Singapore. *UMS: 2Q14 results broadly in line. Net profit came in at $7.2m (-8% y/y), taking 1H14 net profit to $15.8m (+21%). For the quarter, revenue fell 13% to $28.7m, mainly due to lower revenue from the semiconductor Integrated System business. Bottom line was aided by a 46% decline in raw material and subcontractor costs at $9.0m. Interim DPS of 1¢ proposed. *Creative Technology: 4Q14 net loss narrowed to US$3.4m (4Q13: US$6.5m net loss), bringing FY14 net loss to US$21.8m (FY13: US$16.7m net loss). For the quarter, revenue fell 24% to US$23.0m, due to difficult market conditions which continued to affect sales of the group’s products and impacted sales across all three geographical regions. Bottom line was partly aided by other gains of US$1.5m, consisting of FX gains and reversal of provisions, as well as tax credits of US$4.5m. *Chip Eng Seng: Strong 2Q14 earnings, as net profit leapt 173% y/y to $18.6m, boosted by a six-fold jump in associate contribution to $8.5m, as its Belysa residential JV development reached TOP in 2Q14. Revenue grew 13% to $123.6m, driven by the construction segment (+27% to $85.1m), though partially offset by lower property development (-11% to $36.8m). Accordingly, gross margin expanded to 17.9% (+2.5ppt). The group’s outstanding construction order book remained strong at $548m. Growth in 2H14 is expected to be underpinned by profit recognition upon completion of the group’s wholly-owned development projects, Belvia (3Q14) and Alexandra Central (4Q14). NAV per share at $0.80. *Rowsley: Has received approval from the Johor authority to sell its property units in SKIES-Vantage Bay to foreigners at a minimum price of RM0.5m instead of RM1m per unit. 92% of the units in each of its residential towers may be acquired by foreigners. Separately, the Iskandar developer turned a net profit of $6.1m from a net loss of $1m a year ago. Revenue of $22.1m (nil in 2Q13) was primarily due to contribution from RSP Architects (acquired Sep ’13). NAV per share at $0.11. *Far East Orchard: 2Q14 net profit fell 24% y/y to $5.5m on recognition of deferred tax assets. Otherwise, pretax profit more than tripled, boosted by an FX gain ($1.4m vs $3.9m loss in 2Q13) due to a strengthening AUD. Revenue surged 43% to $67.3m, thanks to new contribution from the hospitality business acquired from The Straits Trading Company (acquired Nov ’13). Management expects 3Q14 revenue to be bolstered by new contribution from three JV hotels in Germany and progressive revenue recognition of euHabitat. NAV per unit at $2.94. *Yongnam: Swung into a 2Q14 net loss of $5.3m, from a net profit of $8.6m a year ago. Revenue plunged 47% to $61.6m, given the lack of meaningful new contracts following the completion of the Marina Coastal Expressway and Singapore Sports Hub. Meanwhile, lower margin projects with higher fixed production and project overheads resulted in a gross loss of $2.9m from a gross profit of $22.4m last year. *Rotary Engineering: 2Q14 net profit surged 155% y/y to $13.1m, as revenue swelled 51% to $190.8m, driven by increased business activities as execution of its major projects gained momentum. Gross margin expanded 4.7ppt to 16.6%, augmented by the group’s productivity improvement efforts. Order book stood at $381m, with over 75% of contracts coming from Singapore. Management expects revenue and profitability to better last year’s. NAV per share at $0.40. *CCM (to be renamed Singapore eDevelopment): 1H14 net loss worsened to $5.7m from near breakeven a year ago, as revenue collapsed 70% y/y to $13.8m, due to significant project delays that resulted in cost over-runs for several main building contracts. Net liability value per share at 0.32¢. *TEE International: Its 55/45 JV secured a MOP384.5m ($60m) contract for mechanical & engineering works at The Parisian Macao, from Venetian Cotai, a subsidiary of Sands China. This brings TEE’s outstanding order book to $420m. *Blumont: Acquired 100m new shares in Elysium Resources, attached with 100m options (exercise price of A$0.014 per share). The consideration amount of A$1m ($1.2m) represents a 25% premium to Elysium's market value. Elysium is a mineral exploration company focused on exploring for large, high-quality copper and gold deposits in Australia and Indonesia.