SG Market (04 Nov 14)

US Market: US shares ended flat after touching intraday records in a choppy session as markets digested the sharp gains over the past week amid mixed economic data and a sudden drop in oil prices. The blue-chip DJIA eased 24 pts to 17,366 (-0.14%) and the broad-based S&P 500 dipped 0.2 pt to 2,018 (-0.01%), but the tech-heavy Nasdaq Composite gained 8 pts to 4,639 (+0.18%), supported by some semiconductor plays. Positive manufacturing data added to evidence that the US economy can withstand a withdrawal of Fed monetary stimulus. The ISM factory index for Oct rebounded to 59 from 56.6 the prior month, matching the high reading in Aug, and suggested a pick-up in activity going into the year-end shopping season. However, construction spending disappointed, falling 0.4% for a second straight month of decline in Sep. Energy stocks were the main drags, losing 1.7% as a group, as WTI crude slumped 2.2% to US$78.78 a barrel, after Saudi Arabia cut its US export price in the face of soaring North American output. Chevon and ExxonMobil shed 2.6% and 1.5% respectively, as with while oil services companies Diamond Offshore (-5.7%), Schlumberger (2.2%) and Baker Hughes (-2%). Chinese e-commerce giant Alibaba surged 3.3% to a new peak of US$102.80 ahead of its maiden post IPO results against the retreat by both Twitter (3%) and Facbook (-1.6%). Among key stocks in focus, Apple advanced 1.3%, on news that the group mulling a bond sale. In M&A news, digital advertising agency Sapient soared 42% following a US$3.7b acquisition by French public relations giant Publicis Groupe, while drug research company Covance leapt 25.9% after receiving a US$6.1b takeover bid by Laboratory Corp. Volume was a little more subdued ahead of US midterm elections on Tue with 7b shares traded on US exchanges, 9% above the three-month average. Advancing issues outnumbered declining ones by 1.04 to 1 on the NYSE and 1.24 to 1 on Nasdaq. S’pore shares are likely to take a breather after the recent run-up on Wall Street and at home, with technical indicators on the STI moving into overbought territory. Topside resistance for the benchmark index is at 3,310 with downside support at 3,230. Oil-related counters may face renewed selling pressure after oil prices slumped below the US$80 mark. Stocks to watch: *Cosco: Weak 3Q14 results that missed expectations. Although bottom line jumped 69% y/y to $7.1m (-50% q/q), profitability was boosted by an 88% drop in income tax to $0.9m, due to adjustment for overprovision in prior years, and higher tax-exempt shipping profits. Gross margin fell to a mere 4.9% (2Q14: 8.0%, 3Q13: 7.4%) – the lowest in history, due to execution of multiple first time orders, lower priced shipbuilding contracts and higher labor cost. Revenue grew 17% to $1.2b, driven by growth in both shipyard operations and dry bulk shipping. Year-to-date, Cosco won $1.9b of orders, bringing order book to US$8.9b with visibility till 2016. Nevertheless, Maybank-KE sees potential problems with three contracts worth US$1.3b. Reiterate Sell with TP slashed to $0.54 (from $0.67). *OUE Hospitality Trust: 3Q14 distributable income and DPU of $21.7m and 1.64¢ beat IPO forecasts by 2.7% and 2.5%, respectively. Gross revenue of $28.5m, and NPI of $25.4m outperformed forecast by 0.7% and 1.6%, respectively, driven by higher income contributions from Mandarin Orchard Singapore and Mandarin Gallery (MG), as well as lower trust expenses. RevPAR was 1.6% higher than expected, following completion of renovation works and higher sales from the corporate business segment. The F&B segment also achieved better than forecast sales from higher patronage. MG achieved occupancy of 99.7%, with WALE of 1.47 years. Aggregate leverage was 32.7%, with debt cost of 2.2% and average debt term of 1.8 years. BVPS at $0.90. *GLP: Proforma 2Q revenue expanded 37% y/y to US$193m, and net profit grew 11% to US$132m. The results continue to be driven by strong leasing in China and the recent portfolio acquisition in Brazil. For 1HFY15, development starts are up 160%, and new and expansion leases are up 55%. Proforma 1HFY15 net profit of US$319m (+12% y/y) include US$76m of development revaluation gains, offset by US$54m of FX losses in Japan and Brazil. BVPS at US$1.85. Separately, Chairman Jeffrey Schwartz will be taking time off to focus on health-related issues. *Hi-P: 3Q14 net profit soared 243% y/y to $10.8m, buoyed by higher gross margin (+2.9ppt to 9.4%), lower in selling, distribution and admin expenses (-23%), a net FX gain ($2.9m) and the reversal of impairment loss on PPE ($0.9m). However, revenue fell 33% to $245.7m on lower volumes from two key customers experiencing a drop in market demand following a change in business strategies. *Gallant Venture: 3Q14 swung into a net loss of $4.6m from a net profit of $1.8m a year ago, mainly due to consolidation of share of losses from associates (under subsidiary, PT Indomobil), and absence of a disposal gain in 3Q13, which more than offset the impact of FX losses ($3.9m) booked in 3Q13. Revenue declined 13% y/y to $591m, dragged by lower passenger car sales and weaker rupiah (SGD/IDR -15.6%), mitigated by the launch of new Datsun low cost car (May ’14) and higher car financing revenue. Management remains cautious on the rupiah and interest rate environment. BVPS at $0.41. *Innotek: Reversed into a 3Q14 net loss of $2.8m from a net profit of $4.7m a year ago, taking 9M14 net loss to $10.5m (9M13 net profit: $3.2m). Revenue plunged 58% to $50.1m, due mainly to revenue decline from the precision sub-assembly point, tooling segment and the precision component segment. Bottom line was weighed by a 83% drop in other income to $1.6m. BVPS at $0.656. *Versalink: 1HFY15 net profit of RM1.8m (-72% y/y) exceeded the group’s expectations of an interim loss arising from IPO-related expenses. Revenue fell 16% to RM1.8m largely due to lower revenue from both export and domestic segment, impacted by project delays during a period that coincided with Ramadan and the World Cup 2014. Gross margin decreased marginally by 1.9ppt to 37.8%. *Koon Holdings: Its 20/80 JV with Japan’s Penta-Ocean Construction has been awarded a $1.1b contract for land preparation works for the expansion of Changi Airport. Revenue will be recognized progressively and is expected to contribute positively to the group’s FY14 performance. This lifts the group’s order book to $392m. *Chip Eng Seng: Secured a $232.8m contract from HDB for construction of 9 residential blocks at Woodlands. The project is expected to be completed in mid-2018. *Pacific Radiance: Deployed its newly delivered OSV toward a five-year charter in SE Asia valued at more than US$70m, with options to extend. The contract is expected to contribute to earnings from 4Q14 onwards. *Sysma: Secured a $10.2m contract to erect a two-storey detached house at Mount Echo Park. The project is scheduled to take place over a period of 16 months. *Elektromotive: Its UK subsidiary, Elektromotive (UK) is intending to seek a listing on the AIM (London Stock Exchange), and has appointed the relevant professionals to assist. *OKH Global: Its Woodlands Horizon industrial project has been fully sold and is expected to receive TOP in FYJun15. *EMAS Offshore: Has been buying back shares over the past two days on both the SGX and Oslo Bors. Total of 192k shares (0.04% of shares out) purchased at prices between $0.775 and $0.80 each. *Profit warnings: Luzhou Bio-Chem Technology, PSL Holdings