SG Market (03 Aug 16)

SG Market: Risk off sentiment resurfacing on continuing fears of a wider Swiber fallout on debt-laden OSV operators and exposed banks as well as disappointing Jul manufacturing PMI, which remained in contraction territory.

Sectors such as telecom and consumer are likely to stay in favour today, Stock ideas include Singtel (Buy, TP: $4.50) and Sheng Siong (Buy, TP: $1.13).

Regional bourses opened lower in Tokyo (-1.2%), Seoul (-1.1%) and Sydney (-0.9%).

From a chart perspective, immediate support for the STI is seen at 2,830, with resistance at 2,900.

Stocks to watch:
*Economy: Jul PMI came in at 49.3 (Jun: 49.6), marking its 13th consecutive month of contraction, mainly due to fewer new orders and new exports. But the electronics PMI picked up 0.7ppt to 49.7.

*Sembcorp Industries: 2Q16 net profit of $86.5m (-61.3% y/y) missed expectations mainly due to SMM's weak performance. Revenue slumped 22.7% to $1.85b on broad based declines across utilities (-20%), marine (-25%), urban development (-23%) and others (-23%). Gross margin improved to 15.6% (+0.8ppt) on a change in revenue mix, but bottom line was eroded by FX losses, finance costs and absence of disposal gains. Interim DPS cut to 4¢ (1H15: 5¢). MKE has a Sell with TP of $2.35.

*ARA Asset Management: 2Q16 results met estimates as core net profit grew 4% to $17.5m on revenue of $40.3m (+9%), bolstered by higher management fees (+6%) and finance income (+92%). Operating margin widened 9ppt to 57.3% on operating leverage, further lifted by reduced finance costs (-71%). Maintained interim DPS of 2.3¢. NAV/share at $0.5492.

*OUE Commercial REIT: 2Q16 DPU of 1.36¢ (+34.7%) topped estimates, as revenue and NPI surged to $45.7m (+132%) and $35.2m (139%) on new contribution from One Raffles Place acquired in Oct ’15, as well as improved performance at OUE Bayfront and Lippo Plaza. Portfolio occupancy remained steady at 94.5% (-0.3ppt q/q) with WALE of 3.4 years. Aggregate leverage stood at 40.2% (-0.3ppt q/q) with average cost of debt at 3.53% (-3 bps q/q). NAV/unit at $0.91.

*Innovalues: 2Q16 net profit of $6.2m (+5.7%) met expectations, aided by gross margin expansion (31.6%, +1.7ppt) due to increased operational efficiency. Revenue inched 2.1% higher to $30.1m from increased auto orders from PRC customers. NAV/share at $0.2522. MKE maintain Buy with TP of $1.15.

*PACC Offshore: Swung to dismal 2Q16 loss of US$17.6m (2Q15: US$6.1m profit), including a US$5.6m provision for doubtful debts. Revenue dived 35% to US$46.1m on lower charter rates and utilisation, arising from project delays and contract cancellations. Gross margin shrank 16.4ppt to 4%. MKE last had a Buy with TP of $0.42.

*Neratel: 2Q16 net profit halved to $1.9m, despite a 17.6% jump in revenue to $56.9m from improved sales in both telecom and infocomm segments. The bottom line was dragged by gross margin compression to 26.9% (-5.9ppt) due to a shift in mix towards equipment sales and increased provisions on stock obsolescence, as well as a 22% increase in taxes to $1m. Interim DPS cut to 1¢ (2Q15: 2.5¢). NAV/share at $0.1594.

*Challenger Technologies: 2Q16 net profit climbed to $3.6m, on firmer revenue of $91.2m (+7.7%), driven by stronger online sales of IT products and improvements in electronic signage business. Interim DPS of 1.1¢ maintained. NAV/share at $0.2261.