Friday, July 6, 2018

SG Market (06 Jul 18)

MARKET OVERVIEW
- Market sentiment likely to be shaken by the surprise policy measures to cool the residential market and first wave of US tariffs on Chinese goods set to take effect at noon today, which could escalate into an all-out trade war.
- Technically, downside for the STI lies at the crucial support level of 3,200, with upside capped at 3,280.

MACRO WATCH
*Property
- The government has announced higher stamp duties and tighter loan limits for home purchases to check steep price increases.
- The move came after MAS warned of euphoria in the residential market as private home prices rebounded 9.1% from its 2Q17 trough and neared its 2013 peak.
- Wef 1 July, citizens and PRs will have to pay an additional 5% ABSD to 10% and 15% for their 2nd and successive residential properties, while foreigners will also pay 5% extra to 20% for any home purchase.
- Entities such as developers will be subject to ABSD of 25%, up from 15%, plus a new non-remittable 5% on any purchase for housing development.
- Loan-to-value limits will be lowered by 5ppt for all housing loans, except HDB loans.
- These latest measures are likely to dampen investment demand and transaction volume as well as returns for Singapore property developers as well as real estate agencies.
- While property related counters might suffer a knee-jerk reaction, weak share price performance of property counters in recent months suggests that downside risk could be limited.

POSITIVE NEWS
*Manufacturing Integration Technology
- Entered into a third deed of undertaking with China Fortune-Tech Capital (CFTC) to defer the exclusivity period and expiry date for the proposed disposal of its semiconductor equipment business to CFTC.
- Updated that significant progress towards signing a definitive agreement has been made.
- However, the parties require additional time to finalise the terms and for CFTC to prepare a suitable corporate structure in China for the proposed transaction.
- Trades at 11.5x trailing P/E.

*Trendlines
- Portfolio company ViAqua Therapeutics completed an investment in two milestones, led by Nutreco Investments.
- The funding is intended to complete the development of its first product and support test requirements for the registration stage.
- Additionally, ViAqua signed a joint development and marketing agreement with Nutreco's aquaculture division Skretting.
- Trades at 0.58x P/B.

NEUTRAL NEWS
*Ezion
- Entered into a 49:51% JV agreement with Alliance Offshore, a wholly-owned subsidiary of TSC Group (TSC) to cooperate in the ownership and operations of Liftboats, with the aim to become the world's largest owner and operator of Liftboats.
- TSC will provide necessary assistance to the JV Co to obtain the capital required for the acquisition of new Liftboats and working capital. Ezion will assist the JV Co in the marketing and operations of the Liftboats.
- TSC is about 52% indirectly-owned by China Merchants & Great Wall Ocean Strategy & Technology Fund (L.P.)
- The above mentioned investment was funded through internal resources.
- Trades at 1.16x P/B

*Natural Cool
- Acquiring a 51% stake in JAD Solutions for cash consideration of $1.5m, which will be entirely funded by its internal resources.
- JAD is a specialist mechanical and electrical systems contractor which is involved in providing consulting, design, construction, testing and certification of high containment facilities, and their maintenance.
- While FY17 is a loss-making year due to increased costs arising from its overseas expansion plan, the private company has subsequently ceased its overseas expansion efforts and is now refocusing in Singapore market.
- For the FP2018 based on its unaudited management accounts, JAD has successfully turnaround and reported a profit before tax of $84,000.
- Given the complementary nature of the business, the proposed acquisition is expected to lead to synergies that will result in better operational efficiency and increased cost savings for the group.
- Trades at 0.9x P/B.

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