Post on 26-Nov-2021
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1st Sep 2014, 8.15am & 11.15am Morning Call
Market StrategistsJoshua Tan, Head of Research
Kenneth Koh, Market Analyst & Equities
Soh Lin Sin, Macro Economist
Osama Bakhteyar, Research Assistant
SG & US Equity AnalystsNicholas Ong, O&M & CPO
Lucas Tan, Real Estate
Wong Yong Kai, US Equities
Colin Tan, Telcos
Caroline Tay, Real Estate
Ben Ong, Financials
Richard Leow, Transport
By Phillip Securities ResearchMr. Chan Wai Chee, CEO
Jaelyn Chin, Operations Exec
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3
Update: Silverlake Axis Ltd (S$1.205, Accumulate, TP S$1.32)
• 4Q14 revenue gained 25%y-y at RM138m, on higher software licensing and maintenance and enhancement services. Fullyear FY14 revenue reported at RM500.7m, 26%y-y higher, above our estimate by 2.8%.
• Software project services lower yoy. Mgt guided it to pick up in FY15F on execution of projects secured, as well as from OCBC-Wing Hang post-merger implementation project potentially.
• Fullyear gross margin was lower yoy at 61.3%, as a result of drag downs in 1Q and 3Q due to lower margins from certain projects.
• Strong bottomline growth as quarterly earnings gained 24%y-y while fullyear earnings gained 27%y-y, above FY14F estimate by 3.7% .
• Final DPS declared at 1.2 Scents, along with special dividends of 0.6 Scents, implying 3.9% dividend yield on 4Q14 reporting. Future dividend yield > 3% at current share price.
• Growth drivers:
Upgrade of older core banking systems (potentially 300 banks in the region)
Enhancements on existing systems multi-channel, risk mgt and compliance, GST in Malaysia
Regionalisation, consolidation of ASEAN banks.
Leverage on Merimen to drive strong growth in insurance processing business from Indonesia.
• Accumulate rating with TP of S$1.32. Continue to like SILV for strong balance sheet, growth and recurring revenue streams.
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Sin Heng Heavy Machinery Limited – FY14 flat earnings growth, cautiously optimistic on FY15
4
• 4Q revenues were a tad disappointing where trading revenue was down -4.2% to $12.7M and rental revenue was down -6.1% to $46.2M 4Q14/4Q13.
• This takes FY14 trading revenues up +24.4% y/y ($165.4M) due to better than expected overseas sales but FY14 rental revenues down -10.9% y/y ($47.7M) due to slower than expected construction activities in Singapore.
• The drop in service income (other operating income) were offset by increased rental segment margins due to decreased maintenance costs, leading to FY14’s reported net profit minimal growth of 0.3% ($13.8M). Adjusting for FX and currency forwards gains and losses, FY14’s adj. net profit posted a growth of 1.6% ($14.0M).
• Recall that our earnings assumptions were for flattish to low single digit growth for FY14 and double digit growth in FY15. Although FY14’s adj. net profit flat growth of 1.6% was within the lower range of our expectations, the slower than expected rental opportunities in Singapore decreases visibility for FY15’s rental, casting a shadow on their successful rate of overseas trading growth.
• A more detailed update will be available after this week’s analyst briefing. At yesterday’s closing price of $0.205 which implies 8.2x adj. PE (trailing), SHHM is not expensive, however, FY15’s growth prospects will be under review and target price may possibly be guided slightly lower.
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5
China (Overweight)
Patchy economic recoveryMixed economic data in JulyThe series of stimulus measures has beenfiltering through the economy
Tailwind from steady global recoveryExports pick up steam (demands abroad gainpace + yuan depreciated + export-tax rebatesand expand credit to importers and exporters)Largest monthly trade surplus in July at $47.3billionStrong overseas demand partially offsettingsubdued domestic activitiesIntensify calls to let RMB appreciate(depressed RMB gives an unfair advantage)
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6
China (Overweight)
Chinese stocks (SHCOMP index) are still cheap Catalyst: encouraging reforms, in particular the Shanghai-
Hong Kong Stock Connect Near term risk: cooling housing market Some investors may cashed in recent gains after the recent
rally in the benchmark index (rallied 6.98% ytd) P/E= 10.62x; 52-weeks Trailing P/E (10.39x); LT P/E (29.49x) P/B= 1.4x; LT P/B= 3.15x Consensus forecast earnings growth FY2014= 24.15% y-y,
forward 8.85x P/E
Mutual Funds that proxy China
Fidelity Greater China
First State Regional China
Schroder Greater China
ETFs that proxy China
db x-trackers MSCI China TRN Index 1C (LG9.SGX)
db x-trackers CSI300 Index ETF 1D (KT4.SGX)
ChinaAMC CSI 300 ETF (3188.HK/83188.HK)
iShares FTSE A50 China (2823.HK)
CSOP FTSE China A50 ETF (2822.HK/82822.HK)
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7
Eurozone – Downgrade from OW to NW
Eurozone’s feeble recovery came to a halt in the
second quarter.
The GDP result of Eurozone for the second quarter
was disappointing, where Germany surprised most by
posting negative growth of -0.2% q-q.
Meanwhile, early estimates for Italy revealed that it
had slipped back into recession with a contraction of -
0.2%.
Spain, Netherland and Portugal on the other hand
partially offset the deficit by recording positive growths
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8
The purchasing manager index (PMI) has
fallen in four out of last six months including this
month.
Moreover, the most recent industrial
production data has been weaker than
expected.
For example, Germany's industrial output is
down 1.5% in the first two months of the second
quarter compared to the first quarter.
Eurozone unemployment rate fell to 11.5% in
June with encouraging signs in Spain and Italy
despite the elevated rate of unemployment in
both countries.
Inflation remains well below the ECB’s
medium-term target and fell to 0.4% year on
year in July.
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9
In the bond market arena the search for yield,
combined with the reduced threat of a dissolution of
the Eurozone, has led to a surge in demand for
European periphery sovereign debt.
Similar to that, the global search for yield has
also driven demand for higher yielding credit.
In short, the level of credit growth in the
Eurozone is woeful, and as the results of the ECB’s
comprehensive assessment remain some months
away a surge in credit activity is unlikely.
ECB did finally implemented the negative
deposit rates for the banks reserves and now
further plans to introduce a long-term bank lending
program (LTRO) from September.
In our view ECB will wait until early next year
to gauge the impact of negative deposit rates
and the LTROs and only then will implement QE
if needed.
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10
Eurozone – Downgrade from OW to NW
Geo-political crisis
Germany has been most affected given the close
trading ties between the two countries. The sanctions
will likely create a limited, but unwanted, drag on the
European economy.
Although the recent trade embargoes with Russia will
not impact eurozone exports completely yet, they
may have already hit confidence and prompted
corporates to hold back or delay capital investment.
Excluding Latvia, Estonia and Finland economies,
generally speaking, the core economies export more
to Russia than the peripheral economies. But even
the core economies’ exposures are modest, implying
that it would take large falls in Russian imports to
have a material impact on GDP growth there.
Unit Trust that proxy Eurozone
Templeton - European
Schroder - European Equity Alpha
Schroder - ISF European Smaller Companies
ETFs that proxy Eurozone
DBX Tracker MSCI Europe - IH3
VGK Vanguard European Stock Index
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Market Technical OutlookUpdrift on Liquidity and Good News?
1st Sep 2014
Kenneth KohMarkets & Equities AnalystPhillip Securities Research Pte LtdPrepared: 5th July 2014
•Conclusion: Economic indicators, Intermarket picture clearly support a longer-term uptrend in stocks. •May have a little more upside before correction periods.
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http://www.uniphillip.com/ -> Education Programmes -> Phillip Securities Research Seminar
TA Outlook for the US Market
For prior technical look for the year, refer to:Webinar entitled: “Singapore Macro, Technical Analysis dated Feb 10, 2014”
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13
1. Outlook for the US Market (since Dec 2013)
• Probability is that the US market’s bull market has not ended yet (guided since Dec 2013)(refer to Webinar 10 Feb 2014)
1. Intermarket Analysis2. US and World Valuations are not extreme (equity yield vs 10 yr treasuries spread is +3% vs +1 to -
3% for last two starts of bear markets)3. No inverted yield curve4. Negative catalysts are not extreme (yet)
• Minor and Major corrections: early Feb and May-Aug (mentioned also since mid Dec 2013 and 11 Jan 2014 @ 1Q POEMS market outlook)
1. The earlier correction came 2 weeks earlier in late Jan.2. We are expecting the next bout of weakness in the May-Aug timeframe.
• Action: Sideways trading mentality till mid year. Prepare for bullish move later in the year after correction
in US market. STI should also be affected but to a lesser extent.
• STI has a chance to cycle up till the meaningful correction in S&P500 starts due to relative valuations
(guided since Apr 5).
?
From: Feb 2014
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STI cycles up …
•STI has a chance to cycle up till the meaningful correction in S&P500 starts due to relative valuations (guided since Apr 5).
- STI drifts higher with no major correction, STI cycles up as guided.
Original Slide (7 July 2014)
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SPX vs STI
• S&P500 broken through all time high• Price is very extended and is waiting
for a reason to correct, but is countered by dovish central banks, and relatively good news.
• Dovish central banks:• Dovish FED tone• ECB’s negative interest rates• Inflation less than 2% still
• Net good news:• China PMI improvement, no
significant bad news• on US employment (288,000
jobs added) continues global surge
• Japan Q1 economic growth• Eurozone improvement
Original Slide (7 July 2014)
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16
Underlying economic strength: Bull trend has legs
Original Slide (7 July 2014)
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Defense to Offensive: Bull has some more to go
17
Original Slide (7 July 2014)
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18
Market Updates
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19
Is this the Elliott pattern? Coming ending of 3-3-3?
• Implies that we are somewhat at 70-80% of the bull cycle.
• Note that wave 4 and 5 can be shorter than 1 and 2.
• Note that Elliott Waves are subjective, but this wave form fits the rules.
Why?1) Intermarket – Inflation under-
control, bonds yields low2) Yield curve far from inversion3) TA price objective from
breakout of 2007 high implies further target around 2400+, or higher if using log scale.
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20
2. Intermarket and Sector Analysis
Phase 4 strategy:Short Bonds (Early bear)Long Stocks (Industrials, Materials, Energy later)Long Commodities (wait for breakout)
… implies more upside in the US markets at least.
From 11 Jan 2014’s POEMS Market Outlook Presentation
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Intermarket Relationship
21
Bonds are resuming their downtrend on improving fundamentals. We have been bearish on bonds since mid 2013.
GSCI Industrial commodities are still consolidating,
Stocks are on longer term uptrend
From 11 Jan 2014’s POEMS Market Outlook Presentation
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22
2. Intermarket and Sector Analysis
Phase 4 strategy:Short BondsLong Stocks (Industrials, Materials, Energy)Long Commodities
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23
Intermarket Analysis
Treasuries(started bear market in 2012)
DJ World Index(Still Bull Market)
Industrial Commodities(halfway through bull?)
Short term up move of $UST and stocks “extend” the life cycle of the bull
Reasons: 1) Eurozone inflation at 5-year low.2) Fallout of Russian, German stock indices.
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Sector Glances
24
Cyclicals Industrials
Materials Energy
(sequence of turning)
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Sector Rotation
25
Phase 4 strategy:Short BondsLong StocksLong Commodities
… this also corroborates our assumption of Stage 4 of the economic cycle and materials and energy sector is to be favored.
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Yield Curve still supports a Bull
26
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27
Inflation down + activity up - supports a Bull
Partial impact to decreasing inflation: is because of Euro’s inflation at 5-year low.But net-net, industrial metals are up, showing increased industrial activity
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S&P500 (weekly): … just a little more
A upside drift with decreasing support
The Good:Momentum implies further upside at least for nowRussell accompanied recent up moveTrend is up
The QuestionableVIX is at multiyear low (too complacent)RSI a little stretched (overbought)Price nearing top channel resistance Volume has been slowly decreasingInvestor intelligence getting extreme soon
Character: Possible for a little more upside drift, but protective stops should be in place. The markets are overstretched and is waiting for an excuse to correct, but news continues to be good.
Suggested: Pullbacks are still part of a larger uptrend, unless key support is violated. A stop at the 1800 should be considered.
Original Slide (7 July 2014)
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S&P500 (weekly): … still a little more
A upside drift with decreasing support
The Good:Momentum implies short term upRSI allows a little more upTrend is upLikely hit top channel before selldown
The QuestionableVIX is at multiyear low (too complacent)$RUT not bullishRSI getting overbought soonPrice nearing top channel resistance Volume has been slowly decreasingInvestor intelligence getting extreme soon
Character: Possible for a little more upside drift, but protective stops should be in place. The markets are overstretched and is waiting for an excuse to correct, but news continues to be good.
Suggested: Pullbacks are still part of a larger uptrend, unless key support is violated. Raise stop to 1900 from 1800.
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30
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Bull/Bear ratio is high again
Still euphoric despite a brief drop due to August’s minor correction. Short term bullish sentiment, later, any series bad news would likely trigger a correction
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Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Phillip Securities accepts no liability whatsoever with respect to the use of this document or its contents.
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34
SG market
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35
STI (weekly) Feb 10th, 2014 STI is short term oversold
• At support level (3000-3050)
• Short term bounce is likely
• Intermediate trend is still down
- Singapore Index SGD20 CFD
- Straits Times Index SGD5 CFD
- ETF: SPDR STI, ES3.SGX
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36
STI (weekly) Apr 4th, 2014 STI cycling up
• STI on a 4-week high
• Intermediate bullish
• Immediate resistance levels are 3300 and 3480
• A successful break of 3300 is bullish longer
term.
* However, daily move is overbought and a
short pullback is not unusual.
- Singapore Index SGD20 CFD
- Straits Times Index SGD5 CFD
- ETF: SPDR STI, ES3.SGX
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37
STI (weekly) July 5th, 2014 STI bullish at resistance
• STI cycles up as global markets are bullish
• Price at resistance zone
• Bias is bullish as long as no major correction
to US markets
• A break of resistance at 3300 imply a move
back to 52 week high of 3500.
• Probability is to the upside after
consolidation, as:
• Numerous markets have already
exceeded their 2007 high,
including: US, Taiwan, Malaysia
• Key underperformer (China) shows
signs of bottoming out.
- Singapore Index SGD20 CFD
- Straits Times Index SGD5 CFD
- ETF: SPDR STI, ES3.SGX
-- CSI300 ETF: HK83188
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38
STI (weekly) Sep 1st, 2014 STI bullish at resistance
• STI cycles up as global markets are bullish
• Price at resistance zone
• Bias is bullish as long as no major correction
to US markets
• A break of resistance at 3300 imply a move
back to 52 week high of 3500.
• Short term cycle down possible (MACD), and
some bearish candles.
• Probability is to the upside after
consolidation, as:
• Numerous markets have already
exceeded their 2007 high,
including: US, Taiwan, Malaysia
• Key underperformer (China) shows
signs of bottoming out.
- Singapore Index SGD20 CFD
- Straits Times Index SGD5 CFD
- ETF: SPDR STI, ES3.SGX
-- CSI300 ETF: HK83188
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