23 Sept 2013 ~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : We don't stop going to school when we graduate.
- CAROL BURNETT
Singapore: The Day AheadSINGAPORE DAYBOOK :Tapering: Fed seen playing bait-and-switch game. More volatility than usual expected from gap in market communication. LAST week, the Dow Jones Industrial Average tested new records near 16,000 until Federal Reserve president James Bullard spoiled the party by saying the central bank may have just postponed "tapering" plans for a few weeks.
The Dow surged to as high as 15,700 after Fed chairman Ben Bernanke's apparent change of heart on the first step of a planned gradual retreat from quantitative easing. Stock and bond traders had considered a September "taper" a fait accompli.
Then, on Friday, Mr Bullard said that the decision not to taper was a "close call", adding that he would not be surprised if the board made its move at the next meeting in October.
Mr Bullard and Mr Bernanke both noted that the swing vote in the policy-setting board's decision would go to economic data.
That raises the stakes on data this week, which include reports on factories, home prices and home sales. The housing market data is particularly pertinent because the central bank postponed the taper largely because of weak July home-sales numbers.
The housing market is still an integral part of all aspects of the US consumer economy, providing employment, a store of wealth, and a market for raw and processed goods.
The Fed's assumption was that a June spike in mortgage rates "as would almost certainly be repeated in the case of a taper" had crimped demand for homes and cost builders their jobs. If this week's reports show that home prices continued to rise in July and that demand for new homes revived in August, the Fed board might feel more confident that the housing market is ready for reduced central bank support in six weeks.
Lennar and KB Home will reveal the view from inside the construction industry of demand for new homes when they report earnings this week.
Economists at major brokerages such as Morgan Stanley and Goldman Sachs expect a pick-up in economic growth in the second half of the year and into 2014, even if the Fed reduces bond buys in October. That's partly because global trade, which had slumbered during the last six months, is now reawakening.
Factory surveys in China and Europe have indicated an uptick in production after a slowdown in the summer. The latest round of Apple phones may not have met with the critical rapture as of old, but analysts at Piper Jaffray and elsewhere still expect the first weekend of sales to exceed those of past models.
"Stronger domestic demand and waning uncertainties around tax and regulatory policies should encourage businesses to expand by drawing down substantial cash reserves built over the past several years," said analysts at brokerage Morgan Stanley, in a research note.
This week's August durable goods orders report should echo surveys of the manufacturing sector from the Institute for Supply Management, which show activity at a two-year high.
"The pace of improvement in the past three months has historically only been seen when the economy has just been emerging from recession . . . or seeing a meaningful mid-cycle inflection higher in growth," said economists at Morgan Stanley in a research note.
With this economic backdrop and the seasonal strength of the market in the fourth quarter, the outlook should be bright for stocks.
One reason to expect more volatility than usual is a breakdown in communication between the markets and the central bank. Dissenters such as Dallas Federal Reserve president Richard Fisher insist that Mr Bernanke presides over a uniquely civil, non-political data-driven institution.
But the Fed is hardly speaking with one voice on the issue of tapering. There has been an unofficial contract between the central bank and Wall Street since the tenure of Alan Greenspan. When markets are wildly misconstruing the outlook for Fed policy, the chairman or other board members clarify the position at one of their many meetings.
Mr Bernanke may not have promised Wall Street there would be a tapering in September, but some Fed watchers say he betrayed that he allowed market participants to believe that "Septapering" was a sure thing.
"It was telegraphed not once but twice," said Quincy Krosby, investment strategist at Prudential Financial. "We're getting a sense that they want to change goal posts."
The Fed's previous position was that it would be done with stimulus altogether when unemployment rate hit 6.5 per cent. With unemployment now at 7.3 per cent and the gradual retreat not yet even begun, this now looks unlikely.
"It's almost as if you've got 'bait and switch'," said Ms Krosby, referring to the retailers' trick of advertising one thing and giving the consumer another.
(Source: The Business Times)
MARKET SCOOP
Hong Kong: Stock market to delay Monday open due to Typhoon Usagi
S'pore Aug inflation seen accelerating for 4th straight month: poll
Sideline income for property agentshit by cooling moves
F1 draws huge public, corporate response
Property investment seminars on CEA radar
(Source: The Business Times) UOB KAY HIAN says... GENTING HONG KONG | BUY | TP: US$0.49
We upgrade Genting Hong Kong (GENHK) to a BUY, raising our target price to US$0.49, factoring in NCL's sustained values and longer term fundamentals, and imputing a narrower 10% discount (previously 20%) to our revised RNAV US$0.55
The current share price weakness presents good upside potential to our revised SOTP target price, and we expect a resurgence of interest in GENHK with Travellers revisiting its IPO plans soon
Although Travellers could be seeking a much lower IPO market capitalisation of US$4b-6b (previous IPO attempt thought to be US$6b-8b), fetching such a potential valuation still creates significant shareholder value to GENHK
Travellers could revisit its IPO plans soon, to capitalise on its market leadership in the Philippines' casino market and recovery in investor sentiment
While we remain conservative in our forecasts and valuation for Travellers, valuing the entity at US$2.2b (around 9x 2013F EV/EBITDA - broadly in line with valuations accorded to Genting Malaysia), we acknowledge that upon listing, Travellers could command a market valuation above that of Bloomberry (which currently has a market capitalisation of just under US$3b), given RWM's higher profitability and larger facilities (particularly with its on-going expansion plan which should come on-stream starting from mid-15)
Nevertheless, we continue to err on the conservative side, in expectations of tightening competition as industry capacity flourishes again in 2014
NCL: capacity expansion fuels multi-year earnings growth
Recall that NCL will receive one more new Breakaway and two more BreakawayPlus-class vessels from 2014-17, following the delivery of the 4,000-berth Norwegian Breakaway in Apr 13
Cumulatively, these new vessels will add an estimated 50% to NCL's annual passenger capacity by end-17 (see RHS)
We gather the new vessels are able to command premiums on ticket prices of around 20% vs older vessels on similar routes
We note that NCL's advanced ticket sales had reached a record high of US$542m as at 30 Jun 13
Meanwhile, while its Asian cruise operations continue to face various challenges, it should deliver a stronger 2H13 after the disappointing 1H13 (which was dragged by a handful of one-off costs pertaining to the refurbishment and marketing costs)
We gather that StarAsia's new routes have garnered encouraging responses, judging from rising advance ticketing trends
We maintain our earnings forecasts, noting that we remain cautious in our outlook for Manila
While RWM has not been significantly impacted by competition from Solaire, we are cautious that the latter's recent issues (ie the termination of Global Gaming Asset Management's (GGAM) management services by Bloomberry Resorts, and ensuing arbitration) may not pan out in RWM's favour if Solaire, without GGAM's regional connections, shifts its focus to the local VIP and premium mass markets
Beyond this, there will be added competition once Melco-Crown Philippines' casino takes off by 2H14
We do not expect the group to dole out significant dividends yet, as it would probably opt to reserve its resources for a potential greenfield casino bid in Taiwan, and also given its interest in raising its stake in Australia's Echo Entertainment Group
Upgrade to trading BUY, with a higher target price of US$0.49 (previously US$0.42)
We nudge up our assessed RNAV/share for GENHK to US$0.55, valuing NCL at 10x 2014 EV/EBITDA (previously 9.5x) to account for strong earnings growth through 2015, and applying a narrower discount of 10% (previously 20%) to arrive at our new target price
The upside to our revised target price warrants an upgrade to BUY, noting NCL's sustained values, longer term fundamentals, and GENHK's ability to cash in on its investment in NCL, as well as the likelihood of Travellers renewing its IPO bid
However, we are still cautious that tougher competition is still on the horizon in Manila, and await clarity on its investment strategy in Australia's Echo Entertainment
OCBC Securities says ...
CAPITALAND LTD | BUY | TP: S$3.77
Yesterday, CAPL priced its proposed S$750m 2023 convertible bond issue at 1.95% yield to maturity with a conversion price of S$4.212 (30% premium over the last traded price)
Given the pricing and the fact that the group increased the issue size from S$600m to S$750m during the book building, we believe this points to firm demand for the issue
The group announced that they will use approximately 95%-100% of the proceeds to refinance its existing indebtedness and has set up an invitation to repurchase for cash its existing CBs due in 2016 and 2018
We see this to be a positive move that would further optimize the group's debt structure, which will have impact in reducing its interest payments and lengthening its average debt expiry
We also look forward to CAPL's new condominium launch - the 694- unit Sky Vue in Bishan, Singapore
CapitaLand holds a 75% equity stake in the project, with the remainder held by Mitsubishi Estate Asia Pte. Ltd
Sky Vue opened for previews last weekend and is priced at S$1.38k - S$1.55k psf
This is about 5%-10% lower than the adjacent Sky Habitat project (also owned by CapitaLand) and we like that the group has taken a realistic approach by pricing this project to move
While we estimate, as a result of lower pricing, fairly slim profit margins for Sky Vue - in the low teens - we believe that a strong launch would be taken positively by the market, particularly now that the group has a total unsold exposure of over a thousand units in the Bishan locality in Sky Habitat (340 units unsold) and Sky Vue (694 units unsold)
In light of the subdued outlook for the domestic residential sector, we favor large-cap developers with strong balance sheets and diversified exposure across regional real estate markets
Maintain BUY on CAPL with an unchanged fair value estimate of S$3.77 DMG OSK Securities says... NAM CHEONG | BUY | TP: S$0.38 NCL said it has entered into a JV with PT Bahtera Niaga Internasional to own and operate OSVs in the lucrative Indonesian market
This will boost its high-margin recurring charter income, thus providing a new
source of orders and shipbuilding profits
NCL remains one of our Top Picks in the O&G sector, which we have upgraded to
OVERWEIGHT
Sailing into lucrative Indonesian offshore supply vessel (OSV) charter market
The JV will allow NCL to charter vessels in Indonesia, where the enforcement of cabotage law has led to charter rates spiking up 33% last year
We calculate that a 5,150bhp anchor handling tug supply (AHTS) vessel in Indonesia today can fetch net margins of 41% net margins
At 30% equity financing, the ROE on each vessel is 44%
Assuming three new 5,150bhp AHTS per year
As capital is the main constraint for Indonesian partners of OSV JVs, we are assuming that this JV will own the smaller 5,150bhp AHTS vessels as well as a low growth rate of three vessels per year starting from FY14F, relative to NCL's large building capability
More shipbuilding orders on the horizon
NCL will be able to recognize 51% of each AHTS vessel's shipbuilding revenue and 49% of the charter profit at the associate-income level
We understand that the shipbuilding programme does not include these vessels
As such, we add three vessels per year to our S-curve revenue recognition model
NCL can deliver 34%/19%/15% growth
With these additions, we raise FY13-15F estimates by 1.7%/5.1%/3.2%
Further upside is possible as NCL has not yet to unveil its FY15F shipbuilding programme, which would boost FY14F/FY15F shipbuilding revenue if the numbers exceed our 25-vessel assumption (including vessels not intended for charter)
With commercial shipbuilding orders recovering, the pressure on offshore O&G asset prices should be somewhat relieved
We continue to like NC's low valuation and lead as the world's largest OSV builder
Following the EPS upgrades, our TP is nudged up to SGD0.38 |
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