By Carey Wong
Thu, 20 May 2010, 08:43:47 SGT

Market Pulse: Singapore Economy, Oil&Gas Sector and Valuetronics (20 May 2010)

FOCUS

Singapore Economy: 2010 GDP forecast remains at 7-9%

Summary: The Ministry of Trade and Industry (MTI) announced that the Singapore economy expanded by 15.5% YoY in 1Q10, better than the flash estimate of 13.1% and the street’s expectations of a 13.7% growth. On a seasonally adjusted annualized QoQ basis, real GDP grew by 38.6%, also better than the flash estimate of a 32.1% expansion. On a sectoral basis, 1Q manufacturing expanded by 157.6% QoQ, reversing 4Q09’s 27% decline. Construction grew by 16.3%, also better than 4Q09’s 13.6% rise. The services sector expanded by 15.8% compared to 4Q09’s 9.6% rise. Despite signs of recovery in the US and growth in key Asian economies, the MTI has maintained its 2010 GDP forecast at 7-9% as it acknowledges risks in the Eurozone and concerns over excessive asset price inflation in emerging Asia. (Low Pei Han)


Oil and Gas sector: 1Q10 results wrap

Summary: Most of the stocks under our sector coverage reported 1Q10 results recently, and with the exception of KS Energy, Ezra and Swiber, the rest were in line with expectations. Unlike 3Q09 and 4Q09, 1Q10 did not see any significant upside surprises. There were a few noteworthy events: Swiber announced that it intends to list its subsea services business, while Ezra surprised the street when it said its subsea vessels will come on-stream later. Yangzijiang’s consortium made an offer for PPL Holdings, erupting in an ongoing tussle with Sembcorp Marine. We are expecting more order flows going forward, especially in the offshore production segment. Till worries about the Eurozone are assuaged, oil price volatility may persist. However, the longer term outlook is supported by 1) China and India leading global oil demand growth and 2) the US continuing on its recovery path. As such, we maintain our OVERWEIGHT rating on the sector and keep our preference for Keppel Corp [BUY, FV: S$11.22] and Sembcorp Marine [BUY, S$4.75]. (Low Pei Han)


Valuetronics Holdings: Sales order gaining traction

Summary: Valuetronics Holdings (VHL) reported its 4QFY10 results last Tuesday. Both revenue and net profit were stronger than expected at HK$307.0m (+92.7% YoY) and HK$22.0m (reversing HK$2.7m loss in 4QFY09) respectively. The encouraging set of results, we note, came after several quarters of depressed margins from an unfavourable product mix, enlarged operating costs and impairments/provisions. However, 4Q showed firm signs of improvements, both in terms of demand and margins, and are likely to continue in FY11. As such, we are raising our FY11 forecasts by 5.2-11.5%. Our fair value is also lifted to S$0.32 from S$0.29 previously due to the earnings upgrade. We believe VHL is well-positioned to leverage the global economy recovery, considering its still healthy financial position. With an upside potential of 88.2%, we maintain BUY on VHL. (Kevin Tan)


For more information on the above, visit www.ocbcresearch.com for the detailed report.


NEWS HEADLINES

- Banks across Thailand and its stock market will remain closed for the rest of the week.

- Sembcorp Industries said the court has denied Cascal’s motion for a preliminary injunction and cleared the way for the tender offer.

- According to Reuters, Super Group hopes to boost revenue from industrial customers to 40% of the business in three to four years.

- SIA Engineering has signed a S$42m fleet management programme contract with Royal Brunei Airlines.

- Advance SCT has entered into a share agreement with 20 subscribers to help reduce its debt.

- Riverstone Holdings has proposed a rights issue of up to 61.9m warrants to raise net proceeds of about S$0.3m to S$0.9m.

- Fabchem China Ltd posted a 35.1% rise in net profit to RMB47.2m in FY10.

- Tiger Airways has signed a deal with Changi Airport to continue operating out of the Budget Terminal for another three years to Dec 2012.