market strategists sg & us equity analysts

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.

Phillip Securities Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197201035Z © PhillipCapital 2013. All Rights Reserved. For internal circulation only.

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.



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.



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)



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)



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



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.



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.



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



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.



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”

http://www.uniphillip.com/



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



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)



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




16

Underlying economic strength: Bull trend has legs




Defense to Offensive: Bull has some more to go

17




18

Market Updates



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.



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



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



22

2. Intermarket and Sector Analysis

Phase 4 strategy:Short BondsLong Stocks (Industrials, Materials, Energy)Long Commodities



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.



Sector Glances

24

Cyclicals Industrials

Materials Energy

(sequence of turning)



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.



Yield Curve still supports a Bull

26



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



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.




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.



30



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



34

SG market



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



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.






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.




-- CSI300 ETF: HK83188



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.




-- CSI300 ETF: HK83188



Appendix

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market strategists sg & us equity analysts

Documents