The Trading Floor - Jan 2012

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  1. trendtrader

    trendtrader Well-Known Member

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    This is Part 2...

    OVERWEIGHT Oil & Gas plays, on firm oil price

    Continued firm crude oil price could drive further investments by oil companies. We
    believe elevated crude oil prices will underpin upstream and downstream investments by
    oil companies and asset owners. Rig builders have enjoyed strong order flow in 2011, and
    we expect order flow momentum to remain strong in 2012 due to tightening rig market,
    particularly for the ultra deepwater segment. The tighter credit market is a concern but
    established players with strong balance sheets should continue to win funding support
    from banks. Key events to watch out in the next six months are the conclusion of the
    Petrobras tenders for rigs and FPSO conversions, and return of newbuild semisub orders.
    Excluding Petrobras’ orders, we believe Singapore rig builders could see more than
    S$10b orders in 2012. We forecast S$6b orders for Keppel and S$4.5b orders for SMM in
    2012. We also like the long-term fundamentals for high-end offshore support vessels,
    which could benefit STX OSV (NEUTRAL TP: S$1.20). However, we are NEUTRAL on
    STX OSV as the macro uncertainty in Europe could continue to weigh down on the stock.

    Banks less attractive during downturns

    NEUTRAL on banks – UOB most attractive based on asset quality. Sector dynamics
    are not positive given the slowdown in economic growth, with MAS guiding 1-3%
    Singapore 2012 GDP growth. Banks are expected to see increased loan loss provisioning
    and much slower loan expansion. In Oct 11, systemic business loans contracted 0.1%
    MoM, which is a sharp deterioration from the average 3-4% MoM expansion rate from Mar
    till Sep 11, suggesting that weaker loans are already filtering through. Within the
    NEUTRAL-weighted banking space, we like UOB (BUY TP:S$19.20) as we see its asset
    quality being better than peers (1) UOB was the least aggressive lender over the past 36
    months, with a loan CAGR of 11.1%, versus 15.1% average for its other two peers; (2)
    27.5% of UOB’s loan book comprises of low-risk home mortgages, versus the 22.7%
    average for its two peers.

    OVERWEIGHT with preference for big-cap offshore shipyards. We like big-cap
    offshore marine companies given their undemanding valuations, strong balance sheets
    and high revenue visibility. SMM is our top pick as we believe order momentum for SMM
    (BUY TP: S$5.25) could surge ahead of Keppel given lower order wins in 2011. Key risks
    to our sector view: a sharp collapse in crude oil prices, and wide spread credit crunch. For
    the mid-cap segment, we like Ezion (BUY TP: S$1.00) for its strong EPS growth. We
    would avoid Chinese shipyards as offshore exposure remains relatively small and poor
    outlook for commercial shipbuilding will continue to weigh down on the stocks.

    3Q11 loan momentum strong, but we expect sharply slower FY12 loan growth.
    3Q11 loan growth momentum was strong c.7-10% QoQ due to more Greater China loans
    particularly for DBS and OCBC. UOB indicated that its loan approvals fell sharply in 3Q11,
    which points to sharply slower loan growth with a lag of 3-6 months. Factoring in the global
    economic concerns, we are forecasting FY12 banking sector average loan expansion of a
    slower 9% (with risk of further slowing) versus our FY11 forecast of 25%.

    NEUTRAL on developers, key SELL on CDL. Developers are trading at sharp declines
    to their RNAVs, but expectations of upcoming supply and weakening prices could lead to
    a prolonged period of lack of investors’ interest. We foresee a prolonged period of
    weakness in physical prices due to supply side policies amidst lack of investors’ interest
    in property stocks. CDL, which has an estimated 43% GAV exposure to the residential
    segment, could see further share price weakness. Within the sector, our preferred pick is
    CapitaLand due to its multi-geographical, multi-segment exposure and a well established
    asset recycling platform. Recent share buyback by Capitaland vindicates value embedded
    in share price.

    NEUTRAL stance on airlines. While we expect 2012 to be a tough year, we are
    optimistic that 2H12 would offer brighter macroeconomic prospects. We are NEUTRAL
    on aviation, as we think weakness in the airline industry could persist.
    Nevertheless, we think downside risk is limited, after SIA shed 51% of its market cap
    YTD. SIA currently trades at -1 standard deviation, which we think has priced in the
    immediate-term economic turmoil. Barring a global recession, we think SIA’s valuation
    has bottomed. We reaffirm our BUY call on SIA with a Fair Value (FV) of S$12.37,
    premised on its P/B of 1.1x (which is its long-term average P/B).

    NEUTRAL weight banks, - BUY UOB for exposure to banks. Our best pick remains
    UOB (BUY TP: S$19.20) as we believe its asset quality is high: (1) UOB was the least
    aggressive lender over the past 36 months, with a loan CAGR of 11.1%, versus 15.1%
    average for its other two peers; (2) 27.5% of UOB’s loan book is to the low-risk home
    mortgages, versus 22.7% average for its two peers. We believe UOB’s loan is less
    susceptible to NPLs going forward. The soft SIBOR environment is a negative for DBS
    (NEUTRAL TP: S$13.31), with its S$ loan deposit ratio of a low 62%. Valuation is not
    attractive for OCBC (NEUTRAL TP: S$8.30).

    Positive sector outlook: We believe elevated crude oil prices will underpin higher
    upstream and downstream investments by oil companies and asset owners. Rig builders
    have enjoyed strong order flow in 2011, and we expect order flow momentum to remain
    strong in 2012 due to tightening rig market, particularly for the ultra deepwater segment.
    The tighter credit market is a concern but established players with strong balance sheet
    should continue to get funding support from banks. Key events to watch out in the next six
    months are the conclusion of the Petrobras tenders for rigs and FPSO conversions, and
    return of newbuild semisub orders.

    Singapore rig builders should see more than S$10b orders (ex-Petrobras) in 2012.
    We are more positive than consensus on new orders. In 2011, Keppel (BUY TP: S$11.40)
    and SMM (BUY TP: S$5.25) won a total of S$12.4b new orders; Keppel took the lead with
    S$8.7b new orders and SMM secured a total of S$3.7b new orders. This was ahead of our
    expectations at the start of 2011, where we estimated that order flow should come in
    around S$8-9b. Lately, we have seen multiple long-term contracts being awarded for
    newbuild semisubs and jackup rigs. As market tightens due to rising demand on the back
    of high crude oil prices, we believe shipyards will see renewed interest for newbuild rigs.
    Rig owners with strong balance sheet should continue to get financing support despite the
    tighter credit in the market. We forecast S$6b orders for Keppel and S$4.5b orders for
    SMM in 2012 (excluding Petrobras deepwater rigs). We also like the long-term the
    fundamentals for high-end offshore support vessels, which could benefit STX OSV
    (NEUTRAL TP: S$1.20). However, we are NEUTRAL on STX OSV as the macro
    uncertainty in Europe could continue to weigh down on the stock.

    For oil & gas service providers, will things get better? 2011 has been a disappointing
    year for oil & gas service providers, as share prices corrected 29 - 65% on the back of
    poor execution and lower earnings (with the exception of Ezion Holdings). While we have
    seen strong order flow for offshore construction players like Swiber and Ezra, preexceptional
    bottomline remains disappointing. Stocks did not re-rate on the back of the
    new orders as investors were more concern over the high gearing (more than 1.0x) and
    persistent negative free cash flow on these two companies. We remain largely
    neutral/negative on the offshore service providers under our coverage except Ezion (BUY
    TP S$1.00) until we see clearer signs of pricing power for offshore asset owners.

    OVERWEIGHT. We prefer the big-cap offshore shipyards. We like big-cap offshore
    marine companies given undemanding valuations, strong balance sheet and high revenue
    visibility. SMM is our top pick as we believe order momentum for SMM (BUY TP: S$5.25)
    could surge ahead of Keppel given lower order wins in 2011. Key risks to our sector view:
    a sharp collapse in crude oil prices, and wide spread credit crunch. For the mid-cap
    segment, we like Ezion (BUY TP: S$1.00) for its strong EPS growth. We would avoid
    Chinese shipyards as offshore exposure remains relatively small and poor outlook for
    commercial shipbuilding will continue to weigh down on the stocks.
    OIL AND GAS (OVERWEIGHT)
     
  2. trendtrader

    trendtrader Well-Known Member

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    This is Part 1.

    Waaaa lau......I was just figuring out how to start a new thread and before I knew it.....you have done it.
    Great! Save me the trouble.

    Sow how to trade 2012?

    Here's some recommendations from DMG for 2012...

    Expect 1H12 market weakness, but STI may rise 15% in 2012 to 3022 level. Our
    sum-of-the-parts valuation gives a 12-month STI target of 3022 (versus 2618 as of
    19Dec11). This target works out to 1.31x P/B which is lower than the 15-year historical
    average of 1.65x, a level we feel is justified given the global uncertainties. Whilst the
    Singapore government is guiding 2012 Singapore GDP growth of 1-3%, we are
    forecasting a stronger 4.5%, though we recognize the existence of downside risks should
    the Eurozone crisis deteriorate further. We recommend clients to stay defensive currently.
    We overweight land transport stocks, whose earnings are stable and which could
    potentially see higher taxi rental charges following the mid-Dec 2011 hike in taxi fares.
    Telecommunication stocks may not offer much share price upside but their downside is
    limited due to their earnings resilience. In addition, we remain bullish on the hospitality
    space as we see visitor arrivals increasing on the back of attractions from the Integrated
    Resorts and cheap budget airlines flights – 10M2011 visitor arrivals rose 14.4% YoY. The
    oil and gas segment also offer value, as currently firm crude oil price (WTI at US$94/bbl)
    would drive further investments by oil companies.

    Risk of STI falling deeper below minus one standard deviation in the short term.
    The STI currently trades at close to minus one standard deviation from its P/B mean. The
    Eurozone crisis may worsen, and the STI could see some weakness in 1H2012. During
    the Lehman crisis, the STI fell to 0.88x P/B, which represents minus 2.5 standard
    deviation from its mean P/B. Whilst the probability of this happening is low (due to
    concerted efforts by the EU to contain the crisis), therein lies the risk of the STI falling
    deeper below minus one standard deviation from its P/B mean.

    Stay defensive, and invest in liquid and quality stocks. Investors’ cautiousness is
    evident from the recent weakness in securities market average daily turnover (ADT). Dec
    11 ADT has thus far been lacklustre, hitting only S$0.89b, versus Dec 10’s S$1.24b. Short
    term trading opportunities will reside mainly in the liquid and larger capitalization stocks.
    For the defensives, our top stock picks are ComfortDelgro and M1. Within the tourism
    theme, CDLHT and Genting are attractive. Sembcorp Marine is our best bet within the oil
    & gas space. Although we are NEUTRAL weight the aviation, finance, plantation and
    supply chain space, we see value in selective stocks – SIA, UOB, First Resources and
    Olam respectively. We recommend a SELL for City Developments as we are negative on
    the residential property market.

    Expect STI to weaken in 1H12, but recover to 3,022 by end-2012

    Progressive cuts to our 12-month STI target since early-Aug11. At the beginning of
    2011, when the STI was 3,190, we set a Dec 11 STI target of 3,447, which was one of the
    least optimistic in the market. This was derived from sum-of-the-parts methodology. For
    stocks under our coverage, we use our analysts’ target prices, and for stocks not under
    our coverage, we use Bloomberg consensus’ target prices. We were on the right track
    through 1H11, with the equity market remaining firm till Jul 11. However, global economic
    concerns took centre-stage in Aug 11 and led to the STI falling significantly since then. We
    have thereafter been progressively lowering our 12-month STI target as global concerns
    deepen. We last revised our 12-month STI target to 3,240 in late Oct 11.
    Expect 15% STI upside in 2012, but weakness in first half. Since Oct 11, the macro
    global environment has deteriorated further and we lowered the target prices for stocks
    under our coverage. Our revised 12-month STI target now stands at 3,022. This implies
    an upside of 15% from the 19 Dec 11 STI level of 2,618. However, we believe the STI
    would first trend down in 1H12 before rebounding later.

    We recommend liquid, quality and defensive stocks. There is a clear trend of reduced
    trading activity for the Singapore equity market. The average daily turnover (ADT) for the
    first three weeks of Dec 11 was S$0.89b - sharply lower than Dec 10’s S$1.24b and Nov
    11’s S$1.19b. This reflects greater cautiousness by market players. In times of
    uncertainty, fund managers tend to focus on liquid and larger market capitalization stocks,
    and avoid those that are less liquid and have smaller market capitalization. These liquid
    stocks offer more scope for short term trading, and the market generally perceives the
    larger cap stocks as higher quality. As such, our key recommendations in this report are
    mainly STI component and liquid stocks. We also adopt a defensive approach. For now,
    we recommend clients to buy into companies whose earnings are defensive, and whose
    share prices have shown resilience during previous periods of equity market weakness.
    As we approach 2H12, we believe the less liquid and smaller cap stocks may become
    more exciting as investments.
     
  3. 發發發

    發發發 Well-Known Member

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    Da Lole, you still around? Post some heng heng picture to start the new year with a BANG! Gam boh?
     
  4. 發發發

    發發發 Well-Known Member

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    Lai lai lai......started a new thread for 2012. 888
     
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