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ASEAN STOCK WATCH 20  August  2010

ASEAN Markets to Consolidate Today

Shayne Heffernan

News of lower employment numbers and slowing factory output led Wall St fall last night and will impact on ASEAN Exchanges today, worst hit will be Singapore as they have shown great sensativity to USA movements of late as has the Philipines.

Jakarta, Kuala Lumper and Bangkok seem far less driven by US factors for now as growth is being internally powered and we do not see them falling as far as other regional markets.

Pressure is growing on the Obama administration to stimulate jobs and home buying, following in the pattern he has established we expect the White House to announce such measures in the next 14 days sparking a strong USA rally that will filter out across the ASEAN markets.

Best buying today would be Genting, AirAsia, Banks and Miners, Tiger Airlines is set to fall much firther after senior staff trimmed their holdings today. AirAsia is winning the low cost market war and Tiger Airlines mayt slip under $1 soon.

The Stock Exchange of Thailand (SET) composite index on Thursday gained 11.21 points or 1.27 per cent to close at 891.23 points. The market value was 43.31 billion baht, with 12.35 billion shares traded.

Top five most active values were as follows;

PTT closed at 266.00 baht, up by 6.00 baht or 2.31 per cent.

PTTCH closed at 107.00 baht, up by 4.00 baht or 3.88 per cent.

PTTEP closed at 151.50 baht, up by 1.50 baht or 1.00 per cent.

SCB closed at 93.50 baht, up by 0.75 baht or 0.81 per cent.

CPF closed at 26.25 baht, up by 0.50 baht or 1.94 per cent.

Car exports for July were up 139 per cent against the same month last year and 26.45 per cent from June to 87,605 units, spokesman for the automobile industries group in the Federation of Thai Industries Surapong Paisitpatanapong said on Thursday.

Export values in July totalled 39.83 billion baht, an increase of 129.41 per cent from the same month last year.

Vehicle exports in the first seven months of the year (January to July) were 505,783 units, up 115.57 per cent on the same period last year. Total export value was 234.97 billion baht, an increase of 86.95 per cent, the spokesman said.

Production output in July stood at 145,771 units, up 94.41 per cent on the same month last year, but down 2.09 per cent from June, said Mr Surapong.

He said the vehicle production output in the first seven months of the year totalled 914,765 units, up 97.12 per cent from the same period last year.

Domestic automobile sales for July were 65,672 units, down 6.92 per cent from June, but up 52.2 per cent from the same month last year on the back of a recovering economy, he added.

The domestic car sales in the first seven months of the year totaled 422, 364 units, an increase of 53.8 per cent from the same period last year.

Mr Surapong said production output from August to October was projected at 416,050 units.

The ST index climbed 27.4 points to end at 2,946.77 on a trading volume of 1,938 million shares.

There were 296 rises against 165 losers by the close of the session.

Shares of property companies rose on news that demand for office space remains strong, with many tenants planning to expand their operations.

Property developer CapitaLand shares rose 2.8 percent at S$4.05 while City Developments rose 2.8 percent to S$11.94.

Shares of Tiger Airways were also actively traded, losing 3.0 percent at S$1.92, after key shareholders trimmed stakes, a move that is a great concern going forward.

Starhub fell 2.1 percent to S$2.33 Genting Singapore Gets Majority Vote For Divestment Of UK Casinos; No Dividends This Year

Shareholders of Genting Singapore have approved the sale of its UK casinos, including Crockfords, the world’s oldest private gaming club to parent Genting Malaysia for £340m ($716m) during an extraordinary general meeting (EGM) on Aug 18. Meanwhile, Genting Singapore posted a second-quarter profit of $397m, a sharp turnaround from the loss of some $51m on-year. A total of $860.8m in revenue for its Resorts World Sentosa integrated resort (RWS) has also been reported. Although Genting has not given a breakdown of earnings from its gambling operations, some analysts believe the segment contributes about 70% to 90%. Separately at the EGM, Genting Singapore revealed that it could issue its first cash dividends in as early as two years as current loan agreement had restrictions on its dividend issuance till 2011.

Soilbuild To Divest Logistics Warehouse For $60m

Integrated property developer Soilbuild Group Holdings is divesting Penjuru Logistics Hub, a purpose-built logistics warehouse located near Jurong Island and Jurong Port, for $60m. The integrated boutique developer is expecting to recognise a gain of about $16.3m from the sale of the property at 34 Penjuru Lane, which has a remaining lease of 22 years. The warehouse, which has 0.4m square feet of business space, will be leased back to Soilbuild for five years at about $5m per year. ‘As at end-June 2010, Penjuru Logistics Hub had been leased to a range of logistics support businesses, including those for petrochemical and maritime companies located at Jurong Island and Jurong Port respectively,’ said Soilbuild.

The Kuala Lumpur KLCI ended the trading day up half-percent to 1,392.56.

At Bursa Malaysia, TMC Life, which saw the entry of a new major shareholder, lost 3 sen to 52 sen.

AirAsia, which posted second quarter net profits that were largely above expectations, gained 5 sen to RM1.73.

BAT rose 16 sen to RM44.36 while JT International jumped 18 sen to RM5.86.

F&N gained 20 sen to RM14.22 and Dutch Lady added 18 sen to RM14.58.

Genting was down 10 sen to RM8.77 and Genting Malaysia was up 3 sen to RM3.07.

Pos Malaysia added 15 sen to RM3.27 and TM gained 10 sen to 3.57.

Nymex crude oil was 45 cents higher at US$75.87 per barrel at 5pm.

Crude palm oil for November delivery was down RM22 to RM2,588 per tonne.

The ringgit was quoted at 3.135 to the US dollar.

Although the economy expanded by 8.9% in the second quarter (Q2) ended June 30 from a year ago, which then produced a first-half (H1) growth of 9.5%, going forward the pace of expansion is likely to slow.

The economy’s leading indicators have been growing at a slower pace with the industrial production index showing a downward trend since May on a year-on-year basis while exports have fallen over a similar period.

AmResearch Sdn Bhd senior economist Manokaran Mottain said that even if the economy were to slow down in the second half to 6.5%, an 8% full-year gross domestic product growth was still achievable.

He did not see any more increases in the OPR for the year as “a hike will choke off growth at this point”.

Meanwhile, RHB Research Institute Sdn Bhd economist Peck Boon Soon was still leaning slightly towards another OPR hike before year-end.

“Although we think Bank Negara is probably done with revising the rates upwards this year, there remains a slight possibility since the economy did well in the first half and was above expectations in Q2,” he said.

AirAsia Bhd’s net profit jumped 43% to RM198.9mil for the second quarter ended June 30, from RM139.2mil a year ago, on the back of strong growth in passenger volumes, ancillary income and higher average fares.

Its revenue for the quarter was 26% higher at RM940.6mil from RM747.9mil a year ago. It reported earnings per share of 7.2 sen versus 5.9 sen a year ago.

For the six months ended June 30, AirAsia posted a net profit of RM423mil on revenue of RM1.82bil.

While AirAsia posted a record quarter, Malaysia Airlines posted a net loss of RM535mil due mainly to derivative losses from its fuel hedges. MAS’ revenue stood at RM3.2bil for the quarter ended June 30.

In a teleconference yesterday, group CEO Datuk Seri Tony Fernandes was confident of a strong second half for AirAsia. He sees a tremendous upside for its operations in Thailand and Indonesia while its ancillary income registered massive growth.

“Forward bookings are looking very good, The fourth quarter is traditionally our strongest quarter. To head into our strongest season on the back of a soaring first quarter and a record-breaking second quarter puts us in a fantastic position,” he said.

During the second quarter, the group’s core operating profit for the period was RM168.5mil, a 31% increase over RM128.4mil core operating profit achieved a year ago.

The core operating profit margin for the period was at 17.9%, 0.7 percentage point higher than the 17.2% core operating profit margin achieved a year ago.

“There were no unrealised translation gains in the quarter as gains from the slight strengthening of the ringgit were offset by losses from the change in the fair value of currency derivatives,” it said in the notes accompanying AirAsia’s financial results.

Commenting on its ancillary growth, Fernandes said: “We have actually reached our target of RM40 spending per pax that we set for the last quarter. We have unearthed a gushing revenue stream that can boost the bottom line and also serve as a buffer to rising fuel prices.”

He said baggage fees and AirAsia Cargo were significant contributors to ancillary income for the group.

Meanwhile, AirAsia’s associates Thai AirAsia Co and Indonesia AirAsia recorded good performance in the second quarter.

“Indonesia AirAsia has staged a strong turnaround and we expect greater things,” Fernandes said, adding that passenger volume grew by 10% year-on-year to 947,786 from 863,440 last year.

In the second quarter, Thai AirAsia recorded a net profit of RM4.9mil on revenue of RM267.4mil while Indonesia AirAsia’s net profit rose to RM39.6mil on revenue of RM233.2mil.

During the quarter, the group carried a total of 6.07 million passengers while the load factor increased to 77% from 75% in the same period last year.

Fernandes said its cost per average seat per km (ASK) of 3.62 US cents was mainly due to higher average fuel cost. He said the average fuel price in the second quarter was US$100 per barrel against US$60 a barrel in the same period last year.

However, its revenue ASK grew by 26% to 4.88 US cents in the second quarter from 3.87 US cents perviously. “I think we remained prudent with hedging, but it’s very useful too – that we’re not trying to bet where the market’s going, we’re just trying to match our forward sales with our oil hedging,” he said when asked on its hedging status.

Fernandes said its net gearing was expected to improved after the deferment of aircraft in 2011. “We have deferred seven A320s for 2011 to 2015. We are planning to reduce aircraft deliveries to 10-12 from 2012 onwards,” he said. He expected AirAsia’s gearing ratio to be below two times from 2011 onwards.

On aircraft financing, he said the financing for all the aircraft in 2010 was secured. As of June 30, the group has a total of 85 planes. Of the total, 50 planes are for Malaysian operations, while Thailand has 20 and Indonesia 15.

Fernandes was confident that the group’s cash balance would surpassed RM1bil by year-end. It has a current cash balance of RM858mil.

“We’ll easily surpass that by year-end. We will be getting re-payment from our associates in Thailand and Indonesia.” He added that with the listing of associates, the amount due from associates could potentially be converted to new shares to maintain shareholding in Thai AirAsia and Indonesia AirAsia.

“It is very premature for me to comment. We believe we have a very strong brand in Thailand. We are not duly concerned. We are not focusing on our competitor, but ourselves,” Fernandes said when commenting on Tiger Airways’ venture into Thailand.

Analysts contacted said AirAsia’s strong performance was above their expectation.

“They (AirAsia) did superbly despite the significant rise in the fuel bill due to the higher oil prices. And that’s largely thanks to the strong growth in ancillary income which sort of ‘offset’ the higher fuel expenses. The deferment of aircraft significantly reduces the debt burden, and should contribute positively to earnings via lower financing costs and better yields through higher loads,” an analyst said.

Another analyst said AirAsia’s operational numbers look very good and were slightly above his expectations.

The Jakarta index rose 33.26 points, or 1.1 percent, to 3,105.35. Volume soared, with about 7.1 billion shares worth Rp 7.8 trillion ($874 million) being traded, up from 4.4 billion shares on Wednesday.

Foreign net buying surged to Rp 1.76 trillion, up from Rp 214.65 billion the day before.

The JCI set its previous high on July 29, when it closed at 3,096.82.

Berau, the nation’s fifth-largest coal producer, was the most active stock by value, rising 11.3 percent to Rp 445 in its market debut after raising Rp 1.4 trillion in an initial public offering to fund expansion.

Finance stocks also drove gains on the index, with Bank Mandiri, the country’s biggest lender by assets, up 2.5 percent to Rp 6,050 on news the bank would double its rights issue this year to as much as Rp 14 trillion.

Bank Danamon Indonesia advanced 1.9 percent to Rp 5,400 after announcing it was targeting 15 to 20 percent loan growth this year after its credit expanded 15 percent in the first half.

Infrastructure stocks had another strong day as cement maker Indocement Tunggal Prakarsa jumped 3.2 percent to Rp 17,600 while Semen Gresik climbed 1.7 percent to 8,950.

Gains were fueled by President Susilo Bambang Yudhoyono’s speech this week reaffirming the government’s commitment to development.

Pardomuan Sihombing, head of research at Recapital Securities, said he was optimistic the index would soon reach 3,200 points, provided Bank Indonesia kept its benchmark interest rate at a record-low 6.5 percent.

“Fundamentally, we are far from ‘bubble territory,’ so we can achieve [3,200]. The only watch factor is inflation,” he said. “We hope the central bank will not raise interest rates, with the temptation high given the rising inflation rate.”

The rupiah on Thursday crept up to 8,965 per dollar as of 4:00 p.m., from 8,968 the day before.

“The rupiah will be stuck as there are a lot of foreign fund inflows but on the other side, there are concerns that the pace of appreciation will affect exporters,” said Muhammad Fauzi Halim, a trader at Bank Resona Perdania.

The government has been keeping a close eye on the currency and wants to keep the rupiah trading between 9,000 and 9,200 to protect the competitiveness of Indonesian goods abroad.

The rupiah has strengthened 1 percent in the past month, compared with 3.5 percent for the Philippine peso and 3.2 percent for Malaysia’s ringgit.


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