Published July 6, 2009

WALL STREET INSIGHT
Investor spotlight shifts to Q2 earnings

And investors may be in for some positive surprises, say analysts

By ANDREW MARKS
NEW YORK CORRESPONDENT
Email this article
Print article
Feedback

US stock market investors got a rude send-off last Thursday as they got ready for the long holiday weekend, as one of the most crucial pieces of economic data, the monthly unemployment report, offered a stark and gloomy counterpoint to the so-called 'green shoots' that have indicated the economy is approaching the turning point towards recovery.

Poor show: The Dow sank 1.9% last week on poor jobs data. The S&P fell 2.5% and the Nasdaq skidded 2.3%

When the June unemployment numbers came in showing more than 100,000 more jobs lost than expected, it shook investors and traders, who have already begun to lose patience with the concept of 'less bad' being good.

'Now even that notion has taken a big hit,' noted S G Cowen equity trader John O'Donoghue. 'The unemployment number sent a strong message that we can't take for granted that the recession is almost over. It means the spotlight will be on corporate earnings results to show some signs of hope more than they were just a few days ago,' he said.

Indeed, the second quarter earnings reporting season arrives this week at a critical juncture for the US stock market, which has been trading sideways, with a downward trend, since the bank stress test results were announced in May.

'Everyone on Wall Street has been treating an economic recovery in the third quarter as a fait accompli, but last Thursday's employment numbers have brought the dreaded D-word - Deflation - back into the picture,' said David Rosenberg, chief economist and market strategist at Glusken Scheff.

With more than three million jobs now lost since the recession began last summer, 'it should not be lost on anyone that this is the first time since the 1930s depression that the private sector job losses posted in the economic downturn more than wiped out all the gains from the prior expansion', he said.

There is room for hope, however, that positive surprises await investors when corporate America reports its latest results, despite the ongoing and increasing weakening of estimates. Earnings tracker Thompson Reuters said only 56 S&P 500 companies have issued negative EPS pre-announcements for the second quarter, while 37 offered positive EPS pre-announcements. That is a nearly three times better negative-positive ratio than the one heading into the first quarter results, and 25 per cent below the S&P 500's historical average.

'That means that either analysts' estimates are better than usual, or we've likely got a stronger than expected quarter for the second time in a row,' said Larry Adam, chief investment strategist at Deutsche Bank Wealth Management. 'I'm betting it's the latter,' he added.

But last Thursday, investors weren't thinking about the earnings season, as the June jobs report showed employers slashed 467,000 jobs from non-farm payrolls, compared to the 365,000 job losses expected by economists.

The jobs report overwhelmed the good news that factory orders jumped 1.2 per cent in May, the largest increase in nearly a year, as the Dow Jones Industrial Average lost 223.32, or 2.6 per cent, to ruin what had been an encouraging week, and closed at 8,280.74 points on an exceptionally light trading volume of less than 750,000. The S&P 500 fell 2.9 per cent and the Nasdaq shed 2.7 per cent.

For the week, the Dow sank 1.9 per cent. The S&P fell 2.5 per cent and the Nasdaq skidded 2.3 per cent.

Alcoa will kick off the second-quarter earnings season when it reports results after Wednesday's closing bell.

Analysts are expecting another quarter of huge losses for the companies that constitute the S&P 500, with an estimated earnings growth rate of negative-35.5 per cent, according to earnings tracker Thompson Reuters.

On April 1, the estimated growth rate was negative -31.7 per cent. Analysts expect all ten sectors in the S&P 500 to show a year-over-year decline in earnings for the quarter, which would be the first time that has happened since Thompson began tabulating earnings in 1998, said senior equity analyst John Butters.

Mr Adam said that in addition to the lack of profit warnings offering reasons for optimism, 'I'm expecting to see more guidance coming from companies for future quarters as they announce numbers for the last quarter, and that should be a positive for stocks', he said.

But traders warned it's unlikely the second quarter earnings results will have the same big impact on the stock market as was seen with first-quarter results.

'The market was still pretty far down when the first-quarter results started coming in back in early April. Now, the S&P 500 is almost 20 per cent higher than it was at the beginning of the first quarter earnings season,' said Mr O'Donog-hue. The higher valuations stocks have will result in less upside and greater downside, he said.

After Alcoa reports its numbers, just three other S&P 500 companies are expected to announce earnings this week. During the week of July 13, 24 S&P 500 companies and six Dow components are expected to release results.

The peak weeks of the second quarter earnings season will begin from July 20. But that won't keep investors from exercising their increasingly itchy trigger fingers at the first sign of trouble.

The lacklustre start to the earnings season will be compensated by a heavy schedule of economic data this week. The Institute for Supply Management releases its services index for June today. The May reading on consumer credit will come on Wednesday, as well as the Energy Department's weekly inventory report.

Thursday will bring the weekly initial jobless claims report, which is expected to be an important release after claims fell by 16,000 the previous week to 614,000. The May reading on wholesale inventories will also be released on Thursday.

Friday is the busiest day for economic releases, with the June report on import and export prices, the May trade deficit, and the University of Michigan's preliminary report on its consumer sentiment index for July.

Published July 6, 2009

A-Team quits stockbroking for private equity

David Loh, Han Seng Juan to focus on growing Centurion Investment

By VEN SREENIVASAN

	Email this article
	Print article
	Feedback

(SINGAPORE) Well-known brokers and cousins David Loh and Han Seng Juan have formally left the stockbroking business to focus on their boutique private equity investment business.

The two, considered among the most successful and influential stockbrokers here in the last few years, officially ended their stockbroking career when their trading licence formally lapsed last Wednesday.

Known as the A-Team within the industry or just simply 'David and Han', Mr Loh and Mr Han will now concentrate on growing Centurion Investment Management (CIM), a boutique Asian private equity company they helped set up in 2004 with other partners to invest in small to medium sized companies, especially in the Greater China region.

'It's been a tremendous ride for us in the last few years in the stockbroking industry, but it is time to look towards focusing our efforts on growing our investments and interests both in Singapore and in the region,' said Mr Loh, when contacted yesterday.

Mr Han added: 'Though stockbroking has been very fulfilling, we are not getting any younger and would like to take the next step towards a more proactive role in managing and expanding our investment portfolio.'

Headquartered in Singapore, but with offices in Hong Kong and Shanghai, Centurion will take 'an opportunistic approach' rather than a country or industry-driven strategy to invest in fast growing Asian industries spanning food and beverage, consumer products, natural resources, manufacturing, properties and environmental projects.

It will continue to focus heavily on companies that are seeking funds for pre-listing financing, expansion or management buy-outs.

And given Mr Loh and Mr Han's experience, it is likely to have a strong emphasis on the Greater China region.

Companies Centurion has invested in during the past few years included Pine Agritech, China Hongxing Sports, Unionmet (Singapore), Synear Food Holdings and Li Heng Chemical Fibre Technologies.

In Singapore, Centurion has also been involved in property development, including Kovan Residences - a 521-unit condominium on a 190,000 square feet site at Simon Road.

Its other property projects include a housing site for foreign workers called Westlite Dormitory in Jurong and a 700 hectare golf resort in Vietnam. The company was also among the top three bidders recently for a small hotel site in Short Street.

The cousins joined the industry in the late eighties as fresh university graduates. Mr Han started out in UOB Securities, while Mr Loh was at Phillip Securities, and later joined UOB Kay Hian in 1996.

Mr Loh then went to Hong Kong to set up the broking firm's office there, while his cousin stayed in Singapore.

It was during this time that they built up relationships with institutional clients and corporates in Hong Kong and China, which enabled them to attract scores of China IPOs to Singapore during the boom years of 2005-08.

These connections will now come in handy as they embark on the next phase of their careers as private equity investors.

Published July 3, 2009

Worst is over for plantation sector: IOI

	Email this article
	Print article
	Feedback

(PUTRAJAYA) IOI Corp, Malaysia's No 2 planter, said on Thursday that the worst was over for the plantation sector as palm oil prices have recovered from last year's slump although M&A activity would be muted.

Picking up: Palm oil prices have recovered more than 60% from a low of RM1,331 per tonne in October on surging Asian demand

Earnings of Malaysian palm oil producers plunged in the first quarter as crude palm oil prices more than halved from a year ago.

IOI, valued at US$8.37 billion, saw net profit nearly wiped out during January-March due to weak crude palm oil prices and large foreign translation losses on its US dollar borrowings.

Sime Darby, Malaysia's top planter, reported a 85 per cent drop in net profit while third-ranked Kuala Lumpur Kepong saw net profit down 52 per cent in the same period. 'It's quite obvious it will be better. The industry including ourselves expects to see much better fourth-quarter (April-June) operating results,' IOI executive director Lee Yeow Chor told Reuters at the company's headquarters in the administrative capital of Putrajaya.

Malaysia is the world's second-largest palm oil producer after Indonesia.

Crude palm oil prices hit a record RM4,486 (S$1,850) a tonne in March 2008 before collapsing at the height of the global financial meltdown and triggering speculation that distressed plantation firms starting out would sell.

But Mr Lee said the opportunities for merger and acquisition in the sector are hard to find now as the palm oil price recovery helped smaller firms hold out for better deals.

'Because the sharp price drop has not really been for a long time, the pressures on them (smaller planters), in terms of cashflow or repayment of bank borrowings is not so great.'

IOI, which owns oil palm estates in Malaysia and Indonesia, saw net profit for the third-quarter to March plunge 94 per cent to RM37.36 million from a year ago on an unrealised forex translation loss of RM232.4 million.

The sharp drop in third-quarter earnings was due mainly to 'a lot of translation adjustments' on its US dollar debt, said Mr Lee, adding that IOI expects the forex losses to reverse in the upcoming quarterly results.

'For fourth quarter with the weakening of the US dollar, from end-March of around RM3.63, we expect to have some gains in currency translation for US dollar borrowings,' said Mr Lee.

'We borrow US dollars, because it corresponds with our palm oil revenue, so that is a natural hedge between our borrowings and receipt of revenue,' he explained.

Palm oil prices have now recovered more than 60 per cent from a low of RM1,331 per tonne in October on surging Asian demand as well as tight Malaysian palm oil stock levels in the first few months of 2009.

'We have always thought that the low price level in the first quarter of this year was not a sustainable level to begin with. We have always expected the price to move up,' said Mr Lee.

'The major consuming countries, China and India, their economies have not been that badly affected by the prevailing global downturn,' he added.

Mr Lee said Malaysian palm oil production should pick up in the second half of the year due to the seasonal uptick in output as yield stress fades. He pegged June palm oil stocks at 1.5 million tonnes, an increase of 9.5 per cent from a month earlier. -- Reuters