Eye on China Consumers - Food scandals impacting fast food chains; Luxury weak

■ QSRs: 

McDonald’s 2Q14 China SSS grew 8.8%, partly as the company was cycling lower comps (reflecting a base adversely impacted by last year's avian influenza incident). The company has now stopped sourcing and serving products from Shanghai Husi group (meat supplier allegedly selling expired products). Starbucks China/Asia Pacific region total net revenues grew 23% in 3Q14 (Qtr ending Jun-14). The company noted that comps in China outpaced the region overall (region comps at +7%), but the company noted that economic slowdown concerns meant traffic in China has not returned to the strong levels achieved in prior periods.

Indofood Agri Resources - Higher production boosts 2Q

1H14’s core net profit was broadly in line with our expectation as it accounted for 48% of our full-year forecast. It made up 39% of consensus estimates. 1H14 net profit jumped 135% thanks mainly to higher plantation contributions from SIMP. We maintain our earnings forecasts but lower our target price to S$1.02, as we apply a 10% holding company discount to our SOP valuations to reflect the group's investments in several entities. 

We maintain our Hold call and continue to prefer SIMP for direct exposure to the group's assets.

MTQ Corp - Multiple Organic Drivers For Better Quarters Ahead

MTQ’s 1Q15 results missed with PATMI of SGD4.2m for 1QFY15 (-35% y-o-y, -28% q-o-q), attributed to a lack of vessel campaign in Neptune. However, the gross margin improved to 34%, up 0.5ppt q-o-q. Bahrain is now delivering stronger gross profits, and MTQ is taking in more orders there. We continue to see healthy organic growth from all its oil & gas businesses. 

We maintain our BUY recommendation, adjusting our TP to SGD2.16 after factoring in the 1-for-5 share bonus.

The Underdog is Back - The case for an Emerging Equities Bull Market

■ This report makes the bull case for emerging market equities. The asset class’s underperformance from late 2010 to 1Q14 was, in our view, primarily cyclical. Both monetary and fiscal policy was too accommodative in 2009/10. This led to inflation, and then EM central banks tightened, reducing growth and earnings. The growth tourist left EM. We believe this will change with EM forward EPS outperforming DM into 2015. The growth tourist will return, in our view.

Herd Instinct - Key Emerging Markets and Developed Asia Fund Flow Weekly, 17 - 23 July 2014

During the week to 23 July, there were net subscriptions of US$204million in EM equity funds. For the week, total redemptions in ETFs came at US$408million. YTD redemption in EM is US$21.7billion (redemption US$4.5billion in EM ETF’s).

The net flows by mandate were:

Parkson Retail Group Ltd - 1Q weakness likely to have persisted into 2Q

China/ HK Consumer - 1H14 Results Preview and Top Picks

■ We forecast 1H14 earnings at RMB226mn, down 30% y/y. Parkson had announced weak 1Q14 results, with earnings declining 34% y/y due to weak sales (sales down 2% and SSSG down by 8%. At its 1Q14 earnings call (15 May-14), management noted that SSS remains in negative territory 2Q YTD. Therefore, we are looking for a c20% earnings decline in 2Q which we expect to lead to c30% earnings decline for 1H14.

Dairy Farm International Holdings Limited - Margin Pressures in Food

China/ HK Consumer - 1H14 Results Preview and Top Picks

■ We forecast Dairy Farm to report 1H14 net profit at US$235mn, up c2% y/y. For 1H14, we expect Dairy Farm to report revenue growth of 5% on a reported basis (we estimate 9% on local currency terms, implying 4% FX impact). We expect EBIT margins to contract 20bp to 4.9% mainly driven by margin pressure in its food business. 

In early May 2014, Dairy Farm issued its interim management statement providing qualitative commentary on the performance of the company covering the period from 1 Jan to 6 May 2014. Of note, it disclosed that profits for the period were “largely unchanged from the prior year”. Management continued to flag margin weakness in the food business which has led to “slightly lower profits in the segment” despite higher sales.

SIA Engineering Company - Weaker than expected 1Q FY15 results, mainly driven by higher costs; JV with Boeing positive; stay OW

Stay OW – SIA Engg (SIE) remains one of our preferred stocks in the Logistics Ecosystem

We expect SIE to be a key beneficiary of long-term traffic growth given its client base of over 80 airlines and aerospace OEMs. Growth should be boosted by LCCs’ aggressive fleet expansion and increased aircraft utilisation. Special DPS, M&A, and partial divestment by SIA are other potential catalysts.

Fortune Real Estate Investment Trust - Rental reversion remaining solid in 1H14

We maintain OW on Fortune REIT after 1H14 DPU came in 2% above our estimates. Earnings growth mainly came from Fortune Kingswood acquired in October 2013. Rental reversion slowed in 2Q14 due to renewal of some anchor tenants but overall reversion for 1H14 remains solid at 21.2%.

Valuation looks more attractive at FY15E DPU yield of 5.9% compared with Link REIT's FY15E yield of 4.1%.

Hutchison Port Holdings Trust - Downgrading to Neutral as recovery seems priced in

HPHT has risen by 21% since the recent trough in mid-Dec-2013, offering a total return of 27% while beating the Index by 15% during the same period. HPHT was also the sector’s best performing stock YTD, outperforming CMHI and COSCO Pac (-8% and +5%, respectively).

Yoma Strategic Holdings - Quiet season

Yoma's Landmark development project

■ 1QFY15 PATMI of S$1.4m is 7% of FY15F number; core results missed forecast as Q1 was seasonally weaker

■ Star City sales, especially new zone C, to remain the key earnings driver in the near future

■ Visible drivers in subsequent quarters; stock is a BUY for long term investment