The following was posted by Kevin Scully, executive chairman of NRA Capital, on his blog this morning. Visit www.nracapital.com


Image Singapore's June 2010 industrial production rose 26.1% (below forecasts of 36.7%) caused mainly by Biomedical......but I am more interested in the electronics data which....


On a month on month basis, industrial production declined by 23.4 mainly because
Biomedical grew only at 29.8% from more than 100% in May 2010.  More details can be found at the 
EDB website here.

Back to electronics - this is important to me because 40% of my Stock Picks are electronics/technology stocks.  The electronics data for June 2010 expanded by 46.8% - led by a 74.9% rise in semi-conductor equipment.  data storage declined by 9.4% mainly from the relocation of capacity out of Singapore.  

 I remain bullish on the electronics and technology sector - although some moderation of the heady growth in the first half of 2010 is expected in the second half of this year.  In a recent investment seminar, 
our analysts reviewed the electronics sector and recommended nine stocks in the sector (four more than in my Stock Picks).  Read the slides and understand what factors are driving electronics and also the downside. 

The rerating and rebound in the US markets over the last few days has been on the back of the Q2-2010 reporting season.  I believe the same will drive the Singapore market and in particular the electronics stocks higher.  Broadway results are due this Wednesday.....keep an eye out for them.
Image
Demand for smart phones and PCs is driving the tech sector.

The June 2010 industrial production data also showed weakness in the marine sector which fell 17.0% in June and is down 11-12% for the first half of 2010.  This is consistent with weak charter rates and order cancellations and deferrals that we seen from the marine and off-shore industry.  

 Notwithstanding this, i was asked recently which marine stock I liked - it wasnt Keppel or SCM or Ezra or Cosco but Jaya Holdings.  The basis of my recommendation was relative valuation. 

Because of its financial woes in June 2009, Jaya has under-performed the sector and is the cheapest in terms of price to book and PER at 1.1 times and 5 times respectively.  There is also a possibility that its current major shareholder will sell its controlling block and trigger a GO leading to a natural re-rerating. 

We don’t know when this will occur but if it does and given that their costs in Jaya is more than S$1.00 compared to current share price of S$0.65, downside in the share is limited and a fundamental or corporate action rerating seems likely.   When I first mentioned Jaya to some industry players - their first comment was negative, ie that Jaya had sold the better vessels in its fleet to raise money leaving less attractive vessels behind. 

The data seems to suggest otherwise with the average age of its current fleet at 2.5 years.  I added Jaya to my Stock Picks for these reasons and suggest you keep it on you radar screen if you want exposure to the marine and offshore sector.

Recent story: KEVIN SCULLY: "Why I remain bullish on stocks and the S'pore market"

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