Keppel - Bullish breakout suggests more upside potential

Likely more upside ahead. Keppel Corp (KepCorp) could see more upside potential in the days ahead after initiating a bullish breakout from its 1-month flag consolidation pattern on heavy volume yesterday. Incidentally, yesterday’s breakout also took place at its key $7.70 key support (key resistance-turned-support level and lower boundary of 6-month uptrend channel).

Positive signs from indicators. With the RSI rebounding off strongly from the 50% mark and the MACD indicator rebounding off the centerline and initiating a bullish crossover in the process, these seem to suggest a build-up in upside momentum.

Initial resistance zone at $8.45. We expect the stock to advance to the key resistance zone at $8.45 (2009 high), breaking which, the next resistance is at around $9.19 (minor peak in Sep ‘08).

Immediate support at $7.70. Beyond the $7.70 immediate support, we pegged the subsequent supports at $7.00 (resistanceturned- support) and $6.38 (minor troughs in Jun and Jul ‘09).

Note: We currently have a fundamental HOLD rating on KepCorp with $8.20 fair value.

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K-REIT - Heading lower in the near-term

- As indicated by the confirmation of a hanging man bearish reversal candlestick at the $0.65 resistance level (breakdown gap in Jan ’09 and the upper boundary of the 4-month downtrend channel), K-REIT looks to be heading lower in the near term.

- Incidentally, both the RSI and Accumulation/Distribution indicator have signaled negative divergences to the price action, further supporting our view that a price reversal could be in the process.

- We see a possible pullback to the immediate support at around $0.57 (recent minor troughs and 50% Fibonacci retracement of the rally from Mar ’09 low to the recent Apr ’09 high), followed by the last line of defense at $0.485 (all time low)

- Any upside from the current $0.65 level will likely meet resistance at the next support-turned resistance level of around $0.70 (minor peak in Jan ’09).

Sell Sunningdale Tech, Buy SembCorp Marine, Keppel Land

Sunningdale Tech (SUNN SP; S$0.035) – SELL

• A base building formation was seen on the daily chart. The stock may have bottomed temporary at its 52-week low of S$0.03, but until a breakout from its long term downtrend channel materialises, we are still bearish on the stock. There is still a risk for it to go below S$0.03.

• Although technical landscape has improved, gains would be capped at $0.045 and S$0.055 resistances.

• We advocate investors to take profit on rally, as the bears still have the upper hand over the bulls.

Sunningdale Tech Ltd manufactures and sells mould and plastic injection products. The Company also designs, manufactures, markets, and exports high precision steel moulds. Sunningdale Tech trades car audio equipment and provides product design consultancy, mold flow service, mold design, and project management.

SembCorp Marine (SMM SP; S$1.87) – BUY

• Tested its triangle resistance trend line yesterday. However, if it fails to hold above S$1.86, the stock may poise for a minor correction soon. Support is seen at S$1.67.

• Although MACD is still rising and has pierced into the positive territory, RSI is already overbought at 76.

• Investors should wait for share prices to come off before accumulating, preferable near its support. The overbought RSI would cap further gains for now. Resistance is at S$2.04.

SembCorp Marine Limited operates ship building, ship owning, ship repair and conversion. Through its subsidiaries, the Company provides equipment rental, cleaning and maintenance services, marine, general electronic, and electrical works. SembCorp Marine also trades copper slag, processes copper slag for grit blasting and building, as well as fabricates metal structures.

Keppel Land (KPLD SP; S$1.49) – BUY

• The stock has rebounded from its 52-week low to retest the triangle resistance. However, we would only turn bullish if prices break above S$1.51.

• Technical indicators have improved. MACD is positive but RSI is fast approaching the overbought zone.

• While daily chart still looks positive, investors should buy on weakness, possibly near its support at S$1.38. Cut losses if prices fall below its 30-day SMA at S$1.28.

Keppel Land Limited is the property arm of the Keppel Group. The Company's portfolio of properties includes office towers, residential properties, hotels, resorts, retail complexes, industrial buildings, and townships. The Company also provides management and consultancy services.

Technically Sell OUE, SembCorp Industries, Keppel Corp

Overseas Union Enterprise (OUE SP; S$12.00) – SELL

• The stock tumbled to its strong support at S$8.00 before rebounding sharply to current levels. This rebound shows that the bulls are not ready to give up just yet.

• The RSI hook up from its oversold position prompted the strong rebound from its S$8.00 support. The MACD is however still negative.

• We continue to see weakness in the coming months. However, in the short term there could still be some upside. The gap resistance at S$12.10-12.30 would likely keep a lid on the upside for now. Buyers should only buy near the S$8.00-9.00 strong support. Otherwise, sell on rebound and stay sideline for now.

Overseas Union Enterprise Limited operates hotel and leases commercial offices and shopping centers in Singapore. Through its subsidiaries, the Company also manages and operates food and beverage outlet, advertising, printing, and commercial laundry.

SembCorp Industries (SCI SP; S$2.14) – SELL

• The stock appears to be well supported above the S$2.00 support. It is now forming a descending triangle. A break below the S$2.00 support is bearish.

• Indicators are still negative but improving slightly. The RSI is slowly rising but is still below the neutral mark.

• Again, there could be a minor rebound back up to retest its S$2.18-2.20 (its 30-day SMA). A breakout could see the stock climb to S$2.25 next. Since we do not foresee a strong rebound, maintain a sell on strength strategy for now.

SembCorp Industries Limited provides infrastructure services and integrated industrial site services such as power, gas, steam, water, and other site services. The Company's services include engineering and environment management, integrated logistics, and marine engineering services.

Keppel Corporation (KEP SP; S$4.30) – SELL

• It is now in a long term sideways trend. However, since it is trading above its 30-day SMA, there could be a tad more upside from here. However, we expect resistance to be tough at the S$4.90 and S$5.40 levels.

• Daily MACD is positive but RSI is flat, suggesting that buying momentum is not very strong.

• After this rebound, we expect the stock to retrace lower again. Support is now at S$4.00 and S$3.76.

Keppel Corporation Limited's core businesses are offshore and marine, infrastructure, property investment and development, telecommunications and transportation, energy, and engineering.

Possible technical rebound on Keppel and SembMar

Most traders may not be expecting any meaningful rally in the next few weeks as the bullish impact of Budget goodies could dissipate within days amid renewed bearish developments in the US on top of a slew of likely earnings shocks during the current reporting period.

So far the market has reacted differently to the results of 2 key index stocks, SPH ($2.70) and SGX ($5.20). While the former continues to fall post-results, down 17.6% from an early Jan high of $3.29 to $2.71 low today, SGX which also dropped from $5.88 high to $4.93 on announcement date Jan 15, has rebounded to as high as $5.29.

This raises hopes that the market will continue to price in earnings disappointments going forward with the next major release on Budget day itself Jan 22 by Keppel Corp ($4.08).

It is now down 25.6% from early Jan high of $5.44, an even worst performance than DBS ($8.70) which had bounced off from $8, which was a 22.9% drop from $10.38 in early Jan.

DBS is still nearly a month away from its Feb 13 results date but its early rebound raises hopes that current underperformers led by KepCorp, UOB ($11.90) and SembCorp Marine ($1.59) could stage technical rebounds in coming days.

Traders should watch out for sharp intra-day falls to or below their lows last week when the STI hit intra-day low of 1694 on Thursday as oversold situations will emerge.

An example is KepCorp is now down almost twice the STI’s 13.6% loss from 1960 to 1694 last week, but it also had a strong rebound from Oct’s intra-day low of $3.35 to $5.44.
In fact it has retreated below the 61.8% fibonacci retracement ($4.15), which was the close on Oct 28 when it hit $3.35 year’s low.

Oversold indicators come from RSI, down from 70 to 39 now although short term MAs which made a bullish cut earlier this month have quickly reverted to a bearish cross soon after.

Any further weakness ahead of Thursday’s results around to $3.90-$4 which is a key multi-year support offers trading chances. Resistance is around $4.40-60 (Today’s high is $4.30).

Fellow offshore play SembMarine ($1.59) too is near last week’s $1.55 low, which is 24% from early Jan high of $2.04. Parent SCI ($2.22) has rebounded after losing 23.6% from $2.75 to $2.10 last week.

The latter has rebounded to $2.24 while SCM should hold up around $1.50 and not test its historic $1.40 support area. RSI is holding up at 43, better than KepCorp although short term MA behaviour seems alike. Resistance is around $1.80-90.

Petrobras cancels P-61 and P-63 tenders claiming bids were too high

Very negative for Kep Corp and Sembmarine.

Brazil's Petrobras has cancelled tenders for its P-61 and P-63 offshore oil production platforms after deciding that the prices bid on the Papa Terra project were outside its budget parameters.

In a written statement, Petrobras said it considered price proposals for supplying the TLWP P-61 to be too high "given current market conditions."

Petrobras added that alternative development solutions for developing the Papa Terra field will now be studied.

Petrobras and consortium partner Chevron have drawn up plans to develop the heavy oilfield in the Campos basin using a TLWP and an FPSO, handle up to 180,000 barrels per day of crude.
Sources involved in the bidding process related that a communication was received from Petrobras last week stating that bids received for the P-63 have also been disqualified as "too high".

Modec Int'l, Floatec and SBM Offshore had all submitted bids for platofrm P-62. Modec was the leading candidate to supply the TLWP P-61 after offering a price of more than $1.72 billion against FloaTec's second-placed offer of $1.96 billion.

Petrobras has also reacted to the cancellation of the semisubmersible construction contract between Keppel FELS and Scorpion Offshore. The now-canceled semisubmersible was expected to begin a six-year contract with Petrobras in June 2012.

Petrobras said that the cancellation has no bearing on its agreement with Scorpion. Petrobras has requested clarifications from Scorpion and will continue undertaking all of the actions it considers pertinent to have the rigs available to fulfill its business plan.