***Dear Valued Clients, the last day of Phillip Morning Note issuance will be on 15 December 2025. Morning Note will resume on 2 January 2026***

Week 51 equity strategy: The Fed cut interest rates by 25 basis points to 3.5-3.75% as expected. The market is now pricing two rate cuts for 2026, with 2-year bond yields and Fed projections for one cut. Powell sounded dovish. He mentioned downside risk to employment, jobs growth overstated by 60k a month, disinflation for services, inflation expectations declining, and tariff impacts on inflation being short-lived. Our expectations are two rate cuts into neutral territory for 2026. Labour is weakening but no signs of a dramatic collapse. US loans growth is at 33-month highs. This leveraging can stimulate the economy. With the US midterms in 2026, a possible tool for Trump to backstop any slowdown in the economy is to reverse existing tariffs. It has the dual benefit of lowering inflation plus reducing tariffs as a consumption tax on households.

Nervousness over AI spending and high valuations is still choking the tech sector. Broadcom earnings beat expectations, even as it announced the 5th AI chip customer, and guided similar 28% YoY revenue growth in the next quarter. But it was still sold down. Expectations for this 40x P/E ratio stock were much higher. Oracle’s share price fared worse. The US$523bn order backlog for the cloud business was not sufficient. Forward guidance was short of expectations, but it still raised full-year capex from $35bn to 50bn. The tapering of expectations for the entire AI supply chain is a positive. Competition is intensifying amidst the entire AI ecosystem from semiconductors, cloud infrastructure to LLMs. It is positive, the market is exercising discipline on AI expectations.

In Singapore, Sembcorp Industries did its own similar sized EQDP investment by acquiring Alinta Energy in Australia for S$4.8bn. We view the acquisition as positive. Australia will undergo a major capex wave to transition its energy capacity into more renewables. It becomes a source of growth for Sembcorp as China faces oversupply, Singapore’s margins shrink in the near term, and any listing of India’s renewables would dilute its growth profile. Sembcorp can tap on the strength of its balance sheet and parentage to gear up for higher returns, especially with access to lower cost of capital.

This week will be our last Morning Note for 2025. We wish all clients and readers Happy Holidays and A Blessed 2026. We return on 2 Jan 2026.

Paul Chew
Head Of Research
paulchewkl@phillip.com.sg

Singapore stocks ended higher on Friday (Dec 12), extending gains from the previous day. Stocks rose 1.5 per cent or 65.62 points to finish at 4,586.45. Across the broader market, gainers beat losers 360 to 200, after 1.3 billion securities worth S$1.7 billion changed hands. Jardine Matheson led the gainers on Singapore’s blue-chip index, rising 4.9 per cent or US$3.29 to US$69.94. The worst performer was Genting Singapore, which fell 0.7 per cent or S$0.005 to S$0.72.

THE S&P 500 and the Dow boasted record closing highs on Thursday as investors favoured financial stocks after a Federal Reserve policy update that was less hawkish than expected while the tech-heavy Nasdaq Composite underperformed as Oracle’s financial update made investors wary of artificial intelligence bets.

SG

Singapore and six other countries have signed an agreement to collaborate on artificial intelligence (AI), tech supply chains and infrastructure at the conclusion of the first Pax Silica Summit convened by the United States.

The Singapore Police Force said on Friday (Dec 12) that it has seized more than S$539,000 in suspected scam proceeds and frozen “over 176 bank accounts” that may have been used in scams. The enforcement operation was conducted between Nov 17 and 28 by officers from the Anti-Scam Command and Police Land Divisions’ scam strike teams at various locations across Singapore.

The official move-out deadline looms for the evicted sub-tenants of Taste Orchard shopping mall, many are increasingly worried that they will not receive compensation from supermarket chain Hao Mart for the early termination of their leases.

US

ServiceNow is in advanced talks to buy the cybersecurity startup Armis in a deal that may be valued at as much as US$7 billion and would represent the tech company’s largest acquisition to date.

Chipmaker Intel, has tested chipmaking tools this year from a toolmaker with deep roots in China and two overseas units that were targeted by US sanctions. The two so-called wet etch tools, used for removing material from the silicon wafers that are transformed into semiconductors, were tested for possible use in Intel’s most advanced chipmaking process, known as 14A. That process is due for an initial launch in 2027.

Intel is in advanced talks to acquire artificial intelligence (AI) chip startup SambaNova Systems for about US$1.6 billion, including debt. It’s also possible that SambaNova, which has signed term sheets with other would-be financial investors, could opt to pursue another path.

NVIDIA has told Chinese clients it is evaluating adding production capacity for its powerful H200 artificial intelligence (AI) chips after orders exceeded its current output level. The move comes after US President Donald Trump said on Tuesday (Dec 9) that the US government would allow Nvidia to export H200 processors, its second-fastest AI chips, to China and collect a 25 per cent fee on such sales.

Oracle denied on Friday (Dec 12) a media report that it was delaying OpenAI-related data centres, following investor worries over its debt-fuelled artificial intelligence (AI) infrastructure buildout. There have been no delays to any sites required to meet our contractual commitments, and all milestones remain on track.

Google’s defunct Russian business has obtained a temporary freeze on some 110 million euros (S$167 million) of the Alphabet-owned company’s assets in France, official orders seen by Reuters show. The move represents a rare attempt by Russian authorities to use legal channels to target assets of western companies overseas, amid rising tensions over the potential use of seized Russian assets in Europe.

SpaceX has authorised an insider share sale that values Elon Musk’s rocket and satellite maker at about US$800 billion.

Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, The Edge Singapore, PSR

Sembcorp Industries Ltd – Acquiring growth to fill future gaps

Recommendation: BUY; TP S$7.10; Last close: S$5.9200; Analyst Paul Chew

1. Sembcorp Industries has agreed to acquire Alinta Energy for S$4.8bn to be paid fully in cash. Alinta has 3.4GW power generation capacity in Australia across gas (43%), coal (33%), wind (17%), and solar (7%). A bridging loan will fund the acquisition, and equity fund-raising is not required.
2. We view the acquisition positively. It is PATMI accretive by 23% on trailing 12 months June 2025 earnings (pro forma and excl. amortisation of any intangibles). EV/EBITDA post-acquisition drops modestly to 8.3x. There is a pipeline option of 10.4 GW of largely renewable capacity for future growth. However, net debt to EBITDA will rise from 3.6x to 4.6x (an additional S$5.8bn in net debt). Australia’s energy market has fewer long-term contracts than Singapore’s, leading to higher margin volatility.
3. We have not incorporated the Alinta acquisition into our forecast. The acquisition will require shareholder approval and is expected to be completed in 1H26. Separately, we are lowering our EBITDA/net profit by 7%/12%, respectively, due to lower Singapore electricity spread assumptions. Our target price is reduced from S$7.90 to S$7.10. Our BUY recommendation is maintained. We view the acquisition as a strategic entry into a new source of sustainable growth. The growth potential of China is fading, spreads in Singapore are softer, and any listing of its Indian renewable energy assets would dilute the company’s growth trajectory.

SG Bonds – Week 51 : SGS yields are rising across the curve

Recommendation: REDUCE; TP S$; Last close: S$; Analyst Phillip Research Team

• UST yields edged modestly higher following the meeting, as the Fed’s guidance reinforced expectations for a slow and limited easing cycle. In December, 5Y and 10Y UST yields rose by around 7–8bps.
• SGS yields rising across the curve and bear-steepening (bond yields rise lead by long end) by ~8–20bps over the week, led by the 10Y tenor.
• Looking ahead, near-term volatility in global rates is likely to remain elevated, as markets digest a backlog of US macro data releases following the data disruptions. With the Fed having delivered a hawkish cut and signalling a gradual easing path, upcoming data on inflation, retail sales, and labour-market conditions will be key in shaping expectations for the timing and pace of follow-up cuts. In Singapore, funding and liquidity dynamics are expected to remain the primary driver of local rates in the near term.

Oracle Corp – FY27e revenue guidance raised by US$4bn

Recommendation: BUY (Maintained), Last done: US$190 TP: US$344, Analyst: Alif Fahmi

• 1H26 revenue/ adj. PATMI were within our expectations at 47%/43% of FY26e forecasts, with growth expected to accelerate in 2H26e. Group revenue rose 14% YoY, led by Oracle Cloud’s 24% YoY growth amid strong cloud infrastructure demand. Oracle also recorded a US$2.7bn pre-tax gain from the sale of its Ampere Computing interest.
• Group revenue guidance remains at US$67bn for FY26e, while CAPEX is now projected at US$50bn, up US$15bn from the 1Q25 forecast. FY27e revenue is raised by US$4bn following higher RPO this quarter. For 3Q26e, Oracle expects group revenue growth of 16–18%, driven by Oracle Cloud accelerating 37–41% YoY, up from 25% a year ago. Adjusted EPS is projected to rise 16–18%, to US$1.70–1.74.
• We maintain a BUY recommendation with a lower DCF target price at US$344 (previously US$350) after increasing FY26e CAPEX by US$15bn to US$50bn. We expect an acceleration in 2H26e as more data centres come online. We also maintain our FY27e forecasts, as we believe our estimates already sit at the higher end of the range (WACC 6.2%, g 2.5%). We remain bullish on Oracle as a niche OCI provider and a full-stack AI provider, supported by a significant RPO backlog. Potential upside hinges on faster execution of multi-billion-dollar AI deals.

Adobe Inc – Semrush acquisition strengthens Adobe marketing arm

Recommendation: BUY (Maintained), Last done: US$356 TP: US$487, Analyst: Alif Fahmi

• FY25 results met our expectations with revenue/adj. PATMI at 101%/100% of our FY25e forecasts. 4Q25 adj. PATMI increased 8% YoY to US$2.3bn, driven by higher topline and operating leverage.
• For 1Q26e, Adobe expects adj. EPS of US$5.85–5.90 (+16% YoY) on revenue of US$6.25–6.30bn (+10% YoY), driven by 10% growth in Creative & Marketing Professionals Subscription revenue to US$4.3–4.33bn. The US$1.9bn Semrush acquisition is expected to close in 1HFY26e, with minimal impact on EPS in the first year and accretive thereafter.
• We maintain a BUY recommendation with a lower DCF target of US$487 (prev. US$560) as we roll forward our forecasts. For FY26e, we expect 10% revenue growth and 6% EPS growth, supported by rising AI adoption and higher subscription revenue. We retain a 7.3% WACC but lower terminal growth to 3.5% from 4%, due to increased competition from generative AI among smaller customers. Risks remain limited for enterprise clients using Adobe for complex workflows, where third-party models complement the platform.

Magnificent 7 Monthly: Nov 25 – A month of mixed performance

Analyst: Phillip Research Team

• Nov25 saw a 1.9% dip in Mag-7’s share price, underperforming the S&P500 (+1.2%) but outperforming the NASDAQ (-2.0%). There was a pronounced sector rotation out of mega-cap tech into cyclicals and financials, triggered by profit-taking and renewed valuation.
• It was a month of mixed results as GOOGL (+14%) surged on the successful launch of its Gemini 3 AI model, while AAPL (+3%) gained on strong iPhone demand and cost-cutting measures. However, this was offset by NVDA (-13%) falling sharply due to investor rotation and valuation concerns in the AI sector, and TSLA (-6%) declining amid price competition that led to margin erosion.
• We maintain OVERWEIGHT on the Mag-7. Except for TSLA, we believe the Mag-7’s earnings growth will continue to outperform both the S&P 500 and Nasdaq 100. Tailwinds include greater adoption and demand for AI from sovereign nations like the EU and the UAE, the US government’s AI Action Plan unveiled in Jul25, and more rate cuts expected in 2026.

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