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DAILY MORNING NOTE | 4 July 2022
Singapore shares closed a rather bumpy week by extending its third straight day of losses after panic set in as the probability of a recession heightened amid a tightening trajectory by central banks. Weak global macro data on the back of rising cost pressures and supply chain disruptions further hurt trading sentiments. The key Straits Times Index (STI) slipped 6.62 points or 0.21 per cent to 3,095.59 after Wall Street capped its worst half-yearly trading in more than half a century overnight. To add fuel to the fire, the STI dipped below the 252 long-term EMA (exponential moving average), officially putting the index on a bearish trend. The rejection of the 22-EMA accelerated downside pressure on Jun 30.
Wall Street stocks shrugged off early weakness to begin the second half of 2022 on a solid note on Friday, but record eurozone inflation underscored the potential for more turbulence ahead. New York equities spent much of the morning in the red, absorbing an industry survey showing slowing growth in the manufacturing sector. But US markets reversed course in the final hours of trading, rallying into the Independence Day holiday weekend amid hopes for a better second half of the year.
The iEdge S-Reit Index held resilient for the first half of 2022, generating flat total returns compared to the FTSE EPRA Nareit Developed Index (a benchmark for global Reits) which declined 18 per cent. During the period, the S-Reits and property trusts sector in Singapore saw S$359 million of net institutional outflows and S$447 million of net retail inflows. Hospitality was the best performing sub-segment in H1 2022. The 5 hospitality trusts averaged 17 per cent total returns and garnered S$62 million of net institutional inflows. Aside from hospitality trusts, diversified S-Reits and some industrial and retail S-Reits were also among the top performing S-Reits in the first half of 2022. The 9 trusts which outperformed the broader iEdge S-Reit Index in H1 2022 include Frasers Hospitality Trust, Ascott Residence, Far East Hospitality Trust, CDL Hospitality Trusts, Mapletree North Asia Commercial Trust, Suntec Reit, CapitaLand Integrated Commercial Trust, Sabana Industrial Reit and Frasers Centrepoint Trust.
Union Gas Holdings has agreed to further extend the maturity date for S$1 million worth of convertible bonds issued by ADERA AI, as the latter is in the process of undergoing a public offering and listing on “certain stock exchanges”. In a bourse filing late on Friday (Jul 1), Union Gas said the maturity date of the bond has been further extended by 3 months to Sept 30, 2022, but did not indicate which exchange ADERA AI is seeking to list on. Singapore-based ADERA AI is principally in the business of providing secure data handling services to clients in Singapore, Hong Kong, and Macau. It offers solutions for the transformation of physical documents to secured data using intelligent data capture, recognition scanning, additional validation technologies and archival services. A wholly-owned subsidiary of Union Gas entered into the agreement last January to subscribe for the convertible bonds, which have an internal rate of return of 10 per cent per annum, and were scheduled to be redeemed 1 year after the closing date. Union Gas announced in March this year that the maturity date had been extended to June 30, 2022, in view of the potential public offering and listing of the issuer. If ADERA AI undergoes a public offering and listing on “certain stock exchanges” prior to the revised Sept 30 maturity date, the bonds shall be converted into shares at a 30 per cent discount to the public offering price.
Creative Technology is expecting its revenue for the 2HFY2022 ended June to come in below its target. The company is estimating that revenue for the second-half of the year will be around US$27 million ($37.6 million). The company had previously announced that it expects to report an operating loss during the same period. According to the company, its revenue was negatively impacted by the “uncertain economic conditions” due to the ongoing global events. These include the pandemic-related lockdowns in China, the Russo-Ukraine war and related sanctions, as well as inflation rates. The company will release its results for the FY2022 in August. Shares of Creative Technology closed 5 cents lower or 2.34% down at $2.09 on July 1.
Pessimism about the global economic outlook boosted demand for the safe-haven US dollar on Friday (Jul 1) while the Australian dollar, a proxy for global growth, sank to a 2-year low. Rampant inflation and a rush by central banks to raise rates and stem the flow of cheap money has fuelled sell-offs across markets and lifted assets seen as safer bets. The dollar gained on Friday even as concerns about an economic downturn sent benchmark 10-year US Treasury yields to 1-month lows. The greenback is being swayed between concerns that the Federal Reserve will continue to hike rates aggressively to blunt soaring prices, and the likelihood that this will hurt the economy. Expectations for interest rate hikes in the US have fallen, with traders now pricing in a peak of 3.32 per cent in March, down from previous estimates of around 4 per cent before the Fed’s Jun 14-15 meeting. The Fed’s benchmark rate is currently 1.58 per cent. The dollar index gained 0.36 per cent against a basket of currencies to 105.12. It is holding just below a 20-year high of 105.79 reached on Jun 15.
Tesla Inc delivered 17.9% fewer electric vehicles in the second quarter from the previous quarter, as China’s COVID 19-related shutdown disrupted its production and supply chain. The world’s biggest electric car maker said on Saturday that it delivered 254,695 vehicles in the April to June period, compared with 310,048 vehicles in the preceding quarter, ending a nearly two-year-long run of record quarterly deliveries. A resurgence in COVID-19 cases in China had forced Tesla to temporarily suspend production at its Shanghai factory and also affected suppliers’ facilities in the country. Tesla is ramping up production at the Shanghai factory with the easing of the COVID-19 lockdown, which will help boost deliveries in the second half. Early in June, Chief Executive Officer Elon Musk told executives that he had a “super bad feeling” about the economy and needed to cut about 10% of staff at the electric car maker. Musk has said demand for Tesla vehicles remains strong, but supply-chain challenges still remain.
Exxon Mobil Corp on Friday signaled that skyrocketing margins from fuel and crude sales could generate a record quarterly profit, according to a securities filing. Energy prices have shot up this year with oil selling for more than $105 per barrel and gasoline at about $5 per gallon in the United States. The enormous earnings are likely to ignite new calls for windfall profit taxes. The largest U.S. oil producer projected a sequential increase of about $7.4 billion in operating profits compared with the first quarter. In the first quarter, Exxon posted an $8.8 billion profit, excluding a Russia writedown. The filing indicates a potential profit of more than $16 billion for the second quarter. The company’s peak quarterly profit was $15.9 billion in 2012. The filing showed Exxon expects higher oil and gas prices will add about $2.9 billion to results. Margins from selling gasoline and diesel will add another $4.5 billion to operating profits.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Singapore Banking Monthly – Interest rates continue to rise in June ESR-LOGOS REIT – Supporting Tailwinds from merger with ARA LOGOS
Recommendation: Overweight (Maintained)
Analyst: Glenn Thum
– June 3M-SIBOR was up by 28bps MoM, the highest since Feb 2020.
– SGX’s 1H22 top five equity index futures turnover was up 13.9% YoY. We estimate SGX securities and derivatives volumes from 1H22 was down 3% and up 14% YoY respectively.
– Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector. SGX is another beneficiary of higher interest rates. Pressure points for the banks will be higher staff cost and nudge in general provisioning due to weaker economic assumptions.
Analyst: Shawn Sng
– The merger with ARA LOGOS Logistics Trust increases the portfolio’s exposure to its high spec industrial and logistics assets to capture growing demand in this sector. ESR-LOGOS REIT will also be able to leverage on its sponsor ESR group’s established operations platform to tap into overseas markets and strengthen its portfolio quality by addressing its shorter land leases with more freehold or longer land leases properties.
– While there were no financial updates given post-merger, the pro forma credit outlook shows ESR-LOGOS REIT gearing is at 40.8% which is lower than the MAS gearing limit of 50% which gives the REIT sufficient debt headroom of $941.9mn for refinancing.
– A comparable bond for the recent issue ESR-LOGOS REIT 5.5% Perpetual would be Aims APAC REIT 5.375% Perpetual which has a lower yield to worst of 5.18%. The ESR offering also has a slightly longer call date at 9 June 2027 (ESR 5.5% Perp) vs Aims’ 1 September 2026 (Aims APAC 5.375% Perp). High-yield seeking investors may consider the ESR-LOGOS REIT 5.5% Perpetual.
Singapore Banking Monthly – Interest rates continue to rise in June
ESR-LOGOS REIT – Supporting Tailwinds from merger with ARA LOGOS
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Date: 27 June 2022
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