DAILY MORNING NOTE | 1 March 2024

Trades Initiated in the past week

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Local shares advanced 0.1 per cent on Thursday (Feb 29), marking the first time the market booked a gain this week. Keppel rose 1.7 per cent or S$0.12 to S$7.24, while Sembcorp Industries added 2 per cent or S$0.10 to S$5.10. UOL was the biggest loser, down 4.2 per cent or S$0.26 to S$5.89. Keppel and Sembcorp were among the top gainers.

Wall Street stocks climbed on Thursday, with all three major indices up while the tech-focused Nasdaq Composite Index set a new record. The Dow Jones Industrial Average rose 0.1 per cent to 38,996.39, while the S&P 500 gained 0.5 per cent to 5,096.27. The Nasdaq surged 0.9 per cent to 16,091.92, surpassing a 2021 high.

Top gainers & losers

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Events Of The Week

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SG

Singapore’s latest six-month Treasury bill (T-bill) is offering a cut-off yield of 3.8 per cent, according to auction results released by the Monetary Authority of Singapore on Thursday (Feb 29). This is a jump from the 3.66 per cent offered in the previous six-month auction, which closed on Feb 15. The latest tranche received S$12.4 billion in applications for the S$6.4 billion on offer, representing a bid-to-cover ratio of 1.94. In comparison, the previous six-month tranche received S$13.5 billion in applications for the S$6.6 billion on offer.

Transport operator ComfortDelGro on Thursday (Feb 29) announced a net profit of S$102 million for the second half of 2023, up 76.5 per cent from S$57.8 million in the year-earlier period. This was backed by a 4.2 per cent revenue jump to S$2 billion, from S$1.9 billion in H2 FY22. The company thus recorded a full-year net profit of S$180.5 million, up 4.3 per cent from S$173.1 million in FY22. If adjusted to exclude the one-off gain recognised in FY22 from the sale of the Alperton property in London, the earnings had in fact risen 26.6 per cent, from FY22’s S$142.6 million, the company highlighted. This was achieved on the back of sustained improvements in the company’s core public transport and taxi and private hire segments throughout the year, noting that its FY23 operating profit excluding non-recurring items grew 13.7 per cent to S$265.7 million. FY23’s results translates to an earnings per share of 8.33 Singapore cents, against 7.99 cents the year before. H2 earnings per share came in at 4.71 cents, up from 2.67 cents in the year-earlier period. With these, the board proposed a final one-tier dividend of 3.76 Singapore cents per share, against a dividend of 4.22 cents per share in the corresponding period in FY22, which had a special dividend of 2.46 cents built in. H2 FY23’s proposed dividend would bring the full-year dividend to 6.66 cents per share.

Agri-food company Japfa on Thursday (Feb 29) swung back into the black for the six months ended Dec 31, 2023, posting a net profit of US$22.8 million, compared to a net loss of US$35.9 million in the corresponding year-ago period. This comes after revenue for the second half increased 7 per cent on-year to US$2.3 billion, from US$2.2 billion. This was attributed to stronger feed margins in most of Japfa’s markets and higher selling prices of colour birds in Vietnam. In addition, the group made “substantial progress” in reducing its production costs, in line with its 2023 plan to streamline operations, it noted. This, in turn, benefited its swine operations in Vietnam. Its full-year revenue was US$4.43 billion, ticking up 1 per cent from US$4.36 billion.

Logistics management service provider Cosco Shipping International (Singapore) on Thursday (Feb 29) recorded a full-year net profit of S$1.9 million, reversing from an S$88.6 million loss a year ago. This came as its H2 net loss shrank drastically to S$59,000 from S$94.8 million in the year-ago period, after administrative expenses fell to S$13.5 million from S$112.6 million due to the absence of a S$99 million impairment of goodwill recorded in H2 FY2022. The H2 FY2023 results translate to a loss per share of 0.003 Singapore cent, narrowing from 4.23 cents in H2 FY2022. Sales in the second half were down 5 per cent to S$88.5 million, however, from S$93.2 million in the year-ago period, as its property management activities experienced a substantial decline, marked by a 30 per cent drop in revenue and a 59 per cent drop in profit before tax. The company attributed this decline to a reduction in the occupancy rate at the Grandstand shopping mall, where the lease for the state land on which the shopping mall is located expired on Dec 31, 2023. Sales in the ship repair and marine engineering segment also fell, by 26 per cent, on a drop in the volume of ship repair jobs in Singapore. That said, logistics activities, which constituted about 85 per cent of the group’s revenue in H2 2023, remained stable as its sales came in at S$75.7 million, up slightly from S$75.4 million in the year-ago period, the group said. For the full year, the company’s sales fell 4 per cent to S$178.7 million.

Property developer OUE on Thursday (Feb 29) posted earnings of S$40.9 million for the second half of the fiscal year ended December 2023, down 59.6 per cent from S$101.2 million in the corresponding year-ago period. On a per-share basis, earnings for H2 came in at S$0.0485 versus S$0.118 in the prior year, the company reported. Revenue for H2 rose 8.9 per cent to S$318.6 million from S$292.4 million due to higher contributions from the group’s investment properties and hospitality divisions within the real estate segment, as well as higher revenue from its healthcare segment. OUE’s net profit for the full year was down 57.3 per cent to S$81.1 million. Revenue for the full year was up 26.9 per cent to S$623.1 million. The board of directors has declared a final dividend of S$0.01 per share, down from a final dividend of S$0.015 per share paid out last year. The board has also declared a special dividend of S$0.02 per share as part of its 60th anniversary celebrations. The final and special dividends are subject to shareholder approval at the company’s annual general meeting on Apr 26. If approved, these dividends will be paid out to shareholders on May 24.

Uni-Asia Group reported earnings of US$5.0 million for the FY2023 ended Dec 31, 2023, 82% lower than its record earnings of US$27.8 million in FY2022 as the shipping market normalised after an exceptional period post-Covid period from 2021 to 2022. Correspondingly, earnings per share for FY2023 fell to 6.4 cents from 35.4 cents in FY2022. For the full-year period, revenue was down 33% y-o-y to US$58.0 million with charter income falling 42% y-o-y to U$37.8 million. However, while the charter market for dry bulk softened in 2023, the group notes that dry bulk second-hand prices remained strong. This was due to newbuilding prices having risen over the past year driven by strong shipyard capacity utilisation from high levels of containership and gas carrier ordering over the past two years. Uni-Asia has declared a final dividend of 2.2 cents for FY2023. Together with the interim dividend of 2.2 cents per paid in September 2023, the group will pay a total dividend of 4.4 cents for FY2023.

Broadway Industrial Group (BIG) reported earnings of S$3.1 million for the FY2023 ended Dec 31, 50.9% lower than its earnings of S$6.3 million in FY2022. For the full-year period, revenue decreased 26.6% y-o-y to S$258.7 million as sales of hard disk drive (HDD) products came off the excessive levels seen during the pandemic era arising from component shortages and over-optimism during that period. As a result, cost of sales also decreased 26.1% y-o-y to S$14.0 million. Gross profit in FY2023 fell 33.6% y-o-y to S$14.0 million, while gross profit margin (GPM) fell 0.6 percentage points y-o-y to 5.4%. Earnings per share (EPS) for FY2023 also decreased to 0.68 cents from 1.38 cents in FY2023. This included a 2HFY2023 earnings turnaround of S$4.3 million after a S$1.2 million loss in 1HFY2023. This came on the back of a 6.7% y-o-y increase in revenue to $132.3 million for the half-year period, driven mainly by a small rebound in the HDD industry towards the end of 2HFY2023 and the inclusion of small contributions from the group’s precision engineering (PE) business, which commenced operations in May 2023. The group has declared a final dividend of 0.5 cents per share for FY2023.

Nordic Group has reported FY2023 earnings of S$16 million, down 23% versus the preceding year. Revenue in the same period was held largely steady at S$160.6 million. The company plans to pay a final dividend of 0.588 cents, bringing the full-year payout to 1.589 cents, equivalent to a payout ratio of 40%. Nordic says it was hit by higher financing costs, as well as heftier labour expenses and project delays. As at Dec 31 2023, the company’s order book was S$187.1 million, with S$61.6 million from the projects services segment and S$125.5 million from its maintenance services segment. Nordic warns that higher rates, geopolitical tensions and inflationary pressures globally will continue to pose some near-term headwinds. With certain large projects completed, it may see some “pressure” on its results in the next 12 months.


US

US personal consumption expenditures (PCE) price index rose 0.3% last month, the Commerce Department’s Bureau of Economic Analysis said on Thursday. In the 12 months through January, PCE inflation rose 2.4%. Economists had forecast the PCE price index climbing 0.3% on the month and increasing 2.4% year-on-year. Excluding the volatile food and energy components, the core PCE price index increased 0.4% last month after rising by a downwardly revised 0.1% in December. Core PCE increased 2.8% year-on-year in January, the smallest advance since March 2021, after rising 2.9% in December.

Microsoft on Thursday announced that it will release a Copilot chatbot that can perform key tasks for people working in finance. The software company will first offer the tool in public preview. Pricing details will follow. The Copilot for finance will initially run a variance analysis, reconcile data in Excel and speed up the collections process in Outlook. The software can draw on information stored in SAP and in Microsoft Dynamics 365. Additional features will come to the finance Copilot later this year, Lamanna said. The Japanese advertising agency Dentsu will use the Copilot for finance tasks, Lamanna said. Microsoft said its finance department provided input into the development of the new Copilot and that it’s seen some early benefits from using it. A couple of thousand people on a financial planning and analysis team each spend one or two hours doing reconciliation each week, and with the new Copilot, that takes more like 10 or 20 minutes per week, said Cory Hrncirik, modern finance lead in Microsoft’s office of the chief financial officer.

Apple on Thursday said it is expanding its self-service repair program to include its MacBook Pro and iMac models powered by the latest M3 chip. The program, which Apple announced in 2021, allows consumers to fix their own devices by giving them access to the company’s manuals and legitimate Apple parts. It was a big win for “right-to-repair” advocates who wanted easier access to the company’s real parts and instructions. Parts are available to customers through Apple’s self-service repair online store. The program has covered earlier models of Apple’s iPhones and Macs, but the expansion will cover iMac and MacBook Pro models that use its M3 chip, announced in October. In a release Thursday, Apple said its repair program helps extend its devices’ longevity, which is “good for users and good for the planet.”

Dell Technologies reported on Thursday fourth-quarter results that topped Wall Street as rising demand for its artificial-intelligence-optimized servers offset weakness in personal computing. For the three months ended Feb 2, the company reported adjusted EPS of US$2.20 on revenue of US$22.32 billion, compared with estimates for US$1.73 per share and US$22.16 billion, respectively. The infrastructure solutions group business, which includes AI-optimized servers, saw revenue rise 10% sequentially to US$9.33 billion, though falling 6% year over year. The company, however, talked up strong demand. “Our strong AI-optimized server momentum continues, with orders increasing nearly 40% sequentially and backlog nearly doubling, exiting our fiscal year at US$2.9 billion,” the company said. The client solutions group, which includes its PC business, reported a 12% decline in revenue to US$11.72 billion year-on-year in Q4. The company also hiked its annual dividend by 20% to US$1.78 a share.

Hewlett Packard Enterprise reported Thursday softer-than-expected guidance and first-quarter revenue that fell short of estimates as headwinds in its networking business weighed. For Q2, the company forecast adjusted EPS in range of US$0.36 to US$0.41 on revenue between US$6.6 billion to US$7.0 billion. Wall Street was looking for EPS of US$0.45 on revenue of US$7.13 billion. For the three months ended Jan. 31, the company reported adjusted earnings of US$0.48 per diluted share, on revenue of US$6.76 billion, compared with estimates of US$0.45 and US$7.10 billion, respectively. The miss on revenue comes amid challenges brought by “the softening of the networking market and GPU deal timing,” the company said. Looking ahead to fiscal 2024, the company forecast adjusted EPS in range of US$1.82 and US$1.92 on revenue growth of flat to 2%.

Alibaba Group‘s cloud unit slashed prices across most of its products, citing plans to increase access to artificial intelligence development in China. The firm’s cloud unit cut prices by an average 20% across over 100 products, with some products seeing reductions of as much as 55%. The move is Alibaba’s second major pricing change in its cloud unit in the past two years. Thursday’s price cuts also come as revenue from the cloud unit largely stagnated over the past two years, amid cut-throat competition from rivals Tencent and Baidu, and slowing investment in technology as global interest rates rose.

Birkenstock on Thursday beat holiday quarter revenue expectations, reporting a 22% year-on-year jump, as the German sandal company benefited from higher pricing and rising US demand. As a newly public company, Birkenstock is still getting into a public reporting rhythm and only just released its fiscal 2023 results and 2024 guidance a little over a month ago. On Thursday, it said it stands by guidance issued then and still expects sales to be between 1.74 billion euros (US$1.89 billion) and 1.76 billion euros (US$1.91 billion), representing growth of 17% to 18%. In its first fiscal quarter, earnings per share came in at 9 euro cents adjusted vs. 9 euro cents expected while revenue was 302.9 million euros vs. 288.7 million euros expected. Excluding one time items, Birkenstock reported a profit of 17 million euros (US$18.4 million) or 9 euro cents per share. Sales rose to 302.9 million euros (US$328.5 million), up 22% from 248.5 million euros (US$269.4 million) a year earlier.

Best Buy reported a smaller-than-expected drop in quarterly comparable sales as holiday deals led shoppers to spend on big-ticket purchases like electronics and home appliances. Best Buy’s focus on its paid membership programs during the peak holiday shopping season resulted in customers opting for its product services and delivery. CFO Matt Bilunas said he expects memberships to help expand gross profit rate in fiscal 2025 by about 20 to 30 basis points compared with 2024. Gross profit rate for the fourth quarter rose to 20.5% from 20% last year. Best Buy said it took US$169 million in charges, mainly related to employee termination benefits tied to its restructuring plan that commenced in the quarter. Best Buy earned US$2.72 per share, compared to estimates of US$2.52. The top US electronics retailer’s fourth-quarter comparable sales fell 4.8%, its ninth straight quarterly decline, compared to analysts’ average expectations of a 5.36% drop.

The Securities and Exchange Commission (SEC) is investigating whether OpenAI investors were misled in the wake of the AI firm’s recent leadership overhaul. The regulator is specifically looking into internal communications involving CEO Sam Altman and had also sent a subopena to OpenAI in December. The move came shortly after Altman’s abrupt ouster and reinstatement in November 2023, which also spurred a massive overhaul of OpenAI’s board of directors. The overhaul saw the ouster of Ilya Sutskever, who is a co-founder of the AI start-up. Major investor Microsoft had taken a non-voting seat, observer post on the board in November but is yet to officially name its candidate for OpenAI’s board. Both OpenAI and the SEC did not immediately respond to a request for a comment.

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


RESEARCH REPORTS

Oversea-Chinese Banking Corp Ltd – Non-interest income driving growth

Recommendation: Buy (Maintained), Last done: S$12.98, TP: S$14.96, Analyst: Glenn Thum

– 4Q23 earnings of S$1.62bn met our estimates. It came from higher fee income and stable NII. FY23 PATMI was 100% of our FY23e forecast. 4Q23 DPS was up 5% YoY to 42 cents. FY23 dividend rose 21% YoY to 82 cents, with the dividend payout ratio stable at 53%. It was below our expectations.

– NII grew 3% YoY despite NIM dipping 2bps YoY to 2.29% and flat loan growth. Total non-interest income rose 25% YoY as higher fee income and trading were offset by lower insurance income. Allowances fell 40% due to lower GPs and SPs as credit costs improved 14bps YoY to 21bps.

Maintain BUY with an unchanged target price of S$14.96. We lower FY24e earnings by 6%. We lower our NII estimates from softer NIMs and increase allowance estimates, offset by higher fees and other non-interest income. We assume 1.29x FY22e P/BV and ROE estimate of 12.8% in our GGM valuation. We expect FY24e earnings to grow from single-digit fee income recovery and stabilised provisions. NII will remain flattish as stable loan growth from rate cuts expected in 2H24 will be offset by moderating NIMs. We like OCBC due to attractive valuations and a dividend yield of 6.7%, buffered by a well-capitalised 15.9% CET 1, and non-interest income growth from recent acquisitions.

Sheng Siong Group Ltd – Lack of new stores

Recommendation: ACCUMULATE (Downgraded); TP S$1.66, Last close: S$1.56; Analyst Paul Chew

– FY23 revenue and PATMI were within expectations at 99%/99% of our forecast. Revenue growth was 2.1% YoY. Same-store sales contracted and new-store expansion was muted.

– For 2023, Sheng Siong only expanded with two new stores or a footprint growth of 1.7% (2022: +5.4%). The lack of new stores will weigh on revenue growth this year. The company aims to expand a minimum of three stores or equivalent 2.4% expansion per year.

-Same-store sales growth is expected to improve as outbound travel normalises. Inflationary pressure will also support more dining at home. The company has secured two stores so far this year in Singapore, with another ten likely to be tendered. We marginally lower our FY24e earnings by 2%. With a more sluggish growth outlook, we lower our target valuations from historical 20x PE to 18x. The target price is reduced to S$1.66 (prev. S$1.80). Until new stores accelerate, growth will be muted.

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