DAILY MORNING NOTE | 1 September 2022
Singapore shares buckled under selling pressure, tracking overnight losses in Wall Street as latest robust jobs data out of the world’s largest economy compounded fears of aggressive rate hikes by the US Federal Reserve. The key Straits Times Index slipped 17.66 points or 0.55 per cent to 3,221.67 after US stocks logged their third straight day of losses on more hawkish posturing by Fed officials as fears heightened over a slowing global economy. China’s latest purchasing managers’ index (PMI) showed factory activity extending its decline in August owing to Covid-19 curbs, its property crisis and the worst heatwaves in decades.
US stocks ended with losses again on Wednesday, part of a downward trend set in motion by Federal Reserve chief Jerome Powell, who last week warned there would be no respite from interest rate hikes. Cleveland Federal Reserve President Loretta Mester echoed Powell’s sentiments Wednesday, stating that she sees the Fed raising interest rates above 4 per cent by early next year during a speech in Dayton, Ohio. The Dow Jones Industrial Average fell 0.9 per cent to finish the day at 31,510.43. The broad-based S&P 500 dropped 0.8 per cent to close at 3,955.00, while the tech-rich Nasdaq Composite Index slumped 0.6 per cent to 11,816.20.
Sembcorp Marine recently uncovered a cybersecurity incident in which an unauthorised party accessed part of its IT network via third-party software products, the company said in a filing to the Singapore Exchange late on Wednesday (Aug 31). “Certain personally identifiable information” relating to some incoming, existing and former employees, as well as non-critical information relating to its operations, were affected, SembMarine said. It has contacted the affected parties and is committed to helping them manage all possible risks and take appropriate follow-up actions, it added. “The company took immediate action to manage and mitigate any potential risks,” the company said. “Cybersecurity experts have been appointed to conduct detailed analytics to flush out all breaches and related root causes, assist with impact assessment, and to review and enhance security measures to further strengthen the company’s core IT infrastructure and systems.” Sembcorp Marine added that the incident and relative risks have been addressed, going by the investigations and impact assessment undertaken. Its business operations were unaffected throughout, it added. The counter closed at 11.7 Singapore cents on Wednesday, down 0.1 cent or 0.85 per cent.
Wing Tai Holdings’ wholly owned unit, Wing Tai China (WTC) has acquired the remaining 50 per cent stake in Winnoma Investment from its joint venture partners for around US$18.27 million, Wing Tai said in a filing to the Singapore bourse on Wednesday (Aug 31). Winnoma is a joint venture company that has developed a residential project in Shanghai, China. Wing Tai’s joint venture partners are Savills IM Asian Property II SICAV-SIF (in liquidation) and Inica Holding. The consideration was paid in cash upon completion of the deal, namely with the inking of the share sale agreement. With the acquisition, Winnoma will become a wholly owned subsidiary of WTC. Wing Tai said: “The acquisition is carried out in the ordinary course of business. It is not expected to have any material impact on the group’s net asset value.” Shares in Wing Tai closed unchanged at S$1.67 on Wednesday.
In the span of 2 days, OCBC and UOB both raised the interest rates of their savings accounts in a bid to stay competitive amid a rising rate environment. On Wednesday (Aug 31), UOB announced that it will raise the interest rates of its One account from Thursday, with the maximum rate rising to 3.6 per cent, up from the promotional rate of 3 per cent which came into effect on Aug 1. To earn the maximum rate on the first S$100,000 of their bank balance, customers will need to credit at least S$1,600 in salary to their account and spend a minimum of S$500 on select credit and debit cards. A day earlier, OCBC announced that it would raise interest rates on its 360 savings account from Thursday. Customers will be able to earn interest of up to 4.05 per cent a year on balances of up to S$100,000, up from the maximum of 2.38 per cent a year on balances of up to S$75,000.
Microsoft announced on Wednesday it will create 36,000 jobs in Qatar to boost the Gulf state’s efforts to move away from reliance on its oil and gas industry. Created with support from the Qatar government, the new cloud data centre will be one of the US firm’s biggest international projects. Microsoft Qatar general manager Lana Khalaf said it will help the tiny Gulf state become a “digital hub for the region and the world”. “We are adding more than US$18 billion to the economy over the next five years and we are also adding more than 36,000 new jobs over the next five years,” she said at a launch ceremony. The growing number of cloud data centres around the world act as giant warehouses full of servers that help store and process information for companies, governments and institutions. Amazon, Microsoft and Google are the leading operators of cloud data services.
Bitcoin miners are likely facing narrowing profit margins even after a break in the US heat wave allows them to turn rigs back on and add new machines they bought during the last bull run. Bitcoin mining difficulty, an indicator of the amount of computing power being deployed to secure the blockchain network and earn rewards in the token, has jumped by 9.26 per cent over the last 2 weeks, according to data from btc.com. The increase is the largest since January. While the jump in mining may seem bullish for companies such as Riot Blockchain and Marathon Digital Holdings, a higher level of computing power for the entire Bitcoin network can cause miners to earn less Bitcoin with the same input. That risks further compressing profit margins – which were once on par with those of luxury-goods makers – that have already shrunk due to Bitcoin’s dramatic price decline and soaring energy costs.
Oil prices extended their slide on Wednesday, led lower by worries that the global economy would slow further with renewed restrictions to curb Covid-19 in China. Brent crude futures for October due to expire on Wednesday, settled at US$96.49, down US$2.82 a barrel, or 2.8 per cent. The more active November contract lost US$2.20 to US$95.64 a barrel. US West Texas Intermediate (WTI) crude futures ended down US$2.09, or 2.3 per cent, at US$89.55 a barrel. The market has been primarily concerned with inadequate supply in the months following Russia’s invasion of Ukraine and as Opec struggled to increase output. That drove near-term contracts to a sharp premium over later-dated futures earlier this year, but that pattern has reversed somewhat as output has increased. Both Opec and the United States saw production hit its highest levels since the early days of the coronavirus pandemic, with Opec’s output hitting 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while US output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Recommendation: Buy (Maintained), Last done: S$0.36 TP: S$0.49, Analyst: Glenn Thum
• Earnings of RM182mn was above our estimates, at 114% of our FY22e. Variance came from higher-than-expected software licensing and software project services revenue due to two new MOBIUS contracts signed during the year. FY22 DPS was 35% higher YoY at SGD0.7cents.
• Project related revenue comprising software licensing and software project services increased by 66% YoY due to the delivery of new software licensing deals in Indonesia and Thailand, and the ongoing implementation of two new MOBIUS contracts.
• Recurring revenue comprising maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing increased by 6% YoY and contributed >70% of total revenue.
• We maintain BUY with a higher target price of S$0.49 (prev. S$0.38). We raised our FY23e PATMI by 18% to RM209mn. The target price is pegged to 20x P/E FY23e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years as key growth drivers for the company.
Recommendation: BUY (Maintained); TP: US$213.00 Analyst: Ambrish Shah
• 2Q23 results were in line with expectations. 1H23 revenue/adjusted PATMI was at 48%/45% of our FY23e forecasts. Total revenue grew 22% YoY to US$7.7bn driven by continued demand for its Customer 360 offerings and new customer wins.
• Future contracted revenue or remaining performance obligations (RPO) grew by 15% YoY to US$41.6bn. Multi-cloud adoption maintained traction as the number of customers purchasing five or more of Salesforce’s cloud products grew by double digits.
• We maintain a BUY recommendation with a lowered DCF target price of US$213.00 (prev. US$253.00), with an increased WACC of 6.6% and a terminal growth rate of 4.0%. We nudge lower our FY23e revenue/adjusted PATMI by 2%/1% due to FX headwinds and cautious IT spending environment. Despite the macro impact, Salesforce enjoys longer term tailwinds from cloud-based digital transformation trends as companies look to form a more holistic views of their customers.
Analyst: Zane Aw
Recommendation: Technical BUY
Buy limit: 389.80 Stop loss: 380.00 Take profit 1: 410.00 Take profit 2: 430.00
SPDR S&P 500 ETF Trust (NYSEARCA: SPY) A retest of the immediate support at 386.00-393.00 is possible before price edges higher.
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