Daily Morning Note – 10 August 2021

Dear valued client,

Asia stocks saw a mixed start Tuesday as investors weighed the impact of falling commodity prices, talk of stimulus withdrawal and a resurgence in the delta virus variant.

Equities ticked higher in Japan and Australia, but slipped in South Korea. U.S. futures fluctuated. Earlier, the S&P 500 closed little changed, while the Nasdaq 100 ticked up. The dollar and Treasury yields held overnight gains. Crude oil pared a decline after it touched the lowest in three weeks on concern the delta strain will hamper demand growth

Gold was steady after Monday’s volatility and Bitcoin traded back above $46,000.


SG News

Dasin Retail Trust reported on Monday a 55.2 per cent increase in distribution per unit (DPU) to 2.98 Singapore cents for its first half ended June 2021, from 1.92 cents a year ago. This included a “distribution waiver”, through which major unitholders have waived a portion of their entitlement to distributions from the retail property trust. Without the waiver, DPU for the half year rose 97.8 per cent to 2.67 Singapore cents from 1.35 cents a year ago, according to an exchange filing. The higher DPU comes amid a 38.5 per cent increase in its revenue for the half year to S$51.3 million, mainly due to higher rental income and recovery from the impact of Covid-19, as well as contribution from Shunde Metro Mall and Tanbei Metro Mall which were acquired in July 2020.

Catalist-listed Clearbridge Health said on Monday that its subsidiary has entered into a contract to purchase the Sinopharm Covid-19 vaccine directly from its manufacturer. In an exchange filing, the company also said that its subsidiary Medic Surgical, which operates the Medic Surgical & Laser Clinic has been granted approval under the Health Sciences Authority’s special access route scheme to import and supply the Sinopharm Covid-19 vaccine in Singapore. Clearbridge chief executive Jeremy Yee said: “Vaccines are a very crucial tool in our fight against Covid-19, and we are excited to procure Sinopharm Covid-19 vaccine for use in Singapore.”

A-Sonic Aerospace said on Monday that it has received a notice from the collective sale committee of International Plaza, where it has office units. The mainboard-listed company has an aggregate of around 3,810 square feet of office units at International Plaza, and it is occupying the units, it said in the exchange filing. Based on the information memorandum prepared by the collective sale committee, the indicative independent third party market valuation of its office units was S$6.6 million, above the carrying value in its accounts of around S$1.4 million, as at June 30, A-Sonic said.

July buyback activity typically declines seasonally in Singapore with the majority of stocks on the cusp of reporting first-half fiscal year (H1FY ended June 30) results. This meant that July saw just 10 primary-listed stocks buy back their shares for a total consideration of S$11 million, compared to 28 stocks and a total consideration of S$94 million in June. The Hour Glass led the July buyback consideration tally in July, commencing a new mandate, while also completing its preceding mandate which saw the group buy back 1.04 per cent of its outstanding shares (excluding treasury shares), in a relatively short period of six weeks from June 17 to July 27.

US News

Apple defended its new system that will scan iCloud for illegal child sexual abuse materials, or CSAM, on Monday amid a controversy over whether the system reduces Apple user privacy and could be used by governments to surveil citizens. Last week, Apple announced it has started testing a system that uses sophisticated cryptography to identify when users upload collections of known child pornography to its cloud storage service. It said it can do this without learning about the contents of a user’s photos stored on its servers. Apple reiterated on Monday that its system is more private than those used by companies such as Google and Microsoft because its system uses both its servers and software that will be installed on people’s iPhones through an iOS update.

Shares of food delivery firm Deliveroo climbed over 10% Monday after the company announced larger German rival Delivery Hero has taken a 5.09% stake in the business. The firm’s stock climbed from £3.36 ($4.66) per share to £3.60 per share in early deals on the London Stock Exchange Monday, reaching their highest point since trading began in March. Meanwhile, shares of Delivery Hero remained relatively flat on the Frankfurt Stock Exchange. Deliveroo’s market value is around £8 billion so Delivery Hero’s investment appears to be worth roughly £400 million. Deliveroo declined to comment on the exact size of the investment, while Delivery Hero did not immediately respond to a CNBC request for comment.

Shares of AMC Entertainment rose 4% in extended trading Monday after the company posted a narrower-than-expected second-quarter loss. Although the movie theater operator’s CEO warned the company still has challenges ahead, AMC said it could post a profit as soon as the fourth quarter, if the domestic box office reaches at least $5.2 billion. “AMC’s journey through this pandemic is not finished, and we are not yet out of the woods,” CEO Adam Aron said in a statement Monday. “However, while there are no guarantees as to what the future will bring in a still infection-impacted world, one can look ahead and envision a happy Hollywood ending to this story.”

Italy’s antitrust authority AGCM will investigate McDonald’s terms and conditions in its agreements with franchise operators following several complaints, according to an AGCM document seen by Reuters. The AGCM move could put the U.S. fast-food chain at risk of a fine of as much as 10% of its global turnover if it is found guilty of breaching Italian antitrust rules. The AGCM declined to comment. McDonald’s, which made $19.2 billion in revenues in 2020, said it was “certain of the correctness of our work” and open to collaborating with the agency.

Berkshire Hathaway’s operating income continued to rebound as its myriad of businesses from energy to railroads benefited from the economic reopening. The conglomerate reported operating earnings of $6.69 billion in the second quarter, up 21% from $5.51 billion in the same period a year ago, according to its earnings report released on Saturday. Overall earnings, which reflect Berkshire’s fluctuating equity investments, increased 6.8% year over year to $28 billion in the second quarter.

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


OCBC Group Holdings – Strong capital position to take advantage of opportunities

Recommendation: Buy (Maintain), Last Done: S$12.42

Target price: S$14.22, Analyst: Terence Chua

– 2Q21 earnings of S$1.16bn missed our expectation by 7% on higher-than-expected allowances. Allowances were largely for exposures to a large number of corporate customers in oil trading and offshore support vessels.

– NIM rose 2bps QoQ, a nice surprise. As a result NII edged up 1% QoQ.

– Provisions higher than expected. Total allowances of S$232mn were made up of S$131mn SPs and S$101mn GPs.

Maintain BUY with lower GGM TP of S$14.22, down from S$14.63. FY21e earnings reduced by 2.3% for higher allowances in view of the uncertain economic outlook. We peg our TP at 1.24x P/BV and 9.3% FY21e ROE. Catalyst expected from reversal of GPs.

StarHub Limited – Paid 4% to wait for a border re-opening

Recommendation: NEUTRAL (Maintained); TP S$1.24, Last close: S$1.25;

Analyst Paul Chew

– 2Q21 revenue and EBITDA are in line, with 1H21 numbers at 47%/52% of our FY21e forecasts. Interim DPS of 2.5cts.

– Mobile remained its Achilles heel, with lower postpaid ARPU and prepaid subscribers.

– EBITDA recovered QoQ from cost savings in content and network solutions.

– Maintain NEUTRAL and target price of S$1.24. Valuations based on regional peers’ 6x FY21e EV/EBITDA. No change to our forecasts. There is upside to our forecast if borders re-open and roaming revenue returns. Another share price catalyst could be a re-rating of its cybersecurity division via corporate exercise or sustained profitability.

Venture Corporation Ltd – Modest rebound

Recommendation: NEUTRAL (Maintained); TP S$19.20, Last close:

S$19.40; Analyst Paul Chew

– 1H21 PATMI rose 7% YoY. Earnings were below at 40% of our FY21e estimate. Interim DPS unchanged at 25 cents..

– Rebound from last year’s supply-chain disruptions did not materialise. 1H21 revenue around 22% below pre-COVID levels.

– Earnings growth has stalled since peaking in FY17/18. Our earnings estimates are unchanged as we look forward to a pick-up in order momentum and operating leverage from life science, instrumentation and medtech in 2H21. Maintain NEUTRAL with unchanged target price of S$19.20, still at 16x FY21e P/E, its 5-year average. Support from decent yields of 4.4%, 10% ROEs and S$922mn net cash.

Technical Analysis: SG Market Outlook – Banks leading rallying to the upside

Analyst: Chua Wei Ren

– The FTSE Straits Times Index has been consolidating for the whole of 2Q21.

– It has yet to reach its 3,200 psychological-resistance high since our last report on 19 April 2021. Our long-term target maintained at 3,500.

– Local banks staged a bullish return on the back of strong fundamentals. Technical charts suggest attempts to break key resistance levels.

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