Daily Morning Note – 11 February 2022

Stocks and bonds in Asia are set to come under pressure Friday after Treasuries and Wall Street shares sank on a jump in U.S. inflation to a fresh four-decade high that stirred hawkish Federal Reserve comments.

The U.S. two-year Treasury yield posted its biggest one-day surge since 2009 amid sharp losses across a flattening curve, a mix that suggests investors expect slowing growth alongside aggressive Fed steps to curb price pressures. Treasury futures were steady. There is no cash trading due to a Japan holiday.

U.S. inflation hit 7.5%, with goods prices soaring and costs for services also starting to pick up. St. Louis Fed Chair James Bullard said the central bank should hike rates by 100 basis points over the next three meetings. He raised the possibility of considering a move in between scheduled policy reviews.

SG

Property developer Oxley Holdings posted a net profit of S$23.5 million for the six months ended Dec 31, 2021, up by 3 per cent year-on-year. Revenue for H1 FY2022 was 13 per cent lower at S$506.4 million on the back of lower revenue contribution from Royal Wharf project in the United Kingdom, partially offset by higher revenue from the development projects in Singapore and sale of land parcels in Australia. Earnings per share worked out to 0.55 Singapore cent, compared with 0.54 cent a year ago.

As higher interest rates loom, Singapore banks are poised to make more money from lending this year, with the current liquidity flush providing a further bump to net interest margins (NIMs) – a key measure of profitability. Higher dividend payouts are also on the cards due to the sector’s strong capital levels and a benign credit cost outlook.

Wing Tai Holdings’ net profit for the six months ended Dec 31 declined 5 per cent year on year to S$53.8 million. Revenue rose 26 per cent to S$306.6 million on the back of higher contributions from development properties. In a filing to the Singapore Exchange, Wing Tai said: “Revenue for the current period was largely attributable to the additional units sold in Le Nouvel Ardmore and the progressive sales recognised from The M at Middle Road in Singapore.” However, in the wake of the latest property cooling measures last December, Wing Tai warned that “buying sentiment for private residential property in Singapore may weaken in the current year”.

Beverage and publishing company Fraser and Neave saw net profit fall 10.9 per cent to S$40.2 million in the first quarter ended Dec 31, 2021, despite a 1.6 per cent increase in revenue. In a business update on Thursday (Feb 10), the company better known as F&N attributed the revenue bump – from S$497 million in the year-ago period to S$505 million – to higher demand for beer and soft drinks. The company said its profit after tax for the quarter was hit by higher finance costs due to the issuance of a S$100 million 5-year term bond at the end of the last financial year to prepare for the refinancing of a bond due March 2022.

Keppel Corporation on Thursday (Feb 10) said it will continue with its arbitration proceedings against Singapore Press Holdings (SPH) SPH: T39 0%, after SPH decided to terminate Keppel’s implementation agreement relating to its takeover offer late Wednesday. Keppel said it had received a termination notice from SPH after it filed a notice of arbitration to start arbitration proceedings against SPH. The termination notice, among others, stated that the Securities Industry Council (SIC) had no objections to SPH’s exercise of the right to terminate the implementation agreement, and that not all the conditions of the Keppel scheme had been satisfied on or before the cut-off date.

US

AstraZeneca on Thursday (Feb 10) forecast higher 2022 sales and raised its annualised dividend after the drugmaker posted better-than-expected fourth-quarter profit as it gets a lift from its Covid-19 antibody treatment and cancer drugs. But the London-listed company warned that gross profit margins from coronavirus products were expected to be lower than the company average for this year, while sales for Covid-19 products were expected to decline by a percentage in the low-to-mid 20s.

Twitter reported earnings for the fourth quarter on Thursday that missed analyst estimates on earnings, revenue and user growth. The company’s shares initially rose on the report and were up during its earnings call in premarket trading. But they fell 2% by the end of trading Thursday. The company provided revenue guidance for the next quarter ranging from $1.17 billion to $1.27 billion, while analysts had expected about $1.26 billion, according to Refinitv. Twitter also announced a new $4 billion share buyback program. Half of that will be an accelerated share repurchase with the remaining being repurchased over time, the company said. Despite the miss in user growth numbers, CFO Ned Segal said in a statement in the earnings release that its previously stated goals of reaching 315 million mDAUs in Q4 2023 and at least $7.5 billion in revenue in 2023 remained the same.

Coca-Cola on Thursday reported quarterly earnings and revenue that beat analysts’ expectations as consumers drank more of the company’s products away from home, topping pre-pandemic levels for the first time. But the company issued a weaker-than-expected outlook, predicting that higher inflation would continue to weigh on its profits throughout 2022. Rival PepsiCo similarly warned investors about rising costs for packaging and transportation. Shares of Coke closed Thursday, up 0.5% at $61.37.

PepsiCo on Thursday beat quarterly revenue expectations by more than $1 billion, but warned that it is costing more to make its snacks and sodas and get them to store shelves. But its full-year outlook fell short of what analysts predicted, and shares closed Thursday down 2.1% at $168.37. Pepsi is feeling the impacts of inflation across its businesses. With Frito-Lay North America, the maker of Lay’s potato chips and Cheetos, it has had to pay more for cooking oil and packaging. With PepsiCo Beverages North America, it said transportation and commodities have become pricier.

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

Keppel Corporation – Arbitration proceedings against SPH to have muted impact

Recommendation: BUY (Maintained), Last Done: S$6.03

Target price: S$7.07, Analyst: Terence Chua

– Keppel Corp has started arbitration proceedings against Singapore Press Holdings (SPH).

– Arbitration proceedings against SPH will lengthen the overhang on the Group until a decision by the arbitrator.

– Keppel Offshore & Marine (Keppel O&M) has been awarded $250mn in new contracts.

– Maintain BUY with unchanged SOTP TP of S$7.07. We valued the Group based on the four new segments unveiled during Vision 2030 to better reflect the Group’s reporting segments going forward. Our TP translates to about 1.0x FY22e book value, in-line with its 5-year average. Catalysts expected from SPH resolution and a successful resolution of its O&M unit.

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