DAILY MORNING NOTE | 11 November 2022

The Straits Times Index (STI) extended its rally into a five-session rising streak on Thursday (Nov 10), even as key Asian markets fell on caution ahead of the release of key US inflation figures. The STI rose 0.2 per cent or 7.68 points to close at 3,173.18. In the broader Singapore market, gainers edged out losers 257 to 251, after 1.57 billion securities worth S$1.13 billion changed hands. DFI Retail Group was the biggest winner on Singapore’s blue-chip index, closing 3.3 per cent or US$0.08 higher at US$2.50. The biggest loser among the STI constituents was SATS, which fell 6.3 per cent or S$0.17 to S$2.55. This came after the inflight caterer and ground handler after market close on Nov 9 reported a net loss of S$9.9 million for its second quarter ended September. Singtel was the most heavily traded blue-chip stock, closing 3.1 per cent or S$0.08 higher at S$2.63, after 59.4 million shares changed hands. Before market open on Thursday, the telecommunications giant declared a special dividend, with net profit up 23 per cent for the first half ended Sep 30. The trio of local banks ended mixed. DBS fell 0.4 per cent or S$0.13 to S$34.54, OCBC dipped 0.1 per cent or S$0.01 to S$12.24, while UOB rose 0.2 per cent or S$0.07 to S$29.21.

Wall Street stocks surged on Thursday and ended with steep gains, including a nearly 1,200-point jump for the Dow, as investors seized on data showing US inflation slowing to spark a rally. The Dow Jones Industrial Average jumped 3.7 per cent to finish at 33,715.37, while the broad-based S&P 500 jumped 5.5 per cent to end at 3,956.37. The tech-rich Nasdaq Composite Index was the big winner, soaring a whopping 7.4 per cent to 11,114.15. The gains came after a closely-watched government data report showed annual consumer price inflation eased to 7.7 per cent in October, the lowest since January. Even though inflation remains near the highest in decades, the slowdown gives hope that the Federal Reserve will be able to ease up on its aggressive interest rate hikes.

SG

Genting Singapore reported on Thursday (Nov 10) a more than 100 per cent increase in net profit for its third quarter, on the back of stronger gaming and non-gaming revenue. Net profit for the three months ended Sep 30, 2022, rose to S$135.8 million from S$60.7 million in the same period a year ago, the operator of Resorts World Sentosa (RWS) said in a business update filed to the Singapore Exchange. The Q3 net profit was also significantly higher than the S$44.1 million net profit posted in the second quarter of FY2022. Genting Singapore’s stronger profits come on the back of improved revenue, as recovery from the impact of Covid-19 restrictions continued. Revenue for the group more than doubled on-year to S$519.7 million in Q3 FY2022. It was also 49 per cent higher than the S$348.6 million posted in Q2. Gaming revenue rose 96 per cent on-year to S$382 million, while non-gaming revenue climbed to S$137.3 million from S$56.2 million in the year-ago period. “The overall improvement in RWS’ operating performance reflects the ongoing recovery of regional travel markets, but such recovery has yet to return to the pre-pandemic levels,” Genting Singapore said in a statement. The group attributed the rebound in gaming revenue to ”more affluent and premium customers that are staying slightly longer”. Genting Singapore said that it remains “confident and excited” about its growth opportunities in Singapore. It noted that its expansion projects for RWS are “proceeding expeditiously as planned”, and the group is also investing in assets to attract the affluent market. “While labour shortages and cost pressures present significant challenges, we continue to enhance our product offerings and hire, train, and re-skill our workforce,” the group said. It added that it is also strengthening its leadership and management team for the next stage of growth.

Philippine liquor giant Emperador posted 11 per cent year-on-year revenue growth to 42.6 billion pesos (about S$1 billion) for the first nine months of 2022, driven by growth across the group’s whisky and brandy segments. On Thursday (Nov 10), the dual-listed company said its whisky segment revenue grew 16 per cent over the nine-month period mainly due to higher sales of single malts across almost all regions around the world, and the return of travel retail. Revenue from the brandy segment grew 8 per cent, sustaining year-on-year topline growth in its key markets in the Philippines, Spain, Mexico and North America. Despite the higher group revenue, net profit was marginally lower at 7.2 billion pesos compared with the previous year’s 9M earnings of 7.3 billion pesos. Emperador attributed this to rising inflation which impacted both its whisky and brandy segments to result in higher input and logistics costs, as well as advertising and promotional expenses which were recorded with increased on-trade activities. These factors have a greater impact on the operating margins of the brandy segment where prices are more accessible compared to that of whisky, said the company. Emperador president Winston Co noted that the company’s earnings performance for 9M 2022 was limited by rising inflation despite its global business remaining robust. “There is so much volatility in the global market. We are glad to deliver sustained earnings through our wide portfolio of brands,” he said.

Despite no year-on-year change to its distributable income for the second half-year ended Sep 30, Frasers Logistics & Commercial Trust (FLCT) posted a lower distribution per unit (DPU) of 3.77 Singapore cents for the period, a 2.8 per cent fall from 3.88 cents. The real estate investment trust recorded a distributable income of S$139.6 million for H2, largely unchanged from a year ago. The DPU of 3.77 cents brings total DPU for FY2022 to 7.62 cents, 0.8 per cent lower than the 7.68 cents for FY2021. FLCT’s adjusted net property income fell 10.6 per cent to S$162.1 million from S$181.3 million, while its revenue decreased by 9.7 per cent to S$214.5 million from S$237.6 million. The divestment of Cross Street Exchange, coupled with weaker exchange rates, resulted in lower adjusted net property income and half-year revenue, said the trust’s manager on Thursday (Nov 10). These were partially offset by contributions from acquisitions made in FY2021 and FY2022. The distribution will be paid out on Dec 15, after books closure on Nov 18. The trust’s weighted average lease expiry stood at 4.5 years, with a portfolio occupancy rate of 96.4 per cent.

US

US consumer prices increased less than expected in October and underlying inflation appeared to have peaked, which would allow the Federal Reserve to dial back its hefty interest rate hikes. The consumer price index rose 0.4 per cent last month after climbing by the same margin in September, the Labour Department said on Thursday. Economists had forecast the CPI would advance 0.6 per cent. In the 12 months through October, the CPI increased 7.7 per cent after rising 8.2 per cent on the same basis in September. It was the first time since February that the annual increase in the CPI was below 8 per cent. The annual CPI peaked at 9.1 per cent in June, which was the biggest advance since November 1981. Annual inflation is slowing as last year’s big increases drop out of the calculation. The Fed last week delivered a fourth consecutive 75-basis-point interest rate hike and said its fight to lower inflation to the US central bank’s 2 per cent target would require borrowing costs to rise further. It, however, signalled it may be nearing an inflection point in what has become the fastest rate hiking cycle since the 1980s. Though fuel prices increased after three straight monthly declines, goods inflation is slowing as demand rotates back to labour-intensive services and fractured global supply chains recover. Retailers are also sitting on excess merchandise, forcing them to offer discounts to clear shelves. Excluding the volatile food and energy components, the CPI increased 0.3 per cent last month after gaining 0.6 per cent in September. The so-called core CPI is being driven by surging rents as soaring mortgage rates price out prospective buyers. The core CPI increased 6.3 per cent in the 12 months through October. The core CPI jumped 6.6 per cent on a year-on-year basis in September. The inflation boost from services is coming from wages amid tight labour market conditions. A second report from the Labour Department on Thursday showed the number of Americans filing new claims for unemployment benefits increased moderately last week. Initial claims for state unemployment benefits rose 7,000 to a seasonally adjusted 225,000 for the week ended Nov 5. Economists had forecast 220,000 applications for the latest week.

Chinese electric vehicle maker Nio on Thursday reported a loss of $577.9 million for the third quarter, significantly wider than a year ago, despite strong revenue following a 29% increase in vehicle sales. Nio’s third-quarter earnings report showed revenue came in at $1.83 billion, up 32.6% from the third quarter of 2021. Adjusted loss per share was 30 cents, versus 6 cents per share in the year-ago period. Cash at quarter end stood at $7.2 billion, down from $8.1 billion as of June 30. Nio said on Oct. 1 that it delivered 31,607 vehicles in the third quarter, up 29% from the third quarter of 2021 and a record for the company. Nio’s gross margin was 13.3%, slightly improved versus the 13% margin it reported in the second quarter, but down from 20.3% a year ago. Nio said the year-over-year margin decline was due to lower sales of regulatory credits, higher costs that have squeezed margins on its vehicles, and higher spending on its charging and service networks. CEO William Bin Li said in a statement that the company has seen strong interest in its new ET5 sedan, which he expects “will support a substantial acceleration of our overall revenue growth in the fourth quarter of 2022.” The ET5, the company’s second sedan, began shipping in September. With the ET5 now available, Nio is working to increase production and shorten customer waiting times, Li said. Nio said that investors should expect it to deliver 43,000 and 48,000 vehicles in the fourth quarter, generating total revenue between RMB17,368 million ($2.4 billion) and RMB19,225 million ($2.7 billion).

AstraZeneca raised its full-year earnings outlook on Thursday after strong sales of its key cancer drugs helped it beat quarterly profit and revenue forecasts, driving its shares to a 2-1/2 month high. The Anglo-Swedish company said it managed to grow its business in China despite protracted COVID lockdowns and was no longer pursuing U.S. approval for its COVID-19 vaccine. AstraZeneca is seen as a bellwether for the pharmaceutical sector in China, which accounted for about 16% of the company’s total revenue last year. Sales in China have been hurt by lower drug prices while COVID lockdown measures have kept some patients from being diagnosed and seeking care. Despite the headwinds, the company generated 8% sales growth in the region on a constant currency basis in the quarter, whereas it had expected a decline, chief executive Pascal Soriot said on a media call. Geopolitical challenges are growing in the region due to tensions between China and Taiwan, though Soriot said that had not affected the company so far. “We haven’t experienced any of those difficulties some industries actually may experience,” he said. Better-than-expected sales of AstraZeneca’s cancer medicines, including Tagrisso, Imfinzi and Enhertu, helped the company’s quarterly revenue beat, with sales of its broader oncology portfolio rising 24%. AstraZeneca, which reports its results in dollars, raised its adjusted earnings per share forecast for 2022 to grow by a “high twenties to low thirties percentage”, even though it expects a strong U.S currency to be a drag on full-year revenue and profit. Previously, it had forecast adjusted EPS growth in the “mid-to-high twenties percentage”.

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

RESEARCH REPORTS

Singapore Banking Monthly – NIM and NII surge across the board

Recommendation: Overweight (Maintained)

Analyst: Glenn Thum

• October 3M-SORA/3M-SIBOR was up by 44bps/78bps MoM to 2.28%/3.63%, the highest MoM increase since 1998.

• In the 3Q22 results, banks’ NII rose 42% YoY as NIM improved by 47bps with loans growth of 6%. Fee income was a drag, declining 14%. Banks raised their FY22e NIM guidance.

• Singapore domestic loans grew 4.38% YoY in September, tracking our estimates, while Hong Kong’s domestic loans declined 1.81% YoY in September.

• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. We expect bank NIM to rise another 34bps in 4Q22. SGX is another beneficiary of higher interest rates [SGX SP, BUY, TP S$11.71].

FAANGM Monthly October 22 – Hampered by weak earnings

Recommendation: Overweight (Maintained)

Analysts: Jonathan Woo, Maximilian Koeswoyo, Zane Aw, Phillip Research Team

• The FAANGM was relatively flat in October, down only 0.2%. The Nasdaq fared slightly better, gaining 4.0%, while the S&P 500 outperformed, up 8% for the month.

• Aside from NFLX and AAPL, the rest of FAANGM disappointed during their 3Q22 earnings calls, weighed down by higher expenses and slowing revenue growth.

• META was the laggard, down 32% as earnings were cut in half compared with 3Q21, while NFLX was the biggest gainer, up 24% due to subscriber outperformance and an earlier-than-expected launch of its new ad-supported subscription plan.

• Near term uncertainties such as rising inflation and weakening consumer demand continue to weigh on FAANGM. However, we remain OVERWEIGHT on FAANGM as we still believe that long term secular tailwinds remain intact.