Daily Morning Note – 12 Aug 2020

PHILLIP SUMMARY

Stocks in Asia headed for a mixed start after a rally in U.S. equities fizzled late in the Wall Street session amid concern a spending package from Washington is not imminent. Gold tumbled the most in seven years. Futures nudged up in Japan and Australia, while contracts in Hong Kong retreated. S&P 500 futures opened stronger.

The S&P 500 fell for the first time in eight trading sessions as investors sold some of the rally’s biggest winners and some traders cited comments from Senate Majority Leader Mitch McConnell saying stimulus talks are at a stalemate as a catalyst. Treasury yields jumped before this week’s debt auctions. Treasuries and European bond yields climbed, cutting into the negative real rates that had supported the metal.

BREAKING NEWS

Hatten Land has signed an agreement with Tayrona Capital Pte Ltd relating to the Harbour City project in a US$323 million transaction. The company will receive USD$60 million for the assignment of Intellectual Property related to Harbour City. The proceeds of US$60 million will bolster the Group’s balance sheet and provide greater financial flexibility to pursue new growth initiatives.

Shareholders of Sembcorp Marine (SMM) and Sembcorp Industries (SCI) have voted overwhelmingly in favour of the three inter-conditional resolutions at the extraordinary general meetings (EGMs) for the proposed S$2.1 billion recapitalisation for the offshore and marine (O&M) engineering group, and a demerger from each other that will result in Temasek Holdings having a direct stake in the marine arm. 98.76 per cent, or shareholders of some 1.4 billion shares, voted for the rights issue, while 87.72 per cent, or shareholders with a collective 121.3 million shares, voted for the whitewash resolution.

KrisEnergy, the upstream oil & gas (O&G) company undergoing restructuring, says it will not be repaying its principal and interest payable under the term facility agreements to The Hongkong and Shanghai Banking Corporation Limited (HSBC) and Standard Chartered Bank, Singapore Branch amounting to some US$4.4 million ($6.0 million) which will be due on Aug 21. The company will also not be repaying its interest payable under the $200 million 4.0%, senior unsecured notes due 2023, amounting to some $4.1 million due Aug 22.

Pent-up demand and a surge in HDB upgraders entering the market nearly doubled the resale volume of non-landed private homes in Singapore in July; 978 units were resold, up from the 496 units resold in June 2020. Volumes were 10 per cent higher from a year ago and 9.3 per cent higher than the five-year average volumes for the month of July, going by flash figures from real estate portal SRX Property on Tuesday. By region, 53.6 per cent of the volumes came from sales in the outside of central region (OCR), 27.8 per cent came from the rest of central region (RCR) or city fringes, while 18.6 per cent of sales was from the core central region (CCR).

Ailing water-treatment company Hyflux announced on Tuesday after trading hours that the Singapore High Court has extended the deadline for the unsecured working group of bank lenders to file the application for a judicial management order from Aug 7 to Aug 12. The unsecured working group of banks – Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank and Standard Chartered Bank – was given the nod by the courts to carve their respective shares of debt from Hyflux’s debt moratorium. The group had argued that it could no longer trust Hyflux’s management to lead any restructuring effort. Hyflux has until 5pm on Aug 30 to accept a proposed rescue deal by Middle Eastern utility firm Utico, which remains open for acceptance, whether or not a judicial manager is appointed.

Mainboard-listed housing operator Centurion Corp on Tuesday saw profits slip by 10 per cent to S$9.13 million for its second quarter ended June 30, on the back of additional costs incurred to manage the Covid-19 situation in workers’ accommodation. Revenue slipped 5 per cent to S$31.1 million in the second quarter, mainly due to the impact from the early lease termination allowed for student accommodation in the UK starting from May 1; it was also due to lower occupancy in dwell Village Melbourne City (formerly known as RMIT Village) in Australia, resulting from movement restrictions imposed to contain the spread of Covid-19.

Recruitment firm HRnetGroup saw its net profit sink 31.9 per cent to S$20.99 million for its half-year ended June 30, mostly on the back of an unrealised loss of S$3.6 million on revaluation of financial assets. Revenue fell 1 per cent to S$210.34 million as contributions by the professional recruitment segment declined. Earnings per share stood at 2.09 cents, down from 3.06 cents previously. There was no dividend declared for the period.

Soilbuild Construction sank deeper into the red for its half-year ended June 30, as the suspension of business activities and extension of construction periods for its projects hit its business hard. Its losses deepened to S$17.94 million for the period, deteriorating from a loss of S$1.83 million a year ago. Revenue fell 37 per cent to S$69.2 million, mostly attributed to the decrease in construction activities, especially during the “circuit-breaker” period in Singapore.

Property and hospitality group Roxy-Pacific Holdings saw its net profit sink 70 per cent to S$2.79 million for the half-year ended June 30, dragged down by the impact of Covid-19. Revenue fell 16 per cent to S$118.07 million, mainly due to lower revenue from the property-development and the hotel-ownership segments. Earnings per share stood at 0.21 Singapore cents, down from 0.72 cents a year ago. There was no dividend declared.

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

RESEARCH REPORTS

CapitaLand Limited – Experience and diversification as sword and shield

Recommendation: BUY (Maintained), Last Done: S$2.75

Target Price: S$3.82, Analyst: Natalie Ong

– 1H20 operating PATMI formed 33% of our estimates, a reflection of a challenging first-half weighed down by the retail and lodging segments; earnings are broadly in line as we expect back-end loaded development earnings.

– Recovery in China and retail segment underway, while the industrial, commercial segments and rental housing portfolio remain resilient. Strategic advancement in digitalisation and flex-space offering to help future-proof portfolio.

– Maintain BUY with lower TP of S$3.82 (prev. $3.94). We trim our FY20e revenue by 2.1% as we factor in additional rental rebates and a longer than anticipated recovery in the lodging segment.

United Overseas Bank Limited – Business headwinds weigh in

Recommendation: ACCUMULATE (Maintained), Last Done: S$19.58

Target Price: S$20.40, Analyst: Tay Wee Kuang

– 2Q20 earnings of S$703mn was 18% below our previous estimates of S$857mn due weaker-than-expected fees income amidst Circuit Breaker period in the quarter.

– NIM fell 33 bps YoY in 2Q20 on low interest rates and huge inflow of deposits.

– Weakness observed across non-interest income as fee income fell 16% YoY while other non-interest income fell 11% YoY.

– Maintain ACCUMULATE with a reduced target price of S$20.40 (previously S$20.70). We revised FY20e earnings downwards by 5% to reflect business disruptions from COVID-19.


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TECHNICAL PULSE

Koufu Group Ltd

Analyst: Chua Wei Ren

Recommended Action: Technical BUY

Koufu Group (SGX: VL6) has made some modest recovery after the stock visit the low point at $0.550 in march 2020. Technicals suggest that the stock is making an attempt to carry on the rally despite a correction in June – July.

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