Daily Morning Note – 13 Aug 2020

PHILLIP SUMMARY

Asian stocks looked set for gains Thursday after U.S. peers briefly surpassed their all-time closing high, led by surging technology shares. The dollar weakened and Treasury yields rose to five-week highs. Futures pointed higher in Japan, Hong Kong and Australia. The S&P 500 earlier climbed 1.4%, momentarily topping its February high, and capping the more than 50% rally since the market lows in March. The Nasdaq Composite outperformed as Apple, Microsoft and Tesla jumped.

Treasury yields dropped from the session highs after the government’s sale of $38 billion in 10-year notes attracted stronger-than-forecast demand. Gold steadied. Elsewhere, oil rose after data showed U.S. stockpiles fell over 4 million barrels last week and refiners boosted processing rates.

BREAKING NEWS

Shares of Medtecs International Corporation surged 44.6 per cent on Wednesday, a day after reporting a substantial increase in its half-year earnings. The counter hit an intra-day high of S$1.45, and then eased slightly to S$1.41 by the closing bell, still up 43.5 Singapore cents. Having risen from 3.7 Singapore cents on Dec 31, 2019, its price now represents a gain of 38 times in the year to date. Some 150.6 million shares changed hands, making it the most heavily traded stock on the Singapore bourse for the day.

A consortium formed by the three largest shareholders of Teckwah Industrial Corporation has announced a voluntary conditional cash offer of S$0.65 per share to take the company private, in a bourse filing late Wednesday. The offeror has already secured irrevocable undertakings amounting to a 58.04 per cent stake, with the offer conditional on receiving valid acceptances of 90 per cent or more. Clementine Investments, which is the bid vehicle formed by Chua Seng Tek Holdings, Lee Kay Huan Holdings and Airjet Investments, intends to delist Teckway from the Singapore Exchange to enable “more flexibility to manage the business of the company and optimise the use of the company’s management and resources during this time of economic uncertainty”.

In a somewhat audacious move, on Aug 12, Urban Commons, the sponsor of Eagle Hospitality Trust when it listed in May last year, issued a press release full of angst. It says in a Breach Notice sent to EHT, the master lessee of EHT’s properties (which is also Urban Commons), has intimated that the amount of funds it has injected into EHT over the past year are outstanding and due for repayment. According to Urban Commons, prior to March 2020, there was no default from operations and yet, since the onset of Covid-19, the Sponsor has been targeted with allegations. This is probably in reference to certain statements made by EHT’s manager on SGX which doesn’t quite tally with Urban Commons statements.

City Developments Limited (CDL) reported a net attributable profit after tax and minority interests (PATMI) of S$3.1 million (1H 2019: S$362.0 million). The prolonged COVID-19 pandemic has severely impacted the Group’s performance across its business segments. The decline was across all business segments with hotel operations accounting for 82% of the drop in revenue. In constant currency, the Group’s global hotel revenue per available room (RevPAR) fell by 56.6% to S$60.3 (1H 2019: S$139.1), and global occupancy dropped to 39.4% (1H 2019: 72.2%).

Specialty rubber chemicals producer China Sunsine Chemical Holdings has reported a 69% drop in earnings for 1H20 ended June to RMB82.4 million ($16.3 million) compared to the RMB265.9 million posted a year ago. This translates to earnings per share (EPS) of 8.46 RMB cents for the half-year period, compared to the 27.09 RMB cents in 1H19. ASP fell 21% to RMB 13,560 per tonne in 1H20 as compared to RMB17,107 per tonne in 1H19 due to the lower raw material prices and the weaker demand for the company’s products. The weaker demand for the latter was primarily due to the lower production utilisation rate in the tire manufacturing industry on the back of the Covid-19 pandemic.

Real estate agency PropNex posted a net profit of S$7.26 million for the second quarter ended June 30, almost doubling from the S$3.7 million record in the same period a year earlier, on higher revenue and an increase in contribution from project marketing services. Revenue climbed 15 per cent to S$105.93 million, mainly due to the increase in commission income from project marketing services driven by higher number of transactions completed in Q2 following the recovery of the private residential market from the property cooling measures of July 2018, said the group in a bourse filing.

Banyan Tree Holdings sank deeper into the red with a net loss of S$49.15 million for the six months ended June 30, widening from a loss of S$2.69 million a year ago on the back of the impact of Covid-19. Revenue dived 43 per cent to S$75.36 million as travel restrictions, limited airlift and multiple waves of lockdowns affected the hotel investments and fee-based segments significantly, with some properties on partial operations.

United Hampshire US Reit posted a distribution per unit (DPU) of 1.78 US cents for the period from March 12, 2020 to June 30, 2020, meeting the forecast from its initial public offering (IPO) prospectus. However, gross revenue came in 3.5 per cent under expectations at US$15.31 million, largely due to lower reimbursable expense recoveries pertaining to grocery & necessity properties. In addition, there was a deceleration in leasing activities for self-storage properties at the onset of the pandemic due to shelter-in-place guidelines, and a delay in completion of Perth Amboy Self-Storage.

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

RESEARCH REPORTS

UG Healthcare Corporation Ltd – Earnings up 9x, more growth ahead

Recommendation: BUY (Maintained), Last Done: S$2.98

Target Price: S$4.15, Analyst: Paul Chew

– 2H20 results were above our expectations. PATMI rose 9x YoY in 2H20 to S$12.5mn.

– Gross margins in 2H20 jumped 16% points to 36%. Margins were higher in 4Q20 at 48% as glove prices only started to rise significantly Apr20 onwards.

– Capacity will jump 59% to 4.6bn gloves over the next 2 years.

– Maintain BUY with a higher target price of S$4.15. We are raising our PATMI estimates for FY21e by 55% to S$54.5mn. Our valuations are benchmarked at 15x PE FY21e, around 40% discount to larger peers. We expect another stellar year of earnings growth from volume increase and selling prices which have been rising monthly. Longer-term, UGHC is further entrenching its distribution network and brand name into emerging markets such as China, Brazil and Nigeria. As an OBM (or brand owner) that sells directly to end consumer, UG can capture both manufacturing and distribution margins.

IREIT Global – Rough start to growth, but growth nonetheless

Recommendation: NEUTRAL (Downgraded), Last Done: S$0.72

Target Price: S$0.68, Analyst: Tan Jie Hui

– Stable results offset by weaker EUR/SGD exchange rates, 1H20 DPU was down by 2.7%.

– Resilient portfolio; Overall occupancy lifted slightly QoQ at 95.7% from 94.7%, portfolio WALE stands at 3.7 years with 95.9% of the leases locked in till 2022.

– Rights issue to fund acquisition results in DPU and NAVPS dilution; Downgrade to NEUTRAL at a lower target price of S$0.68.

Oversea-Chinese Banking Corp Ltd – Outlook eases along with front-loaded allowances

Recommendation: ACCUMULATE (Maintained), Last Done: S$8.76

TP: S$8.92 (prev. $9.14), Analyst: Tay Wee Kuang

– 2Q20 earnings was below our expectations by 10% on lower NII (-9% YoY) and higher than expected allowances booked for the quarter.

– Non-interest income lifts (+11% YoY) sluggish NII with recovery in market conditions benefiting shareholders’ funds and investment holdings from GEH.

– Credit cost of 91 bps in 2H20 will likely ease over next two years to 50 – 60 bps previously guided by the bank.

– Scrip dividend option at 10% discount will be available for revised semi-annual dividend of S$0.159 per share.

We maintain ACCUMULATE at a lower target price of S$8.92. (previously S$9.14). Earnings was revised downwards by compressing NIM by a further 5 bps to reflect a prolonged weak interest rate environment.

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