DAILY MORNING NOTE | 13 February 2024

Trades Initiated in the past week


Week 7 Equity Strategy: The highlight last week was DBS’s stellar jump in dividends. 2023 dividends rose 28% to S$1.92 and another 24% (including 10% bonus shares) to 2.16. DBS is now trading at a dividend yield of 7.3%. We dub DBS the REIT killer in the near term. It will be difficult for many Singapore asset REITs to match those yields. The high yield is not only due to a higher payout ratio (from 50% to 60%) but an element of capital return. With the new (Basel) capital ratios, around 2% points or S$7bn of capital can be returned to shareholders. This is around S$2.85 per share of capital returns. Rather than a one-off special, DBS is returning to shareholders as ordinary dividends and possibly share buybacks. We think OCBC will be under pressure to raise their dividends too, as their capital is even higher than DBS. Operationally, DBS earnings are stable. Interest margins will be under pressure, but the offset is the rollover of S$90bn of their bonds into higher yields. Loans growth can recover from trade and infrastructure loans. Fee income is growing in the teens. The upside is lower interest which will trigger increased investments and leverage in wealth management.

Other corporate highlights for us were: (i) Emperador – In our Poems webinar, the company reminded investors that their luxury whisky brand Dalmore has been on allocation (i.e. take a queue number to buy) to customers since 2018. Prices are rising 15-25% per annum. Whisky demand has expanded from just consumption to investment as the value grows. Emperador’s success was to re-focus the acquired Whyte and Mackay presence into Asia, especially China, from 3% of sales to now 30%; (ii) Paragon REIT: The 4.1% S$300mn perpetual is due in August 2024. We believe it will likely be replaced with debt as the step-up is costlier than loans. This will push Paragon’s gearing by 7% points to 37%. But not all REITs have the luxury to convert this “fake and expensive” equity to debt.

Paul Chew
Head of Research

Singapore shares ended Friday (Feb 9) in the red, after a half-day trading session on the eve of the Chinese New Year, falling 4.61 points or 0.2 per cent to 3,138.3. Across the broader market, 251 losers outnumbered 212 gainers as 974.7 million shares worth S$696.3 million changed hands.

US stocks pushed to a fresh record on Monday on a mixed day for Wall Street as markets awaited key inflation data that will influence US monetary policy. The Dow Jones Industrial Average finished up 0.3 per cent at 38,797.38, a new all-time record. The broad-based S&P 500 slipped 0.1 per cent to 5,021.84, edging down from a record, while the tech-rich Nasdaq Composite Index declined 0.3 per cent to 14,942.55. Major US indices have been on a tear since late October as the Federal Reserve has shifted away from a cycle of interest rate increases to counter inflation.

Top gainers & losers


Events Of The Week



Shopee’s recent lawsuit against a former senior employee in its Singapore and Brazil offices has trained the spotlight on noncompetition clauses. The Singapore-based e-commerce major’s case against Lim Teck Yong was dismissed by a judge last week. The company sued Lim, who was executive director of operations position at Shopee Brazil, for joining ByteDance in 2023 – a move that allegedly breached non-competition and non-solicitation restrictions in his employment contract. Shopee sought injunctions to stop Lim from working for the Chinese tech giant and to prevent him from soliciting Shopee clients and employees.

Fullerton Healthcare Corporation’s (Fullerton Health) three co-founders, including its former majority owner David Sin, were charged on Thursday (Feb 8) with corruption and falsifying or conspiring to falsify nearly half a million dollars in entertainment claims to defraud the healthcare company. Sin and Fullerton Health’s former directors Daniel Chan and Michael Tan were alleged to have committed these offences to provide gratification and bribes to Collin Chiew, a former chief executive of insurance broker Aon Risk Solutions in Singapore, according to a statement by the Corrupt Practices Investigation Bureau (CPIB). Sin faces five counts, while Tan faces four and Chan, one, for conspiring to corruptly give gratification totalling S$668,000 to Chiew over several occasions between 2015 and 2018, and in 2019.

Southeast Asia’s biggest ride-hailing companies, Grab Holdings Ltd. and GoTo Group, have restarted talks for a merger, a potential blockbuster combination aimed at staunching years of losses at both companies resulting from tough competition between the two. The companies, also the food-delivery leaders in the region of more than 650 million people, are in preliminary discussions about a variety of scenarios. One potential option is for Singapore-based Grab to acquire GoTo using cash, stock, or a combination of the two. Major shareholders of both companies support a deal, and have been driving the talks.

Livingstone Health has proposed to place 55.56 million shares at an issue price of 2.7 cents per share. The consideration from the placement will amount to some $1.5 million. The issue price represents a discount of around 8.78% to the volume weighted average price (VWAP) of 2.96 cents for the shares traded on Feb 7. The placement shares represent about 12.7% of the company’s existing share capital of 436.39 million shares. According to Livingstone, the proposed placement will strengthen its balance sheet in its bid to explore strategic acquisition plans and, or new business opportunities. The group is also pursuing organic growth and expanding its medical specialist teams through new recruitments to support the growing demand in healthcare services


Nvidia briefly overtook Amazon.com in market value on Monday (Feb 12), the latest milestone in a stunning rally over the past year fuelled by soaring demand for its chips used in artificial intelligence (AI) computing. Nvidia rose almost 0.2 per cent, closing with a market value of about US$1.8 trillion. While Amazon fell 1.2 per cent, it ended with a closing valuation of US$1.8 trillion. The chipmaker did surpass the e-commerce and cloud-computing company during the regular session, temporarily making it the fourth most valuable US-listed company, sitting below Alphabet’s US$1.8 trillion market capitalisation. Microsoft weighs in at US$3.1 trillion and Apple at US$2.9 trillion.

New York Community Bancorp shares surged on Monday (Feb 12), extending a rally from the previous session after top executives disclosing they had bought stock in the US lender.
The bank has been looking to boost investor confidence to stem a sell-off in its shares that began on Jan 31, when it posted a surprise quarterly loss due to its loans tied to the stressed commercial real estate (CRE) and slashed its dividend. Purchases by NYCB executives totalled more than US$850,000 combined, regulatory filings published on Friday showed. The stock was last up 9 per cent in early morning trading. It had closed up 17 per cent on Friday. Still, they are down 50 per cent so far this year and have weighed on the banking sector.

Diamondback Energy reached an agreement to buy fellow Texas oil-and-gas producer Endeavor Energy through a US$26 billion deal that will create the largest pure-play operator in the prolific Permian Basin. Diamondback will fund the deal through 117.3 million shares and US$8 billion in cash, the two Midland, Texas-based companies said in a statement Monday (Feb 12). Diamondback shareholders will own 60.5 per cent of the company after the deal closes, and Endeavor shareholders will own 39.5 per cent. The agreement is the latest in a string of massive deals transforming the US energy landscape as companies push to line up future drilling sites and cut costs.

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


BRC Asia – Margins gained from higher volume

Recommendation: ACCUMULATE (Downgrade) Last Done: S$1.86
Target Price: S$1.99; Analyst: Peggy Mak

– 1Q24 net profit came in at 20% of our FY24e estimates. This is typically the lull quarter for construction output. Revenue jumped 17% YoY due to low volume in the year earlier, as the labour crunch affected activities and order deliveries. We estimate higher volume was partly offset by a 17% lower ASP for steel rebars. Net profit gained from the absence of associate losses, and lower interest expense as net gearing improved to 0.46x (Dec 22: 0.65x).

– We maintain our net profit estimates for FY24e, though there is a possible upside from a S$14mn divestment gain of the Maldives hotel assets. We estimate that the sale could also lift dividends by about S$0.05/share, which have not been factored into our numbers.

Downgrade to ACCUMULATE (prev. BUY) due to the recent share price gain. Our TP remains unchanged at $1.99. BRC’s strong ROE of 18.6% in FY24e reflects market leadership that enables it to enjoy economies of scale. The tailwinds for FY24e are stronger construction output and the bottoming of steel prices.

Pan-United – Tailwinds from construction demand, low-carbon solutions

Recommendation: BUY (Maintained) Last Done: S$0.41

Target Price: S$0.55; Analyst: Peggy Mak

– FY23 net profit was 6% higher than our expectations. Net profit rose 56.2% YoY, lifted by higher ASP (we estimate +5%) and volume gain (+5%). Growth accelerated in 2H. 2H23 revenue gained 15% HoH, and net profit was +30%.

– Construction output in 2023 reached S$34.8bn, the highest since 2016. BCA projects output to be at S$34bn-37bn in 2024, driven by higher prices for materials and manpower. RMC volume could rise marginally to 12mn-13mn cum (average +1.6% YoY). Higher prices and higher sales of higher-margined products could sustain gross margin at 20%. The risk of customer default was reduced with about 60% of demand from public infrastructure projects, and the two integrated resorts.

We maintain FY24e net profit estimates and a BUY recommendation. Our DCF-derived TP is raised to S$0.55 (prev. S$0.50) to reflect the strong cash flow. It increased FY23 dividend to 2.3 cents (FY22: 1.8 cents), delivering annual yield of 5.6%.

CapitaLand Ascott Trust – Further upside from occupancy growth

Recommendation: ACCUMULATE (Downgraded), Last Done: S$0.93

Target price: S$1.04, Analyst: Darren Chan

– FY23 DPU of 6.57 cents (+16% YoY) exceeded our expectations by 11.7% due to a one-off realised exchange gain. Excluding one-off items, adjusted DPU increased 14% YoY to 5.44 cents, which was 93% of our forecast.

– 4Q23 portfolio RevPAU rose 4% YoY to S$161, reaching 103% of pre-COVID 4Q19 levels mainly due to higher average daily rates (ADR). Average portfolio occupancy was stable QoQ at 77% (4Q22: 78%), and it was at 92% of pre-COIVD levels.

– Downgrade from BUY to ACCUMULATE with an unchanged DDM-TP of S$1.04 as we roll forward our forecasts. FY24e/FY25e DPU is raised by 3%/6% after lowering our interest costs assumptions. CLAS remains our top pick in the sector owing to its mix of stable and growth income sources and geographical diversification. Growth in RevPAU going forward will come from higher portfolio occupancy, as ADR growth would slow from the high base. The current share price implies an FY24e/25e dividend yield of 6.5/6.8%.

Spotify Technology S.A. – Growth exceeds, monetisation to begin

Recommendation : ACCUMULATE (Maintained); TP: US$270.00, Last Close: US$240.01

Analyst: Jonathan Woo

– 4Q23 results were within expectations. FY23 revenue was at 97% of our FY23e forecasts, with a net loss of ~EUR30mn more than our FY23e forecasts. SPOT added 113mn/31mn MAU/Premium Subs in FY23.

– MAU/Premium Subs outperformance keeping SPOT’s growth story intact; revenue growth of 16% YoY (20% FX neutral) accelerating into FY24e.

– Margins and profitability at an inflection point due to SPOT reaching scale; we expect a ~250bps increase in FY24e gross margin due to better monetisation.

– Due to increasing scale and operating leverage, we raise our FY24e PATMI by ~4x to EUR593mn. Our revenue forecast remains unchanged. We roll over an additional year of valuations and maintain our ACCUMULATE recommendation with a raised DCF target price of US$270 (prev. US$190) to reflect our assumptions. Our WACC/growth rate of 7.5%/4% remains unchanged.

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