Daily Morning Note – 13 May 2019


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So far in this escalating trade war, the initial casualties appear to be mainly the financial markets. And while consumers and producers will ultimately pay the price of tariffs, the most likely immediate countermeasures might be financial.

Global stock markets shed an estimated $2 trillion in value from Monday through Thursday, or about 3%, based on the Datastream World index from Refinitiv, The Wall Street Journal reported. Those losses came ahead of the Trump administration’s threatened hike in tariffs to 25% from 10% on $200 billion in goods from China, which took effect a minute after midnight on Friday on the East Coast.

But the stock markets of both combatants scored end-of-week turnarounds, as the Shanghai Composite jumped over 3%, possibly a result of official buying, while the Dow swung from an early Friday loss of 358 points to a gain of 114 after Trump tweeted on Friday that talks between U.S. and Chinese officials had been “candid and constructive.” On the week, however, the Shanghai Composite was down 4.52%, while other major Asian bourses were collateral damage, with Japan’s Nikkei 225 and South Korea’s Kospi both losing over 4%. The Dow Jones Industrial Average wound up the week off 2.12%, while the broader S&P 500 index dropped 2.18% and the Nasdaq Composite fell 3.03%, the worst weekly loss of the year for the last two indexes.


Oversea-Chinese Banking Corp Ltd– NIM resurgence dampened by OSV allowances

Recommendation: ACCUMULATE (Downgraded), Last Close Price: S$11.39

Target Price: S$12.70, Analyst: Tin Min Ying

– 1Q19 revenue and PATMI were in line, meeting 26% and 25% of our FY19
estimates. Excluding allowances, PATMI exceeded our estimates by 5%.

– NIM rose 9bps YoY and 4bps QoQ to 1.76%, due to loan repricing and better
utilisation of deposits. Loan-to-Deposit ratio stood at 87.1%, higher than 84.4%
a year ago.

– Insurance business rebounded, rising 34.0% YoY due to favourable financial

– Allowances surged from an unusual low of S$12m in 1Q18 to S$249mn, due to
additional provisions taken for the OSV sector by reducing collateral valuations
further. NPL ratio remained stable at 1.5% (1Q18: 1.4%).

– We downgrade to Accumulate at a lower target price of S$12.70 (previously
S$13.70). The lower target price was mainly due to an increase in our credit
cost forecast for FY19e from 14 bps to 22bps.

Thai Beverage PLC – Consumers preferred beer this quarter

Recommendation: NEUTRAL (Maintained), Last Close Price: S$0.825

Target Price: S$0.830, Analyst: Paul Chew

– Revenue and profits were above expectations. Sabeco surprised with an upside,
whilst spirits business was marginally weaker.

– Sabeco volumes rose c.14.8% YoY in 2Q19. A price hike in March 2019 will
support margins that have been under pressure from higher malt prices.

– Maintain NEUTRAL. We raised our SOTP-derived TP to S$0.83 (previously
S$0.81) as we raised our FY19e forecast by 6%. Growth in Sabeco has been
better than expected. However, operating profits had been restrained by the
54% rise in net interest expense. Spirits still account for 80% of group net
profits, with beer comprising only 7%.


Diamond technologies firm Sarine Technologies on Sunday reported a net loss of US$1.4 million for the first quarter ended March 31, compared to a net profit of US$3.1 million a year ago. The mainboard-listed company attributed the performance to reduced manufacturing activities in Q1 2019, as midstream customers experienced working capital issues due to Indian banks tightening credit policies and calling for some of the already extended credit to be returned by the Indian fiscal year’s end of March 31.

Keppel Corp has snagged a contract to build two offshore wind farm substations worth more than S$150 million for Danish renewable energy company Orsted, the conglomerate said on Sunday. Keppel Fels, a subsidiary of Keppel Offshore & Marine, will provide detailed engineering, procurement, construction, testing and commissioning for the substations, while certain electrical components will be furnished by Orsted.

Oil futures edged down on Monday, pressured by fears over global economic growth amid a standoff in US-China trade talks. Brent crude futures were at US$70.49 a barrel at 0013 GMT, down 12 cents, or 0.2 per cent, from their last close. Brent ended the previous session little changed. US West Texas Intermediate crude futures were at US$61.31 per barrel, down 27 cents, or 0.4 per cent, from their previous settlement. WTI closed the last session steady on the day.

The US and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law, and Beijing said it would not swallow any “bitter fruit” that harmed its interests. The trade war between the world’s top two economies escalated on Friday, with the US hiking tariffs on US$200 billion worth of Chinese goods, after President Donald Trump said Beijing “broke the deal” by reneging on earlier commitments made during months of negotiations.

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

Clients of Phillip Securities can keep updated with Country Strategy and Singapore Sector Reports by logging into: www.poems.com.sg > STOCKS > Research

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