DAILY MORNING NOTE | 13 October 2022

Singapore stocks sank for the fifth straight day on Wednesday (Oct 12), amid mixed trading in regional markets, ahead of key inflation data from the US later this week. The benchmark Straits Times Index (STI) fell 0.7 per cent or 21.81 points to close at 3,083.19. Shares of Jardine Cycle & Carriage led the STI decliners, having slipped 3.6 per cent to close at S$32.69. Sats, City Development and Wilmar International were also among the top losers, falling by between 2.5 and 2.7 per cent. Just three index stocks ended the day higher, including DBS and UOB, which rose 0.5 and 0.3 per cent respectively. OCBC shares, meanwhile, slipped 0.6 per cent for the day. Across the broader market, losers outnumbered gainers 333 to 203, with 1.5 billion securities worth S$1.3 billion having been traded.

Wall Street stocks ended slightly lower on Wednesday following a choppy session as investors looked ahead to a critical inflation report. A day ahead of Thursday’s much-anticipated consumer price index (CPI) report for September, markets digested data showing wholesale inflation rose 0.4 per cent last month – more than expected. Still, markets largely shrugged off the wholesale price data on Wednesday, an indication that investors are no longer shocked by elevated inflation and are now expecting more tough actions from the Federal Reserve to contain it. The Dow Jones Industrial Average slipped 0.1 per cent to 29,210.85. The broad-based S&P 500 shed 0.3 per cent to 3,577.03, its sixth straight decline, while the tech-rich Nasdaq Composite dipped 0.1 per cent to 10,417.10. Among individual companies, PepsiCo shot up more than four percent as it raised its full-year profit and revenue forecast following strong third-quarter results in a sign of the continued robustness of consumer demand. The release was one of the first during third-quarter earnings season, which gets going in earnest later this week with reports from Delta Air Lines and JPMorgan Chase. Moderna rose 8.3 per cent as it announced it was working with Merck on “development and commercialisation” of a cancer vaccine.

Top gainers & losers



According to a bourse filing by Keppel Corp on Wednesday (Oct 12), Keppel Offshore & Marine (Keppel O&M) will speed up the delivery of three out of five undelivered jackup rigs to Borr Drilling and defer the delivery of the remaining two rigs. This comes as Keppel O&M entered into an amended and restated framework deed with Borr Drilling and its subsidiaries to make the delivery to Borr Drilling or any third party whom Borr Drilling intends to sell the rigs to between October 2022 and July 2023. All three jackup rigs will also be sold without any seller’s credit arrangement, after two of the three jackup rigs’ seller’s credit arrangements are cancelled. The company added that the three rigs will be delivered with full payments on delivery, including holding costs and cost cover. This will amount to at least US$352 million in aggregate, out of which at least US$158 million will be payable in 2022. It noted that the overall aggregate of the different seller’s credit arrangements being made available by Keppel O&M will be reduced by over 35 per cent, as the company had previously noted in an announcement on Jun 5, 2020. In addition, delivery of the remaining two of the five undelivered jackup rigs to Borr Drilling will be deferred to 2025, Keppel said. Borr Drilling will pay holding costs and cost cover for the deferred deliveries. Keppel said entering the amended and restated framework deed is not expected to have a material impact on the net tangible assets or earnings per share of the company for the current financial year. This comes after the company said on Jan 28, 2021 that the five jackup rigs’ scheduled delivery would be deferred to 2023, with the first delivery to be made in May 2023 and the final one in December 2023. Shares of Keppel fell 2 per cent or S$0.14 to close at S$6.81 on Wednesday, before the announcement.

Mainboard-Listed SIA Engineering Co (SIAEC) announced in a bourse filing early on Wednesday (Oct 12) the extension of its partnership with Hawaiian Airlines to provide airframe maintenance services for the airline’s A330-200 aircraft. Separately, the aircraft maintenance, repair and overhaul service provider said that it signed a 10-year agreement with Malaysian low-cost carrier MYAirline to provide support services for the latter’s fleet of Airbus A320 aircraft. The deals are not expected to have a material impact on the group’s earnings per share or net tangible assets per share for the year to Mar 31, 2023. Under the new agreement with Hawaiian Airlines, SIAEC will perform checks on 11 of the airline’s aircraft into 2027. Maintenance services will be undertaken by the group at its facility in Singapore. Meanwhile, under SIAEC’s new agreement with MYAirline, the group will provide component support coverage for aircraft and engine spares as well as repair and overhaul support services for the airline’s fleet of Airbus A320 aircraft.

Duty-free retailing group Duty Free International has reported a 165% rise in earnings to RM3.5 million in its 1HFY2023 ended Aug 31, compared to a RM5.4 million loss in the same period a year before. Revenue for the company in 1HFY2023 rose 29.7% to RM59.1 million, compared to RM45.6 million in 1HFY2022. Duty Free explained the increase in profit was mainly contributed by higher revenue, along with a higher other operating income of RM1.4 million. This arises from a net reversal of inventories written down and deposit forfeited, as well as a higher net foreign exchange gain of RM0.8 million. However, the positive effect was partially offset by higher other operating expenses of RM2.5 million, higher rental fees of RM1.4 million, as well as higher professional fees of RM0.5 million. For its 2QFY2023, Duty Free also revealed that the higher revenue was mainly because all of the its retail outlets were in full operations. This is in contrast to last year, when the Malaysian government imposed the Full Movement Control Order (FMCO) which started on Jun 1, 2021, resulting in none of Duty Free’s retail outlets being in operations during the FMCO period. In its outlook statement, the company notes that the Malaysian economy registered a strong growth of 8.9% in the second quarter of 2022, and key economic sectors continued to expand in the second quarter of 2022. Duty Free points out, “consumer-related subsectors such as retail and leisure-related activities continued to recover amid the transition to endemicity, reopening of international borders, improving labour market conditions and the additional support from the Malaysian Government.” However, the company is of the view that the rise of global inflation rates and rising operating costs and disruptions in supply chains have impacted the economic recovery rate. This is brought on by the ongoing geopolitical tensions and the prevailing Covid-19 restrictions in certain Asian countries, especially China. As such, Duty Free expects the business environment in which it operates to remain challenging, but is also “cautiously optimistic” that its operations and financial performance will gradually improve for the remaining period of the financial year ending 28 February 2023. Shares of Duty Free closed flat on Oct 12 at 9.1 cents.


Prices paid to US producers rose in September by more than expected, suggesting inflationary pressures will take time to moderate and keeping the Federal Reserve on its aggressive interest rate-hike path. The producer price index for final demand climbed 0.4 per cent from August, the first increase in three months, and was up 8.5 per cent from a year ago, Labor Department data showed on Wednesday (Oct 12). Excluding the volatile food and energy components, the so-called core PPI increased 0.3 per cent in September and advanced 7.2 per cent from a year earlier. The median estimates in a Bloomberg survey of economists called for a 0.2 per cent monthly increase in the PPI and a 0.3 per cent rise in the core. While supply chain disruptions have generally improved, costs rose for energy, foods and services. Two-thirds of the increase in the PPI was traced to services as prices for travel and accommodation, food retailing, portfolio management and hospital inpatient care.

Networking firm Cisco Systems will add Microsoft’s Teams messaging app to its meeting devices, the two firms said on Wednesday (Oct 12), offering users an alternative to its own Webex video conferencing app. Cisco’s Jeetu Patel, head of Security & Collaboration, said the company aims to be the hardware platform for a wide range of conferencing software platforms. “The way this market is evolving is very similar to the way that the movie entertainment market evolved,” Patel said, with consumers having multiple subscriptions to streaming services like Netflix, Disney, HBO and Hulu. “There’s going to be times that people want to jump on a Microsoft Teams call, they want to jump on a Zoom call, they want to jump on a Google call.” Asked whether the strategy could cannibalize market share for Cisco’s Webex app, Patel said he believed the company will benefit if customers have a better experience using multiple platforms.

Microsoft and Mercedes-Benz announced a partnership on Wednesday (Oct 12) using Microsoft Cloud for a data platform intended to improve production efficiency at over 30 passenger car plants globally, the carmaker said on Wednesday. The data platform, called MO360, is already available in Europe, the Middle East and Africa and will also be launched in the United States and China, the statement said. The aim is to gather data from across the production process from components to logistics to the assembly line to create a virtual replica that allows teams to identify potential supply chain bottlenecks more quickly. The collaboration should lead to a 20 per cent increase in vehicle production efficiency by 2025 from 2022 levels, the statement added.

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


Keppel Corporation – De-risking inventory and deleveraging Keppel O&M

Recommendation: BUY (Maintained), Last Done: S$6.81

Target price: S$8.95, Analyst: Terence Chua

– Keppel Corporation (Keppel) has entered into an amended and restated framework deed with Borr Drilling (Borr). Keppel Offshore & Marine (KOM) will accelerate the delivery of three yet-to-be delivered jackup rigs to Borr between October 2022 and July 2023.

– Resolution for the five rigs will de-risk KOM’s inventory and deleverage KOM. All three jackup rigs will be delivered with full payments on delivery, amounting to at least US$352mn, out of which at least US$158mn will be payable in 2022.

– KOM secured repeat newbuild Floating Production, Storage and Offloading vessel (FPSO), for about US$2.8bn, which brings its new orderbook to about S$11.8bn. We believe latest contract win enhances proposition of KOM-Sembcorp Marine (SMM) merger

– Maintain BUY with unchanged SOTP TP of $8.95. We valued the Group based on the four new segments unveiled during Vision 2030 to better reflect the Group’s reporting segments going forward. Our TP translates to about 1.2x FY22e book value, a slight premium to its historical average as the Group’s transformation plans gain traction and ROE expands to 8.8%. Catalysts expected from approvals obtained for the transaction.

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