Daily Morning Note – 14 May 2021


Stocks in Asia look set to rally after U.S. benchmarks halted a three-day slide, with investors migrating to value from growth companies as signs of a strengthening labor market tempered inflation worries.

Futures pointed higher in Japan, Hong Kong and Australia. Investors will be watching China’s open after MSCI Inc.’s index covering the country’s stocks fell into bear-market territory.

U.S. contracts fluctuated after gains in the major benchmarks overnight. Industrial and financial shares outperformed, while energy producers joined a slump in oil. Tesla Inc. fell after Chief Executive Officer Elon Musk said the electric-car maker is suspending purchases using Bitcoin over environmental concerns.


SG News

APAC Realty’s net profit for the first quarter ended March 31 more than doubled year on year to S$7.5 million, owing to revenue gains from an increase in transaction volumes in the new-home and resale segments. This was driven mainly by local buyers, young couples and HDB upgraders amid strong global liquidity and a low-interest-rate environment, said APAC Realty in its first-quarter business update on Wednesday. Revenue was up 70 per cent to S$153.1 million, led by an increase in new home revenue, which more than doubled to S$54.3 million. Resale and rental revenue rose 49 per cent to S$96.4 million.

Mainboard-listed Sunpower Group, a provider of energy-saving and clean power solutions, on Wednesday reported profit after tax attributable to shareholders of 85.2 million yuan (S$17.6 million) for the first quarter ended March 31, a 60.9 per cent decline on the year. Earnings per share was 10.78 fen, down from 27.62 fen. This is mainly due to fair value changes of the group’s convertible bonds and warrants. Otherwise, attributable profit would have been 59.7 million yuan, a 17 per cent increase year on year (y-o-y).

The US Customs and Border Protection said on Wednesday that it seized a shipment of latex gloves from Top Glove estimated to be worth US$690,000, on indications that the gloves were made by forced labour. The 4.68 million latex gloves were allegedly produced in Malaysia by a subsidiary of Top Glove, and had been destined for Kansas City. Earlier in May, the US Customs had seized another shipment of gloves worth US$518,000.

Real estate management services group LHN posted a net profit of S$14.8 million for the half-year ended March 31, 2021, from S$3.2 million the year before. Gross profit jumped 60.5 per cent to S$35.2 million. The group’s revenue from its facilities-management business increased 226 per cent to S$31.6 million, with services having provided for short-term contracts under the dormitory business. At the height of the Covid-19 outbreak among migrant workers last year, LHN secured contracts to convert spaces into workers’ dormitories and to manage them.

IREIT Global on Wednesday announced a portfolio occupancy of 95.9 per cent for the first quarter ended March 31, noting that it is expecting a significant reduction in commercial real-estate letting and investment activity due to the Covid-19 pandemic. The weighted average lease expiry of the real estate investment trust (Reit) for the latest quarter stands at 3.4 years. Its weighted average debt maturity was 5.1 years, against 5.3 years in the previous quarter. The full economic impact may be apparent only later, as business operations adjust their workforce arrangements, said the Reit in its Q1 business update. IReit’s current portfolio comprises office properties in Germany and Spain.

Golden Agri-Resources has swung back into the black with a net profit of US$41 million for its first quarter ended March 31, 2021, compared with a net loss of US$95 million the previous year. This was attributed to the 24 per cent year-on-year increase in revenue to US$2.05 billion from US$1.66 billion due to the continued appreciation of crude palm oil (CPO) market prices.

US News

Alibaba posted its first operating loss as a public company in its fiscal fourth quarter as a massive antitrust fine it received last month weighed on its earnings, while revenue beat expectations. Here’s how Alibaba did versus Refinitiv estimates: Revenue: 187.39 billion ($28.6 billion) vs. 180.41 billion yuan estimated, up 64% year-over-year. Alibaba swung to a net loss in the March quarter of 5.47 billion yuan. The market had expected a net profit of 6.95 billion yuan, according to Refinitiv estimates.

Facebook-backed digital currency project Diem said Wednesday it has withdrawn its application for a Swiss payment license and will instead shift its operations to the United States. The Diem Association, which oversees development of the Diem digital currency, had been pursuing a payment system license with Switzerland’s FINMA watchdog. Diem has now dropped plans to secure Swiss regulatory approval, while its U.S. subsidiary has partnered with Silvergate, a California state-chartered bank, to issue the token.

Boeing on Wednesday won approval from U.S. regulators for a fix of an electrical grounding issue that had affected about 100 737 Max airplanes, clearing the way for their quick return to service after flights were halted in early April, the planemaker said. An FAA official confirmed that the agency had approved the service bulletins and associated instructions. Boeing sent two bulletins to air carriers on Wednesday on the fixes.

Tesla CEO Elon Musk said Wednesday on Twitter that Tesla has “suspended vehicle purchases using bitcoin,” out of concern over “rapidly increasing use of fossil fuels for bitcoin mining.” The price of bitcoin dropped about 5% in the first minutes after Musk’s announcement. In an SEC filing in February, Tesla revealed that it bought $1.5 billion worth of bitcoin and it may invest in more of bitcoin or other crypto currencies in the future.

British luxury brand Burberry said on Thursday its recovery from the COVID-19 crisis accelerated through the year, enabling it to reinstate a dividend payment. The label, known for its trench coats, check fabric and TB monogram, reported a 10% drop in sales for the year to March 27, impacted by store closures and reduced tourism. However, it said fourth quarter comparable store sales increased 32% year-on-year, despite an average of 16% of stores being closed..

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


UG Healthcare Corporation Ltd – Great quarter though ASPs are trending down

Recommendation: BUY (Maintained), Last Done: S$0.67,

Target Price: S$0.85, Analyst: Paul Chew

– 3Q21 PATMI beat estimates, up 56-fold YoY to S$34.3mn. 9M21 PATMI forms 83% of our FY21e forecast. Operating leverage and gross margins were better than modelled.

– Glove prices likely peaked in the March quarter. Nitrile producers from China are disrupting the market with aggressive prices to penetrate the market.

– We raise FY21e PATMI by 7% to S$115.3mn for higher margins and lower operating expenses. FY22e PATMI is cut by 17% to S$74mn as we lower gross margins by 5% points to 37% in view of ASP uncertainties. Prices have peaked and are trending down. UG Healthcare counters this by building up its core customer base and brand name to maintain price premiums. Supporting FY22e growth is a 58% surge in capacity to 4.6bn pieces.

– Target price still pegged at a 30% discount to Big 4 glove makers. This implies 7x FY22e P/E for a target price of S$0.85, down from S$1.03 as we cut FY22e earnings.

Manulife US REIT – Leasing headwinds despite rebound

Recommendation: BUY (Maintained), Last Done: US$0.74,

Target Price: US$0.84, Analyst: Natalie Ong

– No financials provided in this operational update.

– 5.8% of NLA signed at +2.5% reversions, though with more tenant incentives and shortened leases. Leasing weakness to persist.

– Portfolio occupancy dipped QoQ from 93.4% to 92.0%. But rental collections remained high at 98.0%. Minimal rent abatement of 0.6%. WALE unchanged at 5.3 years.

– Maintain BUY and DDM TP (COE 9.1%) of US$0.84. FY21e DPU yield of 8.1%. Catalysts expected from higher take-up in leasing and asset acquisitions.

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