DAILY MORNING NOTE | 14 November 2022

The Straits Times Index (STI) climbed 1.7 per cent or 55.15 points to close at 3,228.33 on Friday (Nov 11), as Asian markets rallied on lower-than-expected US inflation. The STI finished 3.1 per cent higher for the week, as it extended its winning streak for the sixth straight session. In the broader Singapore market, winners outnumbered losers 443 to 180, with 2.14 billion securities worth S$1.93 billion traded. The top performer on Singapore’s blue-chip index was Yangzijiang Shipbuilding, which jumped 7.8 per cent or S$0.10 to S$1.38. The counter was also the most heavily traded constituent stock, with 79.7 million shares changing hands. At the bottom of the table was Jardine Cycle & Carriage (Jardine C&C), which fell 2.8 per cent or S$0.86 to S$30.25. Jardine C&C was also the biggest loser for the week, shedding a total of 3.4 per cent. The best performer on the STI for the week was CapitaLand Investment, which gained 10.9 per cent over the past five days. The trio of local banks all closed higher on Friday. DBS climbed 0.7 per cent or S$0.25 to S$34.79, UOB rose 1 per cent or S$0.29 to S$29.50, while OCBC added 0.3 per cent or S$0.03 to S$12.27.

THE S&P 500 and Nasdaq ended sharply higher on Friday (Nov 11), extending a rally started the day before after a soft inflation reading raised hopes the Federal Reserve would get less aggressive with US interest rate hikes. Amazon jumped 4.3 per cent, with Apple and Microsoft both up more than 1 per cent and contributing to the Nasdaq’s gain. On Thursday, the S&P 500 and the Nasdaq racked up their biggest daily percentage gains in more than two years as annual inflation slipped below 8 per cent for the first time in eight months. Declines in healthcare stocks limited the Dow Jones Industrial Average’s gain, with UnitedHealth Group down 4.1 per cent for the day. Investors see an 81 per cent chance of a 50-basis point rate hike in December and a 19 per cent chance of a 75-basis point hike, according to CME Fedwatch tool. Adding some nervousness on Wall Street, crypto exchange FTX said it would start US bankruptcy proceedings and that CEO Sam Bankman-Fried resigned due to a liquidity crisis that prompted intervention from regulators around the world. The S&P 500 climbed 0.9 per cent to end the session at 3,993.05 points. The Nasdaq gained 1.9 per cent to 11,323.33 points, while Dow Jones Industrial Average rose 0.1 per cent to 33,749.18 points.

SG

Sembcorp Industries has agreed to fully acquire Vector Green Energy, an independent power producer with renewable power generation assets spread across 13 Indian states, for INR27.8 billion (S$474 million). Sembcorp’s wholly owned subsidiary Sembcorp Green Infra signed an agreement with India Infrastructure Fund II, a fund managed by Global Infrastructure Partners India. With the acquisition, Sembcorp’s gross renewable energy capacity will increase to 8.5 GW, including the proposed acquisition of 795 MW of solar assets in China that was announced on Nov 11. The company has a 2025 target of 10 GW of gross installed renewable capacity. Vector Green’s portfolio includes 495 MW of solar capacity and 24 MW of wind capacity in operation, with 64 MW of solar projects under development. Following the acquisition, Sembcorp’s gross renewable energy portfolio installed and under development in India will grow to 3 GW, comprising 1 GW of solar assets and 2 GW of wind assets. The acquisition, expected by the first quarter of 2023, will be funded through internal cash resources and external borrowings. It is expected to be accretive to earnings. Shares of Sembcorp closed at S$3.04 on Friday (Nov 11), up S$0.02 or 0.66 per cent.

Frasers Property on Friday (Nov 11) posted a 12.4 per cent increase in net profit to S$871.4 million for the full year ended Sep 30, helped in part by the resumption of international travel and residential projects in Singapore and Thailand. Revenue for the full year rose 3 per cent to S$3.88 billion, according to the company’s interim financial statement. Net profit for the six months ended Sep 30 saw a more dramatic improvement of 40.4 per cent year on year to S$741.8 million, despite a 0.2 per cent dip in revenue to S$2.19 billion. The resumption of international travel and the easing of Covid-19 restrictions in the last six months have helped improve occupancy and room rates. The hospitality segment saw revenue jump 62 per cent to S$636 million for the full year, with the most significant contribution coming from the United Kingdom. At the same time, contributions from residential projects in Singapore and Thailand rose during the period, although they were partially offset by lower contributions from residential projects in the UK, Vietnam and China, the mainboard-listed company said. While rising interest rates, inflation and the volatility of foreign currency are expected to weigh on the group’s business, Frasers Property said “opportunities from structural shifts exist, particularly from evolving expectations for integrated live, work and play spaces”. Frasers Property shares closed at S$0.885 on Friday, up S$0.015 or 1.7 per cent.

Genting Singapore reported on Thursday (Nov 10) a more than 100 per cent increase in net profit for its third quarter, on the back of stronger gaming and non-gaming revenue. Net profit for the three months ended Sep 30, 2022, rose to S$135.8 million from S$60.7 million in the same period a year ago, the operator of Resorts World Sentosa (RWS) said in a business update filed to the Singapore Exchange. The Q3 net profit was also significantly higher than the S$44.1 million net profit posted in the second quarter of FY2022. Genting Singapore’s stronger profits come on the back of improved revenue, as recovery from the impact of Covid-19 restrictions continued. Revenue for the group more than doubled on-year to S$519.7 million in Q3 FY2022. It was also 49 per cent higher than the S$348.6 million posted in Q2. Gaming revenue rose 96 per cent on-year to S$382 million, while non-gaming revenue climbed to S$137.3 million from S$56.2 million in the year-ago period. Genting Singapore said that it remains “confident and excited” about its growth opportunities in Singapore. It noted that its expansion projects for RWS are “proceeding expeditiously as planned”, and the group is also investing in assets to attract the affluent market. “While labour shortages and cost pressures present significant challenges, we continue to enhance our product offerings and hire, train, and re-skill our workforce,” the group said. It added that it is also strengthening its leadership and management team for the next stage of growth. Genting Singapore’s shares rose 0.6 per cent on Thursday to close at S$0.815, before the business update.

US

Walt Disney is planning to freeze hiring and cut some jobs, as it strives to move the Disney+ streaming service to profitability amid a period of economic uncertainty, according to a memo on Friday (Nov 11). Chief executive Bob Chapek sent the memo to Disney’s division leaders, saying the company is instituting a targeted hiring freeze and anticipates “some small staff reductions” as it looks to manage costs. The move comes after Disney missed Wall Street estimates for quarterly earnings on Tuesday as the entertainment giant racked up more losses from its push into streaming video, which it refers to as its direct-to-consumer (DTC) business. Shares of the company fell more than 13 per cent on Wednesday following its results. Chapek said the company has established a task force, with chief financial officer Christine McCarthy and general counsel Horacio Gutierrez, to help him make “critical big picture decisions.” The company already has begun looking at content and marketing spending, but Chapek said the cuts would not sacrifice quality.

Amazon.com shares gained 12 per cent on news that chief executive officer Andy Jassy has embarked on a review of expenses, part of broader efforts to streamline the world’s largest e-commerce company. Amazon said in a statement to Bloomberg News that its annual operating-plan review will have a particular focus on trimming expenses this year as it copes with a slowing economy. The Wall Street Journal reported earlier that the assessment was underway and that employees in certain divisions have been told to look for jobs elsewhere in the company because their teams are being suspended or shut down. The news boosted a stock that was already up on positive inflation news. The latest data on consumer prices came in better than expected on Thursday (Nov 10), easing concerns about Federal Reserve interest rate hikes. Amazon shares rose to US$96.63, marking their largest one-day gain since Feb 4. They had been down 48 per cent this year through Wednesday, part of a rout that has hammered the biggest tech companies. Already, Amazon has been taking increasingly aggressive steps to rein in expenditures. The company said last week that it was pausing “new incremental” hiring across its corporate workforce as it copes with a slower economy. Amazon has effectively stopped recruiting for new roles companywide, even at profitable divisions, such as its advertising business. Amazon said on Thursday that it remains confident in its overall operations, as well as initiatives such as Prime Video, Alexa, Grocery, Kuiper, Zoox and its healthcare efforts. Most big tech companies are hitting the brakes on hiring plans, but Amazon is dealing with an especially severe pandemic hangover. The company almost doubled its headcount during Covid-19 restrictions to handle a surge in orders from home-bound consumers. When shoppers returned to their previous habits this year, Amazon had to pare back its logistics operations. As the economic outlook darkened and it became clear that a slowdown in online sales growth was here to stay, the cutbacks spread to Amazon’s corporate offices. When Amazon forecast its slowest-ever holiday growth last month, chief financial officer Brian Olsavsky said the company was “taking actions to tighten our belt”.

Oil prices settled 1 per cent higher on Thursday, ending lower for the first time this week, as tamer-than-expected US inflation data offset worries that renewed Covid-19 curbs in China would hurt fuel demand. After three days of declines, crude futures rallied after the inflation data supported investor hopes that the Federal Reserve would temper its interest rate hikes, which could support oil demand. Brent crude settled 1.1 per cent higher at US$93.67, a US$1.02 gain. US West Texas Intermediate crude rose 0.8 per cent to settle at US$84.67, or 64 cents higher. The US dollar index also slid over 2 per cent, as the sunny economic data lured investors away from the safe-haven greenback towards riskier assets including oil. A weakening dollar makes greenback-denominated oil less expensive for other currency holders. However, China is battling a rebound in Covid-19 infections in several economically vital cities, including Beijing. In the manufacturing hub of Guangzhou, millions of residents were told to get tested on Wednesday. Crude surged earlier this year as Russia’s invasion of Ukraine raised concerns about supply, with Brent coming close to its record high of US$147 a barrel. Prices have since fallen on concerns of a possible recession. Brent has dropped more than 6 per cent this week. The market also came under pressure on Wednesday from a big rise in US crude inventories, up by 3.9 million barrels to their highest level since July 2021.

Meta Platforms told employees on Friday (Nov 11) that 54 per cent of the 11,000 jobs it cut earlier this week were business roles and the rest were in technology. Executives speaking during a during an employee townhall meeting also said the company was exiting its Portal smart display business and will wind down work on smartwatches. Meta’s recruiting team was cut in half, they said. The Facebook parent said on Wednesday it was slashing 13 per cent of its workforce, the first mass layoffs in the company’s 18-year history. Following the layoffs, chief executive officer Mark Zuckerberg had addressed employees, saying that revenue was much lower than he expected. “I got this wrong, and I take responsibility for that,” he said. Like its peers, Meta aggressively hired during the pandemic to meet a surge in social media usage by stuck-at-home consumers. But business has suffered this year as advertisers and consumers pull the plug on spending in the face of soaring costs and rapidly rising interest rates. Zuckerberg said on Friday that going forward he was not planning to massively grow headcount of the Reality Labs unit responsible for its metaverse investments. Meta shares were up 1 per cent at US$113 in afternoon trading.

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

RESEARCH REPORTS

Singapore Telecommunications Ltd – Bharti shines in earnings and dividends

Recommendation: ACCUMULATE (Maintained); TP S$3.05, Last close: S$2.69; Analyst Paul Chew

• 1H23 results were within expectations. Revenue and EBITDA were 48%/46% of our FY23e estimates. A special dividend of 5 cents was announced following the S$2.2bn proceeds from sale of Bharti stake.

• Underlying earnings rose 2% to S$1bn supported by an 8% growth in associate earnings to S$813mn led by a turnaround in Bharti. There was a large drag in earnings from NCS with EBIT down 49% to S$53mn.

• We maintain our FY23e forecast largely intact. Our ACCUMULATE and SOTP TP of $3.05 is unchanged. Singtel is transitioning to longer-term growth drivers such as data centres and IT services. Near-term earnings growth will be driven by a rebound in mobile ARPUs in India, Singapore and other associates from roaming and improving economic conditions.

StarHub Limited – Will see stars in 4Q22

Recommendation: ACCUMULATE (Maintained); TP S$1.15, Last close: S$1.03; Analyst Paul Chew

• YTD22 revenue and EBITDA were in line with expectations at 73%/83% of our FY22e estimates. 3Q22 revenue was up 14% YoY with the acquisition of MyRepublic, but EBITDA was down 18% YoY to S$109mn from higher costs in EPL content and IT infrastructure spending.

• Guidance for 4Q22 is bleak. EBITDA margins are to collapse to 14% (vs YTD 23%) and write-offs are expected from Strateq healthcare business and legacy IT systems.

• Mobile revenues have recovered strongly from growth in both post-paid prices and subscribers. Decline in EBITDA was due to a surge in operating expenses due to pre-announced investments into new growth areas under the DARE+ transformation. Such costs include EPL content and IT. Our FY22e forecast is unchanged but the target price lowered to S$1.15 (prev. S$1.35), pegged at 7x FY22e EV/EBITDA, in line with other mobile peers. We maintain ACCUMULATE recommendation.

PropNex Ltd – Expect growth to return in 2023

Recommendation: BUY (Upgraded); TP S$2.00, Last close: S$1.54; Analyst Paul Chew

• 3Q22 result was a huge earnings beat. YTD22 revenue and PATMI were 96%/96% of our FY22e forecast (excluding one-offs). We underestimated PropNex’s market share gains especially in private resale, the increase in agent size and rise in selling prices.

• Rental remained the fastest growing category. Revenue jumped 76% YoY to $48mn. The rental market has been extremely tight this year with borders reopening.

• We raise our FY22e PATMI forecast by 34%. Our FY22e target price is raised from S$1.74 to S$2.00. The NEUTRAL recommendation is upgraded to BUY. We expect earnings growth to return in FY23e. New home sales will rebound with the expected 11,300 new launches (FY22: 4,500). Resale recovery will be from widening prices compared to new launches. The upside in volumes will be determined by foreign demand. Rental volumes will be supported by the expected surge of TOP units in FY23.

Technical Pulse: Keppel REIT

Analyst: Zane Aw

Recommendation: Technical BUY

Market buy: 0.905 Stop loss: 0.860 Take profit: 1.04

Keppel REIT (SGX: K71U) A potential bounce to retest the resistance zone at 1.03-1.06 in the current downtrend.