DAILY MORNING NOTE | 15 August 2023

Singapore stocks fell on Monday (Aug 14), tracking losses in regional indices. It slumped 1.4 per cent to 3,247.7. Across the broader market, losers outnumbered gainers 418 to 201 after 1.1 billion securities worth S$1 billion changed hands. Regional indices tumbled on Monday, led by Hong Kong’s Hang Seng Index, which fell 1.6 per cent. South Korea’s Kospi Composite Index was down 0.8 per cent, while the Nikkei 225 dipped 1.3 per cent. The FTSE Bursa Malaysia KLCI shed 0.1 per cent.

Leading large tech companies enjoyed a strong session Monday, lifting the Nasdaq ahead of US retail sales data and earnings from large shopping chains later in the week. Shares of Amazon, Google parent Alphabet, Netflix and Meta Platforms rose more than one per cent in the latest indication of investor appetite for such “mega cap” stocks whenever they show signs of weakness. That helped the tech-rich Nasdaq Composite Index pile on 1.1 per cent to finish at 13,788.33. The Dow Jones Industrial Average climbed 0.1 per cent to 35,307.63, while the broad-based S&P 500 gained 0.6 per cent to 4,489.72.

SG

Mainboard-listed semiconductor company UMS Holdings reported a 42.4 per cent fall in net profit to S$11.6 million for the three months ended Jun 30, 2023, from S$20.2 million over the same period a year earlier. Revenue fell 14.1 per cent to S$74.4 million over the same period, from S$86.6 million a year earlier. In its bourse filing on Monday (Aug 14), the company attributed the fall in revenue to weaker performances of both its semiconductor and “others” business segments, while its aerospace segment saw improved sales. Its “others” business segment includes the manufacture of water disinfection systems, trading of non-ferrous metal alloys and cutting tools. In particular, its semiconductor segment saw revenue fall 14.3 per cent for the quarter year-on-year (y-o-y) to S$64.8 million.

The Straits Trading Company on Monday (Aug 14) posted a 97.8 per cent fall in net profit to S$14.9 million in the half year ended June 2023, from S$673 million a year ago. This came after a notable fall in contributions from “other income”. Contribution from other income plunged 97.1 per cent to S$19.2 million from S$655.2 million in H1 2022. Straits Trading Company said this was mainly due to an absence of gain on disposal of ARA Asset Management in H1 last year. The group’s total revenue also fell 12.7 per cent to S$235.8 million, from S$270.2 million a year ago. Gains in its property revenue were offset by a decline in tin mining and smelting revenue. Earnings per share slid 97.9 per cent to 3.3 Singapore cents, from 155.5 cents a year ago. The group did not declare a dividend for the first half of the financial year.

Property developer Yanlord Land Group posted a net profit of approximately one billion yuan (S$186.9 million) for the half year ended June 2023, down 20 per cent from the 1.4 billion yuan a year ago. It attributed the decline to a “decrease in other operating income and other gains and share of profit of joint ventures as well as the increase in selling expenses and finance cost”. This was partly offset by an increase in gross profit and share of result of associates as well as decrease in administrative expenses and income tax, it added. The property group also recorded a revenue of 14.8 billion yuan, up 31 per cent from 11.3 billion yuan in H1 2022. Yanlord Land said in a bourse filing on Monday (Aug 14) that this was mainly due to an increase in gross floor area delivered to customers, though partly offset by the decrease in average selling price per square metre. The group’s earnings per share of the first half fell 20 per cent to 56.7 fen, from 71.29 fen last year. It did not declare a dividend this time.

Comfortdelgro Corporation (CDG) on Monday (Aug 14) reported a 31.9 per cent fall year on year in net profit to S$78.5 million for the first half of the year to June 2023 from S$115.3 million, mainly due to higher operating costs and the absence of a one-off disposal gain. Nonetheless, the transport behemoth has raised its dividend payout ratio to a minimum of 70 per cent from 50 per cent as it wants to reward shareholders “more appropriately with what is going to be the traditional strong cash flow from current businesses”. The higher operating costs in H1 FY2023 were caused by post-pandemic inflation and the Russia-Ukraine war, but inflationary cost pressures and driver shortages are subsiding, said CDG. Earnings per share for the latest half-year stood at S$0.0362, down from S$0.0532 for the same period last year.

Real estate service provider Apac Realty saw net profit tumble 70 per cent in its half year ended June 2023 to S$5 million, down from S$16.7 million in H1 2022. The property group, which operates under the ERA brand, posted revenue of S$259.6 million, down 24.2 per cent from the S$342.6 million in the year-ago period. By segment, revenue from resale and rental properties decreased 8.2 per cent to S$182.7 million in H1 2023, from S$199 million a year earlier. Revenue from new home sales also declined 47.4 per cent to S$73.3 million, from S$139.3 million in the year-ago period. The group’s earnings per share also fell 70 per cent to 1.41 Singapore cents, down from 4.7 cents a year ago. The board has declared an interim dividend of 1.1 cents per share, to be paid out on Sep 8 after books closure on Aug 31.

The offer to take Penguin International private closed on Monday (Aug 14), with valid acceptances amounting to 191,924,607 shares, or approximately 87.17 per cent of the total number of shares in the company. This includes an 82 per cent shareholding represented by persons acting in concert with the offeror – Aleph Tav, a consortium comprising Penguin’s executive chairman Jeffrey Hing, managing director James Tham, and a special-purpose vehicle under private equity firm Dymon Asia. The offeror also said it will be acquiring an additional 3,596,600 shares, or 1.63 per cent of the total number of shares after 6 pm on Monday – bringing the total number of shares owned, controlled or agreed to be acquired by the offeror, as well as valid acceptances, to 88.8 per cent. Prior to this, Penguin International had extended the closing date for the privatisation offer four times, with the latest closing date falling on Aug 17. Its last announcement stated that the offeror and persons acting in concert had garnered 88.68 per cent of the total number of shares in the company. As the offeror has not amassed control of more than 90 per cent of the total number of shares, it will not be able to compulsorily acquire all the shares from shareholders. Penguin shares closed flat at S$0.83 on Monday.

Q&M Dental group on Monday (Aug 14) posted a 46 per cent fall in its net profit for the first half of the year ended June 2023 to S$5.3 million, from S$9.8 million a year ago. Revenue shrank 4 per cent to S$87.1 million in H1 2023, from S$90.9 million last year. The decline was attributed to a lower contribution to its Singapore medical clinics, coupled with the impact of the weakening ringgit for the group’s business in Malaysia. Its Singapore dental clinics, on the other hand, had higher revenue contributions. Q&M’s other segment in the medical laboratory business also faced weaker demand for Covid-19 testing. Earnings per share fell to 0.56 Singapore cent from 1.05 Singapore cents. The company declared a first interim dividend of 0.16 Singapore cent per share, to be paid on Sep 13 after books closure on Aug 30.

US

Paypal Holdings said on Monday (Aug 14) that Alex Chriss, a top executive at tax-preparation software firm Intuit, would replace its longest-serving chief executive officer Dan Schulman on Sep 27. The change of guard marks a watershed moment for digital payments giant PayPal, which has been looking to push deeper into the cryptocurrency payments space with the launch of a US dollar stablecoin last week. Underwhelming margins have been troubling the San Jose, California-based company. Earlier this month, PayPal reported second-quarter adjusted operating margins of 21.4 per cent, missing its forecast of 22 per cent. Chriss will be taking the helm at a time when cost-cutting has become a priority for PayPal, as it battens down the hatches to prepare for a potential slowdown.

Oil prices finished down on Monday on worries about China’s faltering economic recovery and a stronger dollar were taking the momentum out of seven weeks of gains on tight supply. US West Texas Intermediate crude settled down 68 cents, or 0.82 per cent, at US$82.51 a barrel. Brent crude futures finished at US$86.21 a barrel, down 60 cents, or 0.69 per cent.

UBS will pay US$1.4 billion to settle US charges that it defrauded investors in the sale of mortgage-backed securities, resolving the last big case stemming from the 2008 financial crisis, the Justice Department announced on Monday. The department agreed to dismiss a civil complaint against UBS in exchange for the fine, which brings the total federal penalties to US$36 billion in settlements from nearly 20 financial institutions, a Department of Justice (DOJ) press release said. In its civil case launched in 2018, the DOJ had argued that UBS knowingly made false and misleading statements in connection with the sale of 40 residential mortgage-backed securities (RMBS) issued in 2006 and 2007. The DOJ had alleged that contrary to UBS representations, the giant Swiss bank “knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay.”

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

RESEARCH REPORTS

Lendlease Global Commerical Trust – Higher reversion for longer

Recommendation: BUY (Maintained), Last Done: S$0.66

Target price: TP: S$ 0.86, Analyst: Liu Miaomiao

– FY23 revenue and NPI doubled to S$204.9m and S$153.9m, respectively, and were below our expectations at 94% and 91%. Healthy retail rental reversion of 4.8% and increasing contribution from Jem were the main driving factors. We anticipate these trends to continue in FY24e, with additional upside potential from 313@somerset.

– FY23 DPU was at 101.5% of our expectations. DPU decreased to 4.7 cents (-3.2% YoY) due to rising interest costs at 2.69% (+1% YoY).

– We reiterate our BUY recommendation with a decrease in FY24e-25e DPU forecasts to S$4.38 – 4.63 cents on the back of rising interest rates. Our DDM-TP adjusted down to S$0.86. We expect FY24e earnings will be supported by stronger rental reversion and potential inorganic growth.

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