Daily Morning Note – 15 November 2021
Asian stocks looked set for a steady open Monday as traders await key Chinese economic data and monitor bond-market volatility triggered by high inflation and the prospect of tighter monetary policy.
Australian shares edged up, while futures for Japan and Hong Kong rose. U.S. contracts pushed higher after technology shares bolstered the S&P 500 on Friday, underlining the stock market’s resilience to price pressures stoked by supply chain and labor disruptions. The yen slipped.
Mainboard-Listed United Food Holdings posted a second-quarter net loss attributable to shareholders of 1.9 million yuan (S$402,957), narrowing from 2 million yuan in the year-ago period. Revenue was down 53.9 per cent to 293,000 yuan in the 3 months, compared to the 636,000 yuan in the previous year. The group said that revenue mainly came from its additives related segment, as its animal feed/traditional medicine segment was “adversely affected” by the African swine fever in Q2. Cost of sales dropped 94.2 per cent to 19,000 yuan, while the quarter’s gross profit fell 11 per cent to 274,000 yuan.
Bukit Sembawang Estates‘s net profit for the first half ending Sep 30 fell 28 per cent to S$53.4 million, from S$73.7 million the year before. The group’s earnings per share dropped to 20.61 Singapore cents from 28.45 cents last year. Revenue also fell 11 per cent to S$198.8 million, while cost of sales inched upwards by 3 per cent to S$128.5 million. This, along with lower profit recognised on development projects, led gross profit to fall 29 per cent to S$70.3 million from the previous year’s S$98.4 million. Bukit Sembawang’s other income decreased by 18 per cent to S$722,000, mainly due to less government grant income which came as relief measures during the pandemic.
Flag carrier Singapore Airlines (SIA) has witnessed strong demand in the premium cabin on the vaccinated travel lane (VTL) flights, including that from business travel. SIA stated the quarantine-free travel arrangement that Singapore has launched for a growing list of countries since September has triggered strong booking demand, especially in premium cabins. Lee Lik Hsin, executive vice-president of the airline’s commercial division, elaborated during a financial results briefing on Friday (Nov 12) that the strong demand came from all segments: business, leisure and family travel.
Boustead Singapore posted a 2 per cent drop in net profit to S$21.3 million for the half-year ended September, as a result of the resumption of “more normalised” revenue recognition at its real estate unit, Boustead Projects. The company has declared an interim dividend of 1.5 Singapore cents per share, up from 1 cent per share in the year-ago period. However, adjusted for other items, including impairments and the Jobs Support Scheme, net profit was down 24 per cent to S$19 million, the infrastructure company announced on Friday (Nov 12). Revenue for the half-year rose 17 per cent to S$340.3 million. This growth was led by Boustead Projects, which posted a S$179.1 million topline, more than double last year’s, on improved revenue recognition for engineering and construction projects. Most of these projects were hit by the nationwide 4-month closure last year.
Capitaland Integrated Commercial Trust’s (CICT) manager announced on Friday (Nov 12) that the trust will divest its stake in One George Street. CapitaLand Commercial Trust (CCT) had previously sold the property for S$1.18 billion into a limited liability partnership called OGS LLP, of which the trust owned 50 per cent. The 50 per cent stake was then absorbed into CICT after CCT and CapitaLand Mall Trust merged. On Nov 12, CICT’s manager said that OGS LLP will divest its whole stake in One George Street to SG OGS, a private limited company, for S$1.28 billion, or approximately S$2,875 per square foot. CICT will receive approximately S$640.7 million, or 50 per cent of the consideration for the sale.
Palm oil producer Bumitama Agri has recorded 588.7 billion rupiah in net profit for the third quarter ended September, marking an all-time high as prices of the commodity boom globally. The spike is due to a “pent-up increase” in the average selling price of Bumitama’s crude palm oil (CPO) to at an average of 10,000 rupiah per kg, the company said in its quarterly update on Friday (Nov 12). The average selling price is 27 per cent higher than in the year-ago period, while sale volume grew 13 per cent. This lifted Q3 revenue from the key product 43 per cent to 2,679.8 billion rupiah.
The impact of Apple’s privacy change in April is beginning to show up on the balance sheets of other companies, and it shows the huge power Apple wields over industries unrelated to consumer electronics. In April, Apple released an update for iPhones with a new popup that asked users if they wanted to allow apps on their phones to target the user for ads. IPhone owners could easily opt-out by tapping a button labeled “Ask App Not to Track.” Over six months later, it’s clear most iPhone users did opt-out, and the feature, called App Tracking Transparency (ATT), is now presenting challenges to companies ranging from Snap to Facebook to Peloton.
Apple is making U.S. states foot part of the bill and provide customer support for its plan to turn iPhones into digital identification cards, according to confidential documents obtained by CNBC. The company requires states to maintain the systems needed to issue and service credentials, hire project managers to respond to Apple inquiries, prominently market the new feature and push for its adoption with other government agencies, all at taxpayer expense, according to contracts signed by four states. Apple announced in June that its users could soon store state-issued identification cards in the iPhone’s Wallet app, billing it as a more secure and convenient way for customers to provide credentials in a variety of in-person and remote settings. The feature, when combined with Apple’s biometric security measures like Face ID, could cut down on fraud.
Tesla CEO Elon Musk said high production and break-even cash flow will be the true test for rival carmaker Rivian, which had a blockbuster IPO this week and now has a market value of more than $100 billion. “There have been hundreds of automotive startups, both electric and combustion, but Tesla is [the] only American carmaker to reach high volume production & positive cash flow in past 100 years,” Musk said in a tweet Thursday. He added, “I hope they’re [Rivian] able to achieve high production and breakeven cash flow. That is the true test.”
Health-care conglomerate Johnson & Johnson announced plans Friday to split its consumer products business from its pharmaceutical and medical device operations, creating two publicly traded companies. The news sent shares higher in premarket trading. The separation will sheer off its household products unit, maker of Band-Aid bandages, Aveeno and Neutrogena skin care products, and Listerine, from its riskier, but faster-growing division that makes and sells prescription drugs and medical devices, including its Covid-19 vaccine. “Following a comprehensive review, the board and management team believe that the planned separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and – most importantly – improve healthcare outcomes for people around the world,” outgoing CEO Alex Gorsky said in a statement.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Recommendation: BUY (Maintained); TP S$1.80, Last close: S$1.51; Analyst Paul Chew
– 3Q21 earnings was below expectations. 9M21 revenue and PATMI was 70%/60% of our FY21e forecast respectively. Taxi rebates in 3Q21 resulted in operating losses.
– owntown Line (DTL) transitioning to NRFF 2 resulted in a net S$15mn saving. But new bus contract extension may lower future operating earnings by S$34mn.
– The downside protection of earnings from NRFF 2 was lower than expected. At the peak of the restrictions last year, savings was only around S$15mn. Any shortfall in takings is limited to the license fee payable to authorities. We lower our FY21e PATMI by 8%. Our DCF target price (WACC 8%) is lowered modestly to S$1.80. The downside in revenue is offset by lower than expected capital expenditure. Operating cash-flows for the company remains healthy, coupled with record cash levels. Comfort is our transport proxy for Singapore’s reopening and normalisation of social and work activities.
Recommendation: ACCUMULATE (Upgraded), Last Done: S$0.900
Target Price: S$0.97, Analyst: Natalie Ong
– No financials provided in the operational update. High-single digit reversions were a positive surprise. High occupancy of 99.8% maintained. Slight 3.1% increase in tenant sales.
– Upgrade from NEUTRAL to ACCUMULATE with DDM TP (COE 7.7%) raised from S$0.87 to S$0.97. Estimates revised following a change of analyst. We raise our forecasted contributions for the 31.8% stake in JEM and Grange Road Carpark redevelopment project. FY22e/23e DPU increases by 8.6%/7.7%. TP climbs 11.5% due to the adjustment in earnings and a lower cost of equity assumption of 7.7% (prev. 8.0%). Impending acquisition of remaining stake in JEM is a catalyst for LREIT.
Recommendation: ACCUMULATE (Maintained); TP S$2.08, Last close: S$1.92; Analyst Paul Chew
– 3Q21 PATMI spiked 113% YoY to S$16.5mn. 9M21 revenue and PATMI were within expectation at 73%/72% of FY21e forecast.
– The fastest growing segment was private resale, revenue tripled to S$70.6mn.
– The company aims to pay out 75%-80% of FY21 PATMI as dividends. We raise our FY21e DPS by 17% from 11.5 cents to 13.5 cents per share. This implies FY21e dividend yield of 7%.
– Our FY21e forecast and DCF target price (WACC 9.8%) of S$2.08 is unchanged. Our ACCUMULATE recommendation is maintained. PropNex’s revenue run rate is at a new level of around S$200mn per quarter, up from S$100mn in the prior years. Supporting this new altitude of revenue will be the record growth in agents, maiden revenues from collective sales and healthy property transactions aided by a recovering economy, low interest rates and rising replacement costs.
Recommendation: NEUTRAL (Maintained); TP S$1.24, Last close: S$1.28; Analyst Paul Chew
– 3Q21 results met our expectations. 9M21 revenue and EBITDA were at 72% and 80% of our FY21e forecasts respectively.
– Broadband and entertainment revenue trending ahead of our estimates due to increase in ARPUs. Mobile remains weak, dragged down by large churn in prepaid subscribers.
– 3Q21 cybersecurity operating profits more than doubled from S$2.8mn to S$5.8mn.
– No change to our forecasts. We maintain NEUTRAL with an unchanged target price of S$1.24. Valuations based on regional peers’ 6x FY21e EV/EBITDA. Starhub pays a stable 4% dividend yield with undervalued optionality in roaming and cybersecurity. There is upside to our target price if borders re-open faster, allowing roaming revenue to return. Another re-rating catalyst is sustained earnings from the cybersecurity operations or a corporate exercise for higher price discovery.
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