DAILY MORNING NOTE | 15 September 2022

The Straits Times Index (STI) fell 1 per cent or 32.06 points to close at 3,258.02 on Wednesday (Sep 14), as higher-than-expected US inflation figures for August battered investor sentiment. In the wider Singapore market, losers outnumbered gainers 312 to 184, with 1.19 billion securities worth S$1.03 billion changing hands. Key Asian markets mostly finished lower. Japan’s Nikkei 225 index tumbled 2.8 per cent, Hong Kong’s Hang Seng Index dropped 2.5 per cent, South Korea’s Kospi fell 1.6 per cent and the FTSE Bursa Malaysia KLCI lost 1.3 per cent. Jardine Cycle & Carriage (Jardine C&C) was the lone winner among Singapore’s blue-chip stocks, rising 0.3 per cent or S$0.10 to close at S$34.92. The biggest loser on the STI was Venture Corporation. The counter fell 2.4 per cent or S$0.42 to S$17.46. The most heavily traded counter on the STI was Singtel, which lost 1.1 per cent or S$0.03 to S$2.70, with 26.4 million shares traded. The trio of local banks all finished lower. DBS lost 0.9 per cent or S$0.31 to close at S$33.32, OCBC slipped 0.4 per cent or S$0.05 to S$12.22, while UOB dropped 1 per cent or S$0.28 to S$27.28.

Wall Street stocks finished modestly higher on Wednesday, regaining some of the ground lost in the prior session, though with the impact of disappointing US inflation data still reverberating through the markets. The benchmark Dow Jones Industrial Average rose 0.1 per cent to finish the session at 31,135.09. The broad-based S&P 500 was up 0.3 per cent to 3,946.01, while the tech-rich Nasdaq Composite Index climbed 0.7 per cent to 11,719.68. “Early gains for US equities moderated in late-day action, but stocks were able to finish modestly higher, with yesterday’s surprising consumer price inflation report remaining an overhang,” Charles Schwab analysts said. The consumer price index report Tuesday showed widespread inflation pressures, even though the annual CPI pace slowed in August. That drove steep losses in equities, and data Wednesday showing only a modest slowing in the producer price index due to falling energy costs did little to ease immediate concerns. The disappointing inflation data has left investors bracing for the Federal Reserve to continue its tough anti-inflation fight with another massive interest rate hike next week.


Top gainers & losers

Factsheets

SG

Singapore’s international visitor arrivals grew for the 7th straight month in August, once again setting a record from the beginning of the Covid-19 pandemic, based on the latest figures from the Singapore Tourism Board (STB) on Wednesday (Sep 14). There were 728,744 arrivals in August, slightly higher than the 726,602 visitors recorded in July, though the new figure remains far below the 1.7 million recorded in August 2019 before the pandemic. “The slowdown in growth could be due to seasonality factors,” said Wong Xian Yang, head of research at Cushman and Wakefield Singapore. “Pre-pandemic, visitor arrivals tend to peak in June or July and trend lower during the months of August to November and pick up sharply again in December.” Nonetheless, he expects international visitor arrivals could continue to increase in light of relaxed travel restrictions and events in the pipeline. For the 5th consecutive month, Indonesia was the top source of arrivals, sending 108,252 visitors, though this was down from 119,072 in July. India also held its 2nd place ranking for the 5th straight month in August, sending 76,249 visitors, down from 75,105 in the previous month. Reversing the trend from the preceding 2 months, Malaysia overtook Australia in August to regain the 3rd spot on the list of top senders. The countries respectively sent 63,905 travellers – up from 61,572 in July – and 56,917 travellers, down from 68,367.

Mainboard listed property firm Low Keng Huat has sunk into the red with a S$24.1 million loss for the half year to July, from a S$25.1 million net profit in the year-ago period. Net loss for H1 FY2023 was mainly due to slower property sales for the development segment and the S$23.3 million loss on disposal of investment in associates, the company said in its financial statement filed to the bourse on Wednesday (Sep 14). Revenue declined 44 per cent to S$49.8 million from S$88.9 million. Low Keng Huat has 3 main segments: development, hotel and investment. Notably, all 3 segments were in the red, although its hotel business managed to reduce loss, compared to the corresponding period a year earlier. Development revenue dropped by about two-thirds to S$19.5 million from S$67.2 million. Only 7 units out of 138 in Klimt Cairnhill were sold as at end-July despite the residential project being launched in August 2021. Klimt Cairnhill is a 36-storey, high-end freehold condominium development located in the Orchard vicinity. The segment registered a loss of S$372,000 before tax and non-controlling interest. However, the hotel segment and investment segment both reported higher turnover. Revenue from the hotel segment increased to S$16.5 million from S$9.9 million as occupancy rates and average room rates at Duxton Hotel Perth and Citadines Balestier improved. Lyf @ Farrer also commenced operations in February 2022, contributing to revenue as its occupancy averaged 80 per cent. Net loss before tax and non-controlling interests for the hotel segment decreased by S$1.1 million to S$1.6 million. Revenue from the investment segment rose to S$13.8 million from S$11.9 million, mainly driven by construction revenue from the Dalvey Haus project, a residential development project 40 per cent owned by the group. The construction of Dalvey Haus project was 52 per cent completed as at end-July. Net loss before tax and non-controlling interests for the Investment segment was S$20.7 million, compared to a profit of S$28.9 million a year earlier, due to a loss on disposal of investment in associates. Net tangible assets per share for the group as at end-July amounted to S$0.86, slightly lower than S$0.91 as at end-January. No dividend was declared as it is “not the usual practice of the group to declare interim dividend”.

An entity under Keppel Offshore and Marine (Keppel O&M) was on Wednesday (Sep 14) granted a temporary court order to prohibit payment on a US$126.6 million standby letter of credit to a customer amid a claim involving a rig contract. Mainboard-listed Keppel Corporation : BN4 -2.26% provided the update in a regulatory filing on Wednesday on its earlier application to the Singapore court for the injunction, and said it would provide further updates when there are material developments in the legal proceedings. Keppel had disclosed that there were potential claims arising from disputes over the validity of certain foreign exchange fluctuations and cost escalation contractual formulas in a rig contract entered by the Keppel O&M entity. The entity, which is 75 per cent-owned by Keppel O&M, had provided the standby letter of credit in favour of the customer, for the purpose of repayment of the amounts received by the entity. The sums were calculated based on the contractual formula. However, a “relevant” government authority decided that the contractual formulas were invalid, following which the customer on Monday sought to call on the standby letter of credit, Keppel had said in a Tuesday bourse filing. Keppel considers that the decision is still subject to possible modification and the call was “premature”. Besides obtaining the injunction, the Keppel O&M entity has also filed legal proceedings in the local court to challenge the decision of the relevant authority. Keppel has previously made a provision in its accounts for the full amount payable under the standby letter of credit, and considers that no further provision is required. It therefore does not consider there to be any material impact on its overall financial performance.


US

Sometime on Thursday (Sep 15), an event dubbed “the Merge” will address one of the biggest impediments to the cryptocurrency revolution – energy wastage. A change in how Ethereum, the world’s second largest cryptocurrency, is minted could, by some estimates, reduce power usage on the network by as much as 99.5 per cent. “This is a big moment for the cryptoverse,” said Edward Moya, a senior market analyst at foreign-exchange brokerage Oanda Group. “It could really rejuvenate this battered sector.” Anticipation of the event is so high among the cultish cryptocurrency crowd that Google has even introduced a countdown clock that pops up whenever anyone searches the term “the Merge”. According to the clock, the transformation is set to happen early on Thursday in the United States. If the change is successful, “you might see some more exciting initiatives that could spark the next wave of investment,” said Moya. The designers of Ethereum, including high-profile co-founder Vitaly Buterin, have long promised to migrate to another, more energy-efficient protocol, known as “proof of stake”. In late 2020, the developers took the first concrete steps in that direction, with the launch of a new version of the second largest cryptocurrency, called the “Beacon Chain”, as a laboratory for the new approach. The blockchain is the inviolable ledger that underpins the cryptocurrency by providing a permanent record of the movement of all money. Bugs in the Beacon caused successive delays. Now, the Ethereum community is finally confident that the Beacon chain can run as smoothly as the existing blockchain. The Beacon will be grafted onto the main Ethereum blockchain, its rules becoming the new rules for the whole currency. In the physical money realm, the equivalent might be introducing a new form of banknote and instantaneously taking all the old notes out of circulation.

California filed a lawsuit on Wednesday accusing Amazon of using its market influence to prevent merchants from offering buyers better deals elsewhere online, in violation of state antitrust law. Amazon requires that merchants don’t list items at lower prices on other websites, which hurts sellers and consumers, California Attorney General Rob Bonta said in the lawsuit. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no,” Bonta said in a release. “Many of the products we buy online would be cheaper if market forces were left unconstrained.” Amazon did not immediately respond to a request for comment. The attorney general in Washington had filed a similar suit against Amazon, but a judge dismissed the case in March. Amazon is such a dominant e-commerce site that merchants feel they have little choice when it comes to agreeing to the titan’s selling conditions, Bonta’s lawsuit argued. Those demands include agreeing not to offer lower prices elsewhere, whether it be at Amazon rivals such as Walmart or a merchant’s own website, the suit said. Vendors who don’t comply can see their listings made less prominent or even have their ability to sell items on Amazon suspended, according to the suit. Sellers have reported that they can offer goods at lower prices on their own websites and some other e-commerce venues because they save on fees charged by Amazon, state attorneys argued.

Twilio said on Wednesday (Sep 14) it plans to cut its staff by nearly 11 per cent as the cloud communications platform joins other tech companies in reducing costs and shoring up margins amid a slide in demand for cloud services. Shares of the San Francisco-based company, which said its restructuring will be completed by the end of the fourth quarter, rose nearly 3 per cent in morning trade. Twilio had hired aggressively during the pandemic to cater to booming demand for cloud service providers from businesses looking to operate amid lockdowns. Employee count jumped to 7,867 by the end of 2021 from 4,629 in 2020. Companies such as Snap and Shopify have also resorted to similar measures as they attempt to mitigate the impact of lower demand amid record-high inflation and higher cost of capital from peaking interest rates. Twilio’s revenue had boomed at the peak of the pandemic but the growth rate has since inched lower, with second-quarter sales growth at 41 per cent, the lowest since the December quarter in 2017. The company, whose stock has fallen about 73 per cent this year, also reiterated its third-quarter forecast, according to a filing. Twilio estimates it will incur between US$70 million and US$90 million in charges over its restructuring plan which includes staff layoffs, with the majority to be incurred in the third quarter of 2022. The company faced a cyberattack last month that compromised data of about 163 customers. The company, which has notified the affected people, has not disclosed any financial impact of the breach.


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


RESEARCH REPORTS

PRIME US REIT – Resilient portfolio

Recommendation: Accumulate (Maintained), Last Done: S$0.615

Target price: S$0.88, Analyst: Darren Chan

• Resilient portfolio with eight consecutive quarters of positive rental reversions. Leases signed in 2Q22 enjoyed positive rental reversions of +10.9%.

• Minimally impacted by rising interest rates, with 86% of debt either on fixed rate or hedged through interest rate swaps. Around 51% of debts have hedges in place through to 2026.

Maintain BUY, DDM-TP (COE 10.55%) lowered from US$1 to US$0.88 as we trim our FY22e-FY24e DPU by 1-2%. Our COE nudged up from 9.6% to 10.55% on higher risk-free rate assumption and market risk. PRIME is our top pick in the US office sector for greater tenant exposure to STEM/TAMI sectors. Catalysts include improved leasing and a greater return to office. The current share price implies FY22e/FY23e DPU yield of 11.4/11.6%.

Technical Pulse: Alphabet Inc Class A

Analyst: Zane Aw

Recommendation: Technical SELL

Sell limit: 105.80 Stop loss: 108.30 Take profit: 98.95

Alphabet Inc Class A (NASDAQ: GOOGL) Price is likely to head lower after breaking down the bear flag.


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