Daily Morning Note – 16 July 2021
PHILLIP SUMMARY
Asian stocks look set to follow U.S. shares lower Friday after concerns about the economic growth outlook came to the fore. Treasury yields retreated and the dollar held an advance. Equity futures fell in Japan and Hong Kong and were steady in Australia. U.S. contracts slipped after energy and technology sectors led Wall Street lower, including a decline in growth favourites like Amazon.com Inc. Moderna Inc. rallied in extended trading on an announcement that the vaccine maker is set to join the S&P 500. Federal Reserve Chair Jerome Powell overnight defended the central bank’s accommodative stance in the face of uncomfortably high inflation. Officials expect a transient surge in price pressures amid the reopening from the pandemic, but some others fear stickier inflation that could hurt the economic outlook. The 10-year Treasury yield slid, set for a third weekly retreat. Crude oil dropped as the dollar strengthened and on OPEC+’s signal it may raise output soon. Gold held around a one-month high. New Zealand’s dollar jumped after the nation’s inflation breached the central bank’s target range, reinforcing bets it will start raising interest rates soon.
BREAKING NEWS
SG News
Replying to a Singapore Exchange (SGX) query, entertainment group mm2 Asia said it is of the opinion that there is no need to suspend trading of its shares pursuant to Listing Rule 1303(3), in a clarification announcement on Thursday night. There are “no issues and/or concern” with mm2 Asia’s ability to operate as a going concern despite an auditor on Tuesday highlighting a material uncertainty in that regard. This was the opinion expressed by the board of directors of the mainboard-listed entertainment group in a regulatory filing in the early hours of Thursday, in response to the company’s shares tumbling on Wednesday.
The offer price in mainboard-listed Dutech Holdings’ privatisation bid has been raised to S$0.435 per share, up from the original S$0.40, with the closing date also being extended by two weeks, the offeror said on Thursday night.
Sales proceeds from the sale of Eagle Hospitality Trust (EHT) properties are unlikely to reach minority investors, DBS Trustee said in a release on Thursday. It had worked with the Securities Investors Association (Singapore) to produce a video presentation to update Eagle Hospitality Real Estate Investment Trust (EH-Reit) stapled securityholders and address their questions.
UOL Group is banking on pent up demand for its upcoming project along Canberra Drive, the 448-unit The Watergardens at Canberra, with prices to start from S$1,380 per square foot (psf). A two bedroom-unit will start from below S$920,000, while a three-bedroom unit will be priced at below S$1.3 million and a four-bedroom unit from below S$1.8 million, the developer said on Thursday. The 99-year leasehold project will launch for preview on July 17 while balloting for units will take place on July 31.
US News
Output at US factories unexpectedly fell in June as motor vehicle production dropped amid an unrelenting global semiconductor shortage. Manufacturing output dipped 0.1 per cent last month after accelerating 0.9 per cent in May, the Federal Reserve said on Thursday. Economists polled by Reuters had forecast manufacturing output climbing 0.2 per cent in June. Output at factories grew at a 3.7 per cent annualised rate in the second quarter after increasing at a 2.3 per cent pace in the January-March period.
Johnson & Johnson (J&J) is voluntarily recalling five Neutrogena and Aveeno brand aerosol sunscreen products after detecting a cancer-causing chemical in some samples. The New Jersey-based company said on Wednesday that consumers should stop using the products and discard them, after internal testing identified low levels of benzene in some samples. J&J is also notifying distributors and retailers to stop selling the products and arranging for their return “out of an abundance of caution”.
The number of Americans filing new claims for unemployment benefits fell last week as the labour market steadily gains traction, but worker shortages are frustrating efforts by businesses to ramp up hiring to meet strong demand for goods and services. Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 360,000 for the week ended July 10, the Labor Department said on Thursday. Economists polled by Reuters had forecast 360,000 applications for the latest week.
Taiwan’s TSMC posted record quarterly sales and forecast revenue for the current quarter will jump by at least a fifth, boosted by a pandemic-led surge in global demand for semiconductors that power smartphones, laptops and cars. Revenue for April-June at Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker and a major Apple supplier, climbed 28 per cent to a record US$13.29 billion.
Blue Origin said Thursday an 18-year-old paying customer will fly to space on board the company’s maiden crewed spaceflight on July 20, becoming the youngest ever astronaut. Oliver Daemen, who graduated from high school in 2020 and holds a private pilot’s licence, is not the winner of a US$28 million auction, who has asked to remain anonymous and will fly on a future mission, the company said.
Morgan Stanley reported a better-than-expected quarterly profit on Thursday, as its investment banking business benefited from record levels of capital market activity that helped offset a slump in fixed income underwriting. Trading revenue at Wall Street banks was a sour spot in the second quarter, facing tough comparisons to the year-ago period when the Covid-19 pandemic first hit, causing wild volatility in the markets that provided opportunities for banks.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
TECHNICAL PULSE
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RESEARCH REPORTS
Fortress Minerals Ltd – Strong iron-ore prices
Recommendation: BUY (Maintained); TP: S$0.81
Last Done: S$0.68; Analyst: Vivian Ye
– 1QFY22 PATMI beat, at 30% of our FY22e forecast as ASPs were higher than expected. Revenue was up 144% YoY, PATMI up 234% YoY.
– 1QFY22 sales volume increased 61.6% YoY. Last year, mining was halted in 1QFY21 by movement controls, for 1.5 months. PATMI more than doubled YoY from higher selling prices and gross margins.
– Maintain BUY with a higher TP of S$0.81, up from S$0.64. We raise FY22e PATMI by 41%, factoring in stronger iron-ore prices. We raise ASPs by 37% to US$140/DMT. Our TP remains pegged to the industry average, which is now 10x FY22e PE, down from 11x previously. Catalysts are expected from an increase in production and strong iron-ore prices.
HRnetGroup – Hire returns
Recommendation: BUY (Initiation), Last Done: S$0.77
Target Price: S$1.00, Analyst: Tan Jie Hui
– One of the largest recruitment agencies in Asia-Pac ex-Japan with an asset-light, net-cash (S$332mn) and high-return (FY21e ex-cash ROE of 152%) business.
– Economic recovery to revive employment in key service sectors. Higher contract volumes and rates expected for both permanent recruitment (PR) and flexible staffing (FS) solutions.
– Trades at 16.2x P/E against peer average of 24.4x, even though it is the most profitable employment agency in town. After net cash of S$332mn, it trades at ex-cash P/Es of 9.2x/8.9x on FY21/22e EPS. We initiate coverage with BUY and a TP of S$1.00, set at 14x FY21e ex-cash P/E.
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