Daily Morning Note – 17 Aug 2020

PHILLIP SUMMARY

Stocks in Asia Pacific were set to trade lower on Monday as tensions between the U.S. and China continue to weigh on investor sentiment. Futures pointed to a lower open for Japanese stocks. The Nikkei futures contract in Chicago was at 23,170 while its counterpart in Osaka was at 23,140. That compared against the Nikkei 225′s last close at 23,289.36.

BREAKING NEWS

Cromwell European Real Estate Investment Trust (Cromwell E-Reit) posted a distribution per unit (DPU) of 1.74 euro cents for the half year to June, 14.7 per cent lower than a year ago.

Eagle Hospitality Trust (EHT) has posted a loss of US$38.9 million for the second quarter ended June 30, mainly due to the impairment loss on trade receivables arising from the uncertainty on the master lessees’ ability to make rental payments and fulfil its obligations. As a result, there is no income available for distribution for unitholders.

The managers of Eagle Hospitality Trust (EHT) said an unauthorised application was made under the US Paycheck Protection Program (PPP) on behalf of the Queen Mary’s master lessor, and that certain master lessees had not paid some taxes.

Weak ridership during the pandemic dragged transport operator ComfortDelGro into the red for the half-year ended June 30, 2020. The group chalked up a net loss of S$6 million against a net profit of S$146.3 million a year ago.

CRUDE palm oil (CPO) producer Golden-Agri Resources (GAR) is banking on a rally in palm oil prices to boost its financial performance in the second half of the year. CPO prices are up about 40 per cent since May 4.

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

TECHNICAL PULSE

Technical Analysis: DXY & Gold update -Continue weakness in the dollar firms the bullish sentiment of Gold

Analyst: Chua Wei Ren

– Gold has snapped out of its 2-month winning streak and it has traded below US$2,000 per ounce.

– Although prices rebounded back above the US$1,900 level, the bearish sentiment may return and test lower support.

– The dollar index remains weak. With the dollar index trading between 93.96-92.54

Technical Analysis: U.S Market – Are we going to see new highs in the S&P 500 and the Dow Jones Industrial Average?

Analyst: Chua Wei Ren

– Despite a strong call on the bearish market in late June/early July, the stock continues to edge higher with the stimulus ongoing.

– With jobless claim dipping below 1 million for the first time, the market responded positively by edging higher.

– The Smart Money index has shown a sharp increase back into the market.


>> Read more technical reports

RESEARCH REPORTS

ComfortDelgro Corp Ltd – Bottomed out

Recommendation: ACCUMULATE (Upgraded), Last Done: S$1.39

Target Price: S$1.65, Analyst: Paul Chew

– Revenue and PATMI were below expectations. The company suffered a net loss of S$6mn in 1H20 (1H19: +$146.3mn). No interim dividend for 1H20.

– Worst hit segment was taxi operations that swung into S$68mn loss in 1H20 (1H19: +S$57.9mn). Rental rebates and a $22.8mn provision of the diesel taxi fleet were some of the reasons for the loss.

– We were surprised by the large decline in public transport earnings caused by bus operations that do not assume ridership risk and schedules were not severely cut.

– A year to forget but a bottom has likely formed and a recovery is underway, albeit tepid. We are upgrading to ACCUMULATE with a higher target price of S$1.60 (prev: $1.50). Our PATMI for FY20e is slashed by 24% but FY21e forecast is raised 12%. Comfort is our preferred proxy to the easing of lockdown measures compared to the air transport sector. Comfort has a 60% market share of bus and taxi services in Singapore plus a 36% share in the rail network. The high fixed cost of the business can also lead to steeper operating leverage as activity improves.

PropNex Ltd – Surge in cash and dividends up 20%

Recommendation: BUY (Maintained), Last Done: S$0.59

Target Price: S$0.70, Analyst: Paul Chew

– 2Q20 PATMI rose 96% YoY to S$7.3mn. Earnings was within our estimates. The drop in transaction volumes during the lockdown will negatively impact 3Q20 earnings.

– Earnings this quarter was supported by a 150% jump in project marketing (new launches) revenue.

– Net cash is a record S$99.7mn (2Q19: S$73mn) due to S$11.9mn cash generated from operations during the quarter and a delay in paying S$8.3mn final and special dividend. Interim dividend per share was raised 20% YoY to 1.5 cents.

– We are maintaining our BUY recommendation and raising our target price to S$0.70 (prev. S$0.60). We made a modest increase to our FY20e earnings by 3% due to the JSS grant but raised our DCF growth assumptions. Near-term, the drop in transaction volumes due to the lockdown will negatively affect 3Q20 earnings. However, we believe transactions have bottomed and have started to recover July onwards. PROP pays a sustainable dividend yield of 7%, enjoys unlevered ROE of 25% and generates high cash-flow of around S$20mn p.a. with minimal capital expenditure and working capital requirements.

APAC Realty Ltd – Tepid rebound

Recommendation: NEUTRAL (Downgraded), Last Done: S$0.375

Target Price: S$0.365, Analyst: Paul Chew

– 1H20 results was below expectations. PATMI rose 52% to S$7.7mn with revenue rising 6% to S$172mn.

– Several one-off items supported earnings including S$0.9mn JSS grant, absence of recruitment expense S$0.7mn and unrealised FX gain of S$0.5mn.

– Market share for APAC was maintained around 26%.

– We downgrade to NEUTRAL with a lower target price of S$0.365. We are lowering our FY20e earnings by 17% to account for slower 2H20. The impact from the lockdown will only materialise in 2H20.

SG Bonds Weekly – Week 34

Credit Analyst: Timothy Ang

– Bond markets are still boyant as spreads tighten for 7 consecutive weeks in Asia as new issuances are still being snapped up.

– This is amidst the backdrop of US Treasuries seeing lackluster demand for their auction last week as investors seek higher yields elsewhere.

– Expect more new issuances in our local markets

Koufu Group Limited – 2H20 recovery on track

Recommendation: BUY (Maintained), Last Done: S$0.675

Target Price: S$0.77, Analyst: Terence Chua

– 1H20 results were in-line. Revenue and EBITDA formed 46% and 43% of our estimates respectively for FY20e as the lower footfall and closure of outlets during the circuit breaker in April and May put a drag on revenue.

– Outlet & Mall management and F&B retail declined by 19% and 27% respectively with the former more resilient because of fixed rental to cushion the impact from COVID-19.

>> Read more research reports

HK Reports – Read up on our Hong Kong reports here

RESEARCH VIDEOS

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Market Outlook: Market Outlook: SG Banking Monthly, SG Bonds Weekly and SG Strategy 3Q20 (with stock picks)

Date: 06 July 2020

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Phillip Research in 3 minutes: #25 – Prime US REIT; Initiation

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