DAILY MORNING NOTE | 17 August 2023

Singapore shares closed lower on Wednesday (Aug 16), extending declines into mid-week. It retreated 0.6 per cent or 19.16 points to 3,213.58. Decliners outnumbered advancers 350 to 251, with 1.2 billion securities worth S$1.2 billion changing hands. Its performance mirrored most regional indices. South Korea’s Kospi Composite Index was down 1.8 per cent after a public holiday, Hong Kong’s Hang Seng Index lost 1.4 per cent, while Japan’s Nikkei 225 fell 1.5 per cent. Bucking the trend was the FTSE Bursa Malaysia KLCI, which rose 0.2 per cent.

Wall Street stocks fell on Wednesday while Treasury bond yields surged to multi-year highs as analysts warned that Federal Reserve meeting minutes were more hawkish than expected. The yield on the 10-year US Treasury note rose further above four percent, hitting a 15-year high, according to the Wall Street Journal. Treasury yields, which are a proxy for interest rates, climbed on Fed minutes in which policy makers pointed to significant risks that price increases would persist. The Dow Jones Industrial Average finished down 0.5 per cent at 34,765.74. The broad-based S&P 500 shed 0.8 per cent to 4,404.33, while the tech-rich Nasdaq Composite Index dropped 1.2 per cent to 13,474.63.

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Temasek is considering selling some of Pavilion Energy’s assets, seeking a valuation of at least US$2 billion, according to people with knowledge of the matter. The city-state’s investment firm is working with Barclays on a potential sale that would exclude the gas pipeline business, which Singapore considers a strategic asset, said the people. Temasek has started gauging interest from potential buyers for the assets of the liquefied natural gas (LNG) company, the people said, asking not to be identified as the process is private. Considerations are at an early stage, and Temasek could still decide to keep the assets for longer, the people said. Representatives for Barclays, Pavilion Energy and Temasek declined to comment.

Singapore’s central bank on Wednesday (Aug 16) said that it will take “firm action” against financial institutions (FIs) found to have breached its requirements on anti-money laundering and countering the financing of terrorism. This comes in the wake of a police operation on Tuesday that seized S$1 billion in cash and assets from suspected launderers, who were living in luxury condominiums and Good-Class Bungalows. The police arrested 10 foreigners aged between 31 and 44 for suspected involvement in forgery, money laundering and resistance to lawful apprehension. The suspects are from countries such as Cyprus, Turkey, China, Cambodia and Ni-Vanuatu; some of these individuals hold multiple passports.

Singapore will not be able to build up its reserves again if they are exhausted, as growth is slower now and the country no longer runs such large budget surpluses, said Prime Minister Lee Hsien Loong. “Once it is gone, it will never come back again. It is finished. You cannot build it up again,” he said in an interview with CNA on Singapore’s national reserves, released on Wednesday (Aug 16). In three video clips, he explained about the reserves, addressed misconceptions and detailed how the government balances spending with investment returns. The issue of Singapore’s reserves – and how they are managed – has resurfaced ahead of the upcoming presidential election. The president holds the second “key” to the reserves, meaning that his approval is needed if the government wants to draw on past reserves.


Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated. That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle. However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee. “With inflation still well above the Committee’s longer-run goal and the labour market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated. That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years.

Oil prices settled lower on Wednesday despite a large drawdown in US crude stocks as investors weighed worries about China’s embattled economy against expectations of tighter supply in the United States. Brent crude futures fell US$1.44, or 1.7 per cent, to settle at US$83.45 a barrel while US West Texas Intermediate crude (WTI) fell US$1.61, or 2 per cent, to US$79.38. Both benchmarks fell more than 1 per cent in the previous session to their lowest since Aug 8. US crude oil inventories fell by nearly 6 million barrels last week on strong exports and refining run rates, despite crude production rising to its highest since the coronavirus pandemic decimated fuel consumption, Energy Information Administration data showed on Wednesday.

Payments giant PayPal will stop allowing UK customers to buy cryptocurrencies through its platform from October as it works to comply with new rules on crypto promotions. Britain’s financial regulator is due to bring in tougher rules to limit how crypto is advertised to British consumers, including requiring crypto firms to carry warnings about the risk and scrapping “refer a friend” bonuses. PayPal will “temporarily pause” the ability for customers to buy crypto on its platform from Oct 1 as it works to satisfy the new regulations, which come into effect on Oct 8, it said in an email to customers on Tuesday (Aug 15). It said it expects to re-start in “early 2024” and customers could hold and sell their crypto “at any time.”

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


ComfortDelGro Corp Ltd – Recovery building momentum from repricing

Recommendation: BUY (Maintained); TP S$1.57, Last close: S$1.27; Analyst Paul Chew

– 2Q23 results were within expectations. 1H23 revenue and PATMI were 45% and 47% of our FY23e forecast. PATMI grew 17% YoY to S$45mn as taxi earnings doubled.

– Public transport remains a drag on earnings from weaker foreign exchange and higher bus driver costs in the UK. We expect a strong rebound in earnings as bus contracts service fees in the UK are repriced higher from inflation indexing and more rational pricing.

– No changes to our FY23e forecast but we raised our FY23e DPS to 6.08 cents (prev. 5.3 cents), as the company increased their minimum payout ratio from 50% to 70%. Our BUY recommendation and DCF target price of S$1.57 is unchanged. The largest driver to earnings in 2H23 will be the repricing of services in the key public transport and taxi operations. We believe the key earnings driver in 2H23 include higher bus service fees in the UK, increased hiring of Australian bus drivers, the introduction of taxi platform fees in Singapore and lower taxi rental rebates in Singapore and China.

SATS – Acquisition costs weighed on 1Q24 earnings

Recommendation: Neutral (Maintained); Last Done: S$2.54

Target Price: S$2.51; Analyst: Peggy Mak

– SATS slipped into net loss in 1Q24, after booking S$29.7mn integration costs and amortization expenses relating to the acquisition of WFS. Excluding these, net loss was S$0.2mn, which was in line with our expectations. Operating gains were cancelled out by higher interest expense.

– SATS’ core operations turned in a profit, even with the expiry of government relief, though EBIT margin of 3.4% is still a far cry from pre-COVID level of 16%-17%. WFS’ volume declined in line with softer cargo demand, but yields are holding up.

Maintain NEUTRAL recommendation and TP of $2.51. We lowered FY24e earnings forecast by 49% to take into account the integration costs.

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