Daily Morning Note – 17 Febraury 2021

PHILLIP SUMMARY

Treasury yields surged to the highest in a year, while U.S. stocks pulled back from records as investors weighed how the increase in yields could impact risk assets. Asian stocks looked set to slip.

The yield on benchmark 10-year Treasuries surged to 1.31%, the highest since February 2020, and Australian bonds tumbled, helping global bonds extend their worst start to a year since 2013. The dollar strengthened. The S&P 500 and Nasdaq Composite indexes all set records Tuesday, before closing slightly lower. Shares opened down in Australia, while equity futures dipped in Japan and Hong Kong.

Elsewhere, oil held above $60 a barrel in New York while gasoline futures surged as a deepening energy crisis in the U.S. crippled the petroleum industry. China remains shut for a week-long holiday and will reopen Thursday. Bitcoin broke through $50,000 for the first time before falling back.

BREAKING NEWS

SG

Sembcorp Industries has said it is actively monitoring the developing situation in Myanmar in the wake of the military coup. On Tuesday, the company provided updates on its two investments in Myanmar. The first is a 225-megawatt gas-fired power plant in Mandalay, operated through Sembcorp’s subsidiary Sembcorp Myingyan Power Company Limited. The plant commenced full commercial operation in October 2018. Amid the situation in Myanmar, Sembcorp said the power plant continues to be in operation and added that its employees are safe.

Sembcorp Marine (SembMarine) has a “margin problem” that could be solved with an acquisition of Keppel Corp’s offshore rig business, some market watchers said. If a deal is structured right, SembMarine could gain the economies of scale it needs to compete. SembMarine had been a growing weight on the earnings of Sembcorp Industries before it was fully separated from the latter last year. The gross margins of the offshore and marine company had been as high as 11 per cent in 2017, but were a negative 3.2 per cent in 2019.

Ascendas India Trust (a-iTrust) has entered into definitive agreements to acquire aVance 6 from Phoenix Infocity for 5.06 billion rupees (S$92.03 million), said its manager on Tuesday. This will be the trust’s fifth building acquired from Phoenix, which sold the previous buildings to a-iTrust throughout the course of February 2012 to April 2017. About 98.3 per cent of its total floor area of 0.64 million square feet is leased to Amazon. Based on an independent valuation by Savills Property Services in India, the “open market value” of the building is estimated to be 5.54 billion rupees.

Activist investor Quarz Capital Management has reduced its stake in Sunningdale Tech just about a week before the scheduled extraordinary general meeting (EGM) convened for investors to vote on the private equity buyout of the precision plastic components maker. On Feb 9, Quarz had sold some 69,000 Sunningdale shares for a total of S$112,470, which works out to be S$1.63 per share. With this, Quarz now owns 7.987 per cent of the company’s total voting shares, down from 8.023 per cent previously.

Lum Chang Holdings (Far East H-Trust) last Tuesday reported its results for its first half ended December, with earnings significantly lower than the prior year. What stood out, however, was the high dividend being declared. The construction firm saw revenue for the half-year fall 30 per cent to S$130.9 million from a year ago. This was mainly due to slow resumption of work at two construction sites, and lower revenue from two construction projects that were substantially completed in the previous financial year. Net profit for the half-year fell to S$159,000 from S$7 million, with earnings per share plunging to 0.04 Singapore cent, from 1.85 cents a year earlier. Despite the lacklustre results, the company declared a dividend of five Singapore cents per share for the current financial period – comprising an interim dividend of 0.75 cent and a special dividend of 4.25 cents per share.

US

CVS Health’s fourth-quarter earnings beat Wall Street’s expectations on Tuesday as pharmacy sales got a lift and the drugstore chain expands Covid-19 testing and vaccines. Shares of the company were up slightly in premarket trading. The drugstore chain reported fiscal fourth-quarter net income of $975 million, or 75 cents per share, down from $1.74 billion, or $1.33 per share, a year earlier.

Palantir reported a loss for the fourth quarter. The company said average revenue per customer for 2020 came to $7.9 million, up 41% from 2019. Its top 20 customers generated $33.2 million each on average in 2020, up 34% year over year. In the fourth quarter, Palantir said, it closed 21 deals worth at least $5 million in total contract value, including 12 worth at least $10 million. New contracts in Q4 include those with the U.S. Army, U.S. Food and Drug Administration and PG&E.

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

RESEARCH REPORTS

Singapore Strategy Budget 2021 – Another year of stimulus

Analyst: Paul Chew

– FY2020’s budget deficit was a record 13.9% of GDP or S$64.9bn. Without the additional spending, Singapore 2020 GDP would have contracted 12.4% rather than the reported 5.4%..

– Another year of fiscal deficit in FY2021, at 2.2% of GDP or S$11bn.

– GST will be raised between 2022 and 2025, to meet healthcare needs in particular. The hike mentioned in earlier budgets was from 7% to 9%.

– Sectors such as aviation, aerospace and tourism to receive extended JSS support from April to September 2021. Land transport to benefit from Driver Relief Fund announced in December. Healthcare to benefit from the budget for COVID-19 testing and vaccination. No mention of any tightening in the property sector.

Bilibili Inc: Video-content Leader

Analyst: Yeap Jun Rong

– Shift to non-gaming segments to sustain growth. Non-gaming businesses include advertising and value-added services. As their operating costs are lower, growth in these businesses has lifted gross margins.

– A comparison with some of its competitors suggests higher website-traffic engagement. This should facilitate further monetisation, as average monthly paying users continued to climb from 3.2% in 1Q18 to 7.6% in 3Q20.

– Collaboration with Tencent will inject more well-known intellectual property to Bilibili’s mobile-game platform. This would further cement Bilibili as the go-to platform for ACG content

– Bilibili can also leverage Alibaba’s e-commerce capabilities for content creators to sell their products on Taobao. This may sustain the strong growth in its e-commerce segment

>> Read more research reports

HK Reports – Read up on our Hong Kong reports here

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Date: 15 February 2021

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