Daily Morning Note – 17 February 2020



SINGAPORE’S official growth forecast for 2020 has been downgraded as the authorities are bracing for the possibility of negative growth as a result of the novel coronavirus outbreak, even as 2019 full-year growth came inconsistent with earlier flash estimates. The Ministry of Trade and Industry (MTI) is expecting full-year gross domestic product (GDP) growth to be between -0.5 per cent and 1.5 per cent, the ministry said on Monday morning, with growth expected to come in at the midway mark of around 0.5 per cent. This is a worse outlook from the one it made in November last year, where it was expecting growth of 0.5 to 2.5 per cent. This is because the Covid-19 outbreak is expected to affect the Singapore economy “through several channels”, not just in terms of the Republic’s outward-oriented sectors like manufacturing and wholesale trade, but also because the outbreak has led to a sharp fall in tourist arrivals.


Singapore has cut its export forecasts for 2020, no thanks to the impact of the novel coronavirus outbreak on key trade partners, as well as the drag from lower oil prices. Year-on-year change in non-oil domestic exports (NODX) is expected to range from a 0.5 per cent drop to a 1.5 per cent rise this year, trade agency Enterprise Singapore (ESG) said on Monday, down from its earlier projection of zero to 2 per cent growth.

The death toll from China’s new coronavirus epidemic jumped past 1,700 on Monday after 100 more people died in hard-hit Hubei province, the epicentre of the outbreak.

ASL Marine managed to halve its second-quarter losses as a result of cost reduction. The company noted that the volatile business environment has presented short-term headwinds but prospects for the mid to long term are positive.

SIA Engineering has entered into a joint-venture agreement with Air Innovation Korea to form a line maintenance JV based in South Korea. In a statement filed on Saturday with the Singapore Exchange, the Singapore provider of aircraft maintenance, repair and overhaul services said it will hold an equity stake of 51 per cent, with the Korean partner taking the remaining in the JV, which will have an initial registration capital of 4.77 billion won (S$5.6 million).

Although export sales of doors improved for KLW Holdings in the third quarter, its selling and distribution expenses more than doubled and administrative expenses stayed at nearly 30 per cent of revenue, resulting in the door maker continuing to bleed red ink.

KP Holdings expects a net loss for the group’s fourth quarter ended last December, it said in a profit guidance issued on Friday. Nonetheless, OKP “is expected to be profitable for the full financial year”, according to the brief bourse filing.

The brewer ThaiBev reported a 14 per cent jump in net profit to 8.4 billion baht (S$380 million) from 7.4 billion baht a year ago, led by improvements in the spirits business and a turnaround in the non-alcoholic beverage business. ThaiBev shares closed 0.5 Singapore cent or 0.6 per cent higher at 78.5 Singapore cents on Friday.

The national carrier SIA posted a 10.9 per cent rise in its Q3 net profit on Friday, but warned that the growing scale of the Covid-19 outbreak would pose “significant challenges” to the group as it looked to “tightly” manage costs ahead. SIA shares advanced three Singapore cents or 0.4 per cent to finish at S$8.62 on Friday before the results.

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


Sino Biopharmaceutical Ltd

Recommended Action: Technical SELL

Sino Biopharmaceutical (HK: 1177) will make one more bearish move downwards based on the technical

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Thai Beverage PLC – Full of spirit – A record quarter

Recommendation: BUY, Last Done: S$0.785

Target Price: S$0.950, Analyst: Paul Chew

— Revenue was within our estimates but earnings beat forecast. Beer operations disappointed but spirits division performed well.

— Spirits division net profit jumped 25% YoY in 1Q20 on higher volumes and better margins. Spirits account for 84% of group PATMI. Volumes touched a record 89mn litres.

— Beer sales volumes was a disappointment. Sabeco volumes dropped 6% in 1Q20 due to certain publicity regarding its ownership.

— We are upgrading our recommendation to BUY. The spirits business sales volume and margins are better than expected. Sabeco beer business should recover in the following quarters. We raised our SOTP-derived TP to S$0.95 (previously S$0.80). Our FY20e earnings is raised by 6%. We increased our margin assumption and modelled profitability for the NAB business.

Singapore Telecommunications Ltd – Guiding down

Recommendation: NEUTRAL, Last Done: S$3.220

Target Price: S$3.180, Analyst: Paul Chew

— Revenue and earnings disappointed. Competitive intensity in mobile for Australia and Indonesia is worse than expected.

— The turnaround in India is underway and Singapore operations stable.

— Revenue and EBITDA guidance lowered from stable to declining mid-single digit and low teens respectively. It is the 2nd consecutive quarter of weaker guidance.

— Downgrade to NEUTRAL with a lower TP of S$3.18 (prev. S$3.31). Despite the promising turnaround in India, we believe with the operational weakness in Australia will keep group earnings depressed in the near-term. We expect dividends to be maintained, supported by higher dividends from associates. Yield is now 5.4%.

SATS Ltd – Brace, Brace

Recommendation: NEUTRAL, Last Done: S$4.430

Target Price: S$4.450, Analyst: Paul Chew

— 3QFY20 revenue was better than expected. Earnings missed due to weaker margins. EBIT margins impacted by cargo weakness, increased IT expenses and higher contribution of newly consolidated Country Foods.

– Associate earnings fell due to start-up losses at new Daxing operations and exclusion of prior year gain on of sale of S$5.8mn from DFASS to KrisShop.

— The outlook is uncertain with the outbreak of COVID-19 virus. SATS revenue will suffer from the dip in aviation traffic and closure of restaurants in China. Our FY20e PATMI is cut by 23%. As a gauge of the impact, the Singapore Tourism Board mentioned a possible 25-30% fall in visitor arrivals in 2020 due to the outbreak.

— Downgrade to NEUTRAL from ACCUMULATE with a lower target price of $4.45 (prev. S$5.36). Excluding the acquisition, core revenues were flat. We think SATS will require some time to recover from the depressed volumes triggered by COVID-19 virus and to grow the organic earnings of their recent acquisitions.

SGD Bonds Monthly – Outlook February 2020

Credit Analyst: Timothy Ang

— Phillip SGD bond watchlist

— Upcoming bond maturities and call dates

— Dovish tone by Federal Reserve Chairman Jerome Powell reinforce interest rate stability. Fed funds futures is expecting one rate cut in 2020 to 1.25%-1.5%.

— In Singapore sectors, we are NEUTRAL on the S-REITs sector with sub-sector preferences: Office and Industrial, and NEUTRAL on Singapore Banks.

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