Daily Morning Note – 17 January 2022
Welcome to our Daily Morning Note from our Research team!
Singapore shares displayed remarkable resilience on Friday, defying losses across most major regional bourses, which were rattled by hawkish “Fed speak” and a tepid overnight session in Wall Street. The key Straits Times Index jumped 24.67 points or 0.76 per cent to 3,281.97, pushing through its 2021 high of 3,273.54.
The Dow closed lower on Friday (Jan 14) with a big drag from financial stocks as investors were disappointed by fourth quarter results from big US banks, which cast a shadow over the earnings season kick-off. The Nasdaq and the S&P regained lost ground in afternoon trading to close higher. Meanwhile the consumer discretionary stocks put pressure on the indexes throughout the session after morning data showed a December decline in retail sales and a souring of consumer sentiment. The Dow Jones Industrial Average fell 201.81 points or 0.56 per cent to 35,911.81, the S&P 500 gained 3.82 points or 0.08 per cent to 4,662.85 and the Nasdaq Composite added 86.94 points or 0.59 per cent to 14,893.75. For the week, the S&P 500 fell 0.3 per cent while the Dow fell 0.9 per cent and the Nasdaq fell 0.3 per cent.
Stocks to watch: UOB
The Singapore Retailers Association (SRA) is calling for job support and hiring schemes to be extended and for rental relief to be legislated, even as the government plans to scale back Covid-19 support. Among a slew of suggestions in its Budget 2022 wishlist, SRA is also asking the government to remove mall capacity restrictions and give out one-off shopping vouchers of up to S$1,000 to “rejuvenate the retail scene”, one of the hardest-hit sectors during the pandemic. SRA said the removal of mall entry and dine-in restrictions can maximise benefits brought by Singapore’s Vaccinated Travel Lane (VTL) scheme and enhance the Republic’s attractiveness to visitors.
With recovering profitability and the lifting of dividend restrictions last year, the 3 local banks were positioned to surprise investors with higher dividend payouts for FY2021 and FY2022. Instead, UOB delivered a different sort of surprise last week. On Jan 14, the bank unveiled plans to acquire Citigroup’s consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam. The move will potentially put its capital to good use as the pandemic wanes and regional economic activity recovers over the next few years. It could also reposition UOB in the eyes of investors as a potent regional consumer banking play, and boost the performance of its shares over the next few years. Under the deal, UOB will pay a cash consideration equivalent to S$915 million plus the net asset value (NAV) of the consumer business as at completion of the transaction.
The private residential market is likely to start the year on a quiet note as developers wait until after Chinese New Year (Feb 1 and 2) to market their properties, analysts say. This seasonal lull also gives developers a chance to “wait and see” before making any major decisions in response to the recent round of property cooling measures. Since the curbs were introduced in mid-December last year, PropNex has observed a 20 to 30 per cent slowing in new home sales on average, compared to the weeks prior, said chief executive Ismail Gafoor. According to caveats lodged, developers sold 643 new homes in December 2021, excluding executive condominiums (ECs), down 58.4 per cent from November’s 1,547 units. “However, the slower sales are most likely due to seasonality and the holidays as buyers, sellers, or agents go on their year-end break. In our view, the dip in sales is not entirely a result of the cooling measures,” Gafoor said. Analysts added that they have not seen major announcements from project developers, such as launch delays or major price cuts.
Netflix has raised its monthly subscription price by US$1 to US$2 per month in the United States depending on the plan, the company said on Friday (Jan 14), to help pay for new programming to compete in the crowded streaming TV market. The standard plan, which allows for 2 simultaneous streams, now costs US$15.49 per month, up from US$13.99, in the United States. Prices also rose in Canada, where the standard plan climbed to C$16.49 (S$17.70) from C$14.99. Shares of Netflix gained nearly 3 per cent to US$533.84 on Nasdaq after Reuters broke the news of the price rises. They closed 1.3 per cent higher at US$525.69. The increases, the first in those markets since October 2020, took effect immediately for new customers. Existing members will see the new prices in the coming weeks when they receive their monthly bills.
Multiple states have begun investigating potential violations in how Facebook, now known as Meta Platforms, runs its virtual-reality Oculus business, according to 3 sources familiar with the matter. Two of the sources said the US Federal Trade Commission was also involved in the antitrust investigation. Meta did not immediately respond to a request for comment. New York, North Carolina and Tennessee were among the states involved in the inquiry, one source said. A group of almost 50 states also asked an appeals court on Friday (Jan 14) to reinstate their antitrust lawsuit, filed in December 2020, against Facebook. The inquiries into Facebook’s Oculus business are part of the larger probe, one of the sources said.
Unilever Plc has held talks with banks about additional financing for a potential sweetened offer for GlaxoSmithKline Plc’s consumer products division, Bloomberg reported on Sunday, citing people familiar with the matter. Unilever and GSK did not immediately respond to Reuters’requests for comment. The news came a day after GSK said it had rejected a £50-billion (S$92.13 billion) offer from Unilever for the consumer goods arm. GSK said it had received three bids from Unilever, the latest on Dec 20. Unilever could eventually sell some non-core assets from the GSK portfolio to buyers including private equity firms, which could help fund an acquisition, the Bloomberg report added.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Phillip Singapore Strategy – SPAC: Free lunch for the few
Analyst: Paul Chew
– Three special purpose acquisition companies (SPACs) will be launched on the SGX – Vertex Technology Acquisition Corp. (VTAC), Pegasus Asia (PA) and Novo Tellus Alpha Acquisition (NTAA, pending).
– The IPO offers are an attractive free lunch for investors. SPAC shares are 100% redeemable at S$5 offer price with free warrants thrown in with the shares. The public or retail offer is only 1.5 – 2.0% of the total issued shares.
– Apart from SPAC-ulating on the newsflow, we are cautious on SPACs post-IPO until valuations and ownership structures of the target company are determined.
United Overseas Bank Limited – Turning more competitive overnight
Recommendation: Accumulate (Maintained)
– UOB acquired Citigroup’s consumer banking franchise in Indonesia, Malaysia, Thailand and Vietnam for ~S$5bn.
– Maintain ACCUMULATE with a higher GGM TP of S$31.30, from S$29.00. We raise FY21e earnings by 3.8% as we increase NIM estimates for FY21e. We now assume 1.26x FY21e P/BV in our GGM valuation, up from 1.17x, as we raise our ROE estimates to 10.2%. Recovery path for UOB is on track. Potential upside surprise includes GP writebacks and special dividends.
Technical Pulse: Celanese Corp
Recommended: Technical Pulse; Analyst: Chua Wei Ren
Celanese Corp (US: CE) Technical price action indicates a bullish return
Buy spot: 173.53 Stop loss: 163.00 Take profit 1: 185.00 Take profit 2: 190.40
Technical Pulse: Duke Energy Corp
Recommended: Technical BUY; Analyst: Chua Wei Ren
Duke Energy Corp (US: CE) Technical price action indicates a bullish return
Buy stop: 105.00 Stop loss: 100.00 Take profit 1: 111.20 Take profit 2: 120.40
Technical Pulse: Genscript Biotech Corp
Recommended: Technical BUY; Analyst: Chua Wei Ren
Genscript Biotech (HKEX: 1548) Despite a stop-loss based on our report dated 25th November, we managed to achieve our first target profit in Dec 2021. Recent technicals have also shown a strong bullish continuation.
Buy spot: 32.00 Stop loss: 26.50 Take profit 1: 37.70 Take profit: 46.50
Technical Pulse: Sino Biopharmaceutical Ltd
Recommended: Technical BUY; Analyst: Chua Wei Ren
Sino Biopharmaceutical (HKEX: 1177) upside is returning based on technicals.
Buy spot: 6.15 Stop loss: 5.50 Take profit 1: 6.70 Take profit: 7.50
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Date: 10 January 2022
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