DAILY MORNING NOTE | 17 January 2024

Trades Initiated in the past week

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Singapore shares pulled back 0.5 per cent on Tuesday (Jan 16) in tandem with most key regional bourses. The banking trio all closed lower. DBS fell 1 per cent to S$32.34, UOB slipped 0.7 per cent to S$28.20, while OCBC lost 0.5 per cent to end at S$12.87.

US stocks retreated on Tuesday while the dollar gathered strength amid warnings that markets might have gotten ahead of themselves with respect to the timing and extent of central bank policy cuts. The Dow Jones Industrial Average fell 231.86 points, or 0.62%, to 37,361.12, the S&P 500 lost 17.85 points, or 0.37%, to 4,765.98 and the Nasdaq Composite dropped 28.41 points, or 0.19%, to 14,944.35.

Top gainers & losers

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Events Of The Week

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SG

S&P Global Ratings withdrew its ‘B+’ long-term issuer credit rating on Yanlord Land Group Ltd at the company’s request. The rating agency also withdrew its ‘B’ long-term issue rating on the senior unsecured notes that the China-based property developer guarantees. The outlook on issuer credit rating was negative at the time of the withdrawal.

Southern Alliance Mining Ltd. announced that its wholly owned subsidiary, Honest Sam Development Sdn Bhd (HSD), had on 10 January 2024, received two approval letters from the Department of Lands and Mines of Johor each bearing the title “Application For Exploration License For The Purpose Of Exploring Iron Ore And Other Minerals”. The exploration licenses are for areas located at Muar and Kota Tinggi and are subject to customary conditions, further details will be disclosed once they are available. With this approval, HSD is permitted to carry out exploration works on the said lands for a period of two years and is subsequently renewable for another twelve months. The Group intends to finance the exploration costs via internally generated funds. The Group has yet to develop a detailed plan to begin the exploration work for both areas, as it is now focused on the exploration works at Chaah Mine. The foregoing is not expected to have material impact to the Group’s financial position or results for the financial year ending 31 July 2024.

Lincotrade and Associates Holdings has successfully bid for a JTC Corporation property at 5 Tuas Avenue 12 with a tender price of S$9.6 million. On Jan 16, the company announced that its wholly-owned subsidiary had received a letter of award from JTC for the leasehold property with a tenure of 20 years commencing from March 26. The property is a 2-storey factory with a land area of approximately 6,498.5 sqm and a gross floor area of approximately 5,490.4 sqm. Lincotrade intends to relocate its operations and dormitories to the Tuas property from its current premises at 39 Sungei Kadut Loop, the lease of which will expire on Feb 28. Based on the Urban Redevelopment Authority (URA) circular dated Feb 10, temporary workers’ dormitories can be considered on the JTC property for up to 3 years, subject to relevant authorities’ approvals. In addition, the company says larger premises of the JTC property is suitable for its existing operational needs and could also cater to the expected future increase in business activities. The lease of the JTC property is subject to the conditions of tender published by JTC, which includes the installation of solar photovoltaic panels on the roof of the property, which Lincotrade has estimated to cost approximately S$200,000. As such, the aggregate consideration for the proposed acquisition, including the cost of solar panel installation is currently estimated to be some S$9.8 million. Lincotrade intends to satisfy the tender price through a combination of internal resources and bank borrowings.

The voluntary cash offer for Amara Holdings closed on Tuesday (Jan 16), with offeror Amethyst Assets garnering 88.39 per cent in shareholding interest. This fell short of the 90 per cent threshold for acceptances, which would have allowed the offeror to exercise its right of compulsory acquisition over the hotel group. As at 5.30 pm on Tuesday, Amethyst Assets received valid acceptances representing about 72.73 per cent of the total number of shares in the company. As the offeror did not secure 90 per cent or more of the total shares, it will not be able to buy over the shares of shareholders who did not accept the offer. In November 2023, Amethyst Assets – a consortium linked to Albert Teo, Amara’s chief executive, other members of his family and private equity investor Dymon Asia – made the privatisation offer, citing low trading liquidity and a challenging growth outlook.


US

Goldman Sachs’ profit rose 51% in the fourth quarter as its equity traders capitalized on a recovery in markets and revenue from its asset and wealth business rose, offsetting weakness in investment banking. The bank reported a profit of US$2.01 billion, or US$5.48 per share, for the latest quarter, compared with US$1.33 billion, or US$3.32 per share, a year earlier. Goldman’s equity trading revenue jumped 26% in the fourth quarter. Revenue from the asset and wealth management business also jumped 23% to US$4.39 billion, helped by gains from equity and debt investments. Investment banking fees fell 12% compared to last year, to US$1.65 billion, as a decline in mergers and acquisitions (M&A) offset the gains from debt and stock sales. Revenue from fixed income, currencies and commodities (FICC) trading fell 24% due to weakness in interest rate products and currencies, that dragged down gains from mortgage products. Goldman is among the banking giants that will pay a special assessment fee to refill a government deposit insurance fund (DIF) that was drained of US$16 billion by the collapse of two regional banks last year. It recognized a US$529 million expense tied to the fee in the fourth quarter.

Morgan Stanley’s profit dropped in the fourth quarter, hurt by a combined US$535 million in one-time charge that offset gains from a rebound in investment banking activity. The bank, alongside rival large-cap banks, are paying special assessment fees to the Federal Deposit Insurance Corporation to replenish a fund that was drained by almost US$16 billion in March 2023 after the collapse of mid-sized U.S. lenders. It paid US$286 million in special assessment fees to the regulator and US$249 million as legal charge. Morgan Stanley’s investment banking revenue rose 5% in the fourth quarter from a year ago. Its net income fell to US$1.5 billion, or 85 cents per diluted share, in the three months ended Dec. 31, compared with US$2.2 billion, or US$1.26 per diluted share, a year ago.

Tesla and SpaceX CEO Elon Musk, who also owns the social network X (formerly known as Twitter), said Monday that he wants about 25% of voting control over his electric vehicle business. Musk already owns around 13% of Tesla, or approximately 411 million shares of the company’s 3.19 billion shares in common stock outstanding, as reported in the company’s last financial filing for the third quarter of 2023. Specifically, Musk wrote on Monday, “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned.” “Unless that is the case, I would prefer to build products outside of Tesla,” the billionaire executive said on X.

Vodafone Group has struck an agreement with Microsoft to invest US$1.5 billion over the next decade to develop a range of businesses including artificial intelligence, digital payments and the Internet of Things. As part of the agreement, Vodafone will use OpenAI technology running on Azure to enhance customer service operations including its consumer chatbot, and Vodafone employees will have access to Microsoft Copilot, the companies said in a statement on Tuesday (Jan 16). It will also allow Vodafone to sell more Microsoft services to business clients, including Azure and Teams, and allow the telecom operator to move away from using its own data centres and onto Azure. Microsoft also intends to invest an undisclosed amount in Vodafone’s Internet-of-things division, which the UK-based telecommunications carrier plans to carve out by April. Vodafone will invite other partners to invest as well while maintaining a majority stake in the business, which generates about one billion euros a year in sales, Vodafone’s chief financial officer Luka Mucic said in an interview.

Apple is planning to remove its blood-oxygen feature from its latest smartwatches – the Series 9 and Ultra 2 – to get around a United States ban on the devices if an appeal of the decision fails. The plan was disclosed on Monday (Jan 15) by Masimo, which has been locked in a feud with Apple over patents related to the technology. It said that US Customs and Border Protection approved the move on Jan 12. The agency “decided that Apple’s redesign falls outside the scope” of an import ban by the US International Trade Commission (ITC), signalling that the adjustment will let Apple keep its watches on the market. The ITC had ruled in October that Apple’s devices violated Masimo patents related to blood-oxygen measurement. That led Apple to pause sales of the smartwatches just ahead of Christmas, though an interim stay allowed the company to bring the products back late last month.

Canadian miner Barrick Gold Corp said on Tuesday its gold and copper production rose sequentially for the fourth quarter. The company’s total preliminary output was 1.05 million ounces of gold and 113 million pounds of copper in the three months ended Dec. 31, up from 1.04 million ounces of gold and 112 million pounds of copper in the previous quarter. Barrick said it expects all-in sustaining costs (AISC) per ounce of gold, an industry metric that reflects total expenses, to rise about 8% to 10% from the previous quarter. Copper’s AISC is, however, expected to be 2% to 4% lower, largely on the back of lower capitalized waste stripping at Barrick’s Lumwana mine in Zambia. Barrick is scheduled to release its fourth-quarter results on Feb. 14, 2024.

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


RESEARCH REPORTS

FAANGM Monthly: Dec 23 – Muted end to 2023

Recommendation: OVERWEIGHT (Maintained); Analysts: Jonathan Woo, Zane Aw, Helena Wang, Phillip Research Team

– FAANGM ended 2023 +2.4% in December, lagging both the Nasdaq (+5.5%), and the S&P 500 (+4.4%). However, it still ended the year +62.4%, beating both indexes comfortably.

– META (+8.2%) was the biggest gainer, spurred by continued positive earnings momentum. While MSFT (-0.8%) was the main laggard.

– FAANGM valuations remain below their 10-year average of 32x. We believe there is room to grow given earnings upside for Digital advertising and Cloud-related companies, while demand for tech hardware remains soft. We maintain an OVERWEIGHT recommendation on FAANGM.

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