Trade of the Day

Delfi Ltd (SGX: P34)

Analyst: Zane Aw

(Current Price: S$1.31) – TECHNICAL BUY
Buy stop price: S$1.32 Stop loss: S$1.25
Take profit 1: S$1.44 Take profit 2: S$1.65

Week 29 equity strategy: It was an everything rally week. Bonds, equities and commodities rallied primarily on news of lower inflation in the U.S. Headline inflation in the US rose 3% YoY in June, marking the lowest since March 21. Supporting the drop in inflation was a massive 17% YoY collapse in energy prices, while goods prices rose only 1.3%. There is more downside in energy with US gasoline retail prices down 18% YoY in July. The critical core inflation was up 4.8% YoY, the slowest pace in 19 months. The persistent issue is stubborn shelter inflation, climbing almost 8% YoY.

Equities are still enjoying a melt-up phase on the disinflation and soft landing trade. Conversely, bonds have been a laggard due to a Federal Reserve determined to raise rates. We think bond prices could take the lead if it becomes more evident Fed is on pause. For the upcoming 26 July FOMC meeting, another 25 bps hike is very likely. Futures market is pricing a 90% probability. We doubt the Fed will give any indications of a pause until its September meeting when there is a more evident trend that core inflation (or PCE) is heading towards its target of 2%. As shelter inflation is computed by the consumer survey of renting instead of owning a home, there is less observable data. However, shelter surged especially in 4Q22. This gives us comfort that the higher comparable could depress rent in the coming months, especially with slower mark rents and existing home prices. If bonds start to rally on a Fed pause, it will be a positive for interest-sensitive equities, namely REITs and property.

Paul Chew
Head Of Research

Singapore shares advanced 10.17 points or 0.3 per cent to 3,248.63, taking the cue from Wall Street’s upbeat lead overnight. Gainers trounced losers, with 317 counters up and 223 down. In contrast to the general upbeat mood in the bourse, Hotel Properties Ltd (HPL) fell S$0.10 or 2.6 per cent to S$3.76 on Friday after the company took the market by surprise with an early morning announcement. The company said its co-founder and managing director Ong Beng Seng has been asked by Singapore’s Corrupt Practices Investigation Bureau to provide information on his interactions with Transport Minister S Iswaran, who is currently on a leave of absence.

Wall Street stocks finished a winning week on a subdued note Friday (Jul 14), with both the S&P 500 and Nasdaq edging lower despite solid earnings from large banks. The broad-based S&P 500 finished at 4,505.42, down 0.1 per cent for the day but up 2.4 per cent for the week. The tech-rich Nasdaq Composite Index dipped 0.2 per cent to 14,113.70, while the Dow Jones Industrial Average advanced 0.3 per cent to 34,509.03.

Top gainers & losers





Singapore’s economy expanded by 0.3 per cent in the second quarter of 2023 from the previous three months, narrowly avoiding a technical recession or two consecutive quarters of contraction. Gross domestic product (GDP) also grew 0.7 per cent year on year in the April-June period, according to advance estimates from the Ministry of Trade and Industry (MTI) on Friday. In the first three months of 2023, the economy had grown by 0.4 per cent year on year, slowing from the 2.1 per cent expansion in the previous quarter. On a quarter-on-quarter seasonally adjusted basis, it shrank 0.4 per cent, a reversal from the 0.1 per cent growth in the fourth quarter of 2022. Despite dodging a recession, economists were still rather gloomy about the outlook for Singapore’s economy. Growth in the second quarter was again weighed down by the trade-driven manufacturing sector, which contracted further on weakness in the global economy and the electronics down cycle, the ministry said. However, the service sector delivered an upside surprise.

Shares of Hotel Properties Limited (HPL) closed 2.6 per cent lower on Friday (Jul 14) after the company announced that its co-founder and managing director, Ong Beng Seng, had been issued a notice of arrest. Prior to the open, HPL said Ong was asked to provide the Corrupt Practices Investigation Bureau (CPIB) with information on his interactions with Minister for Transport S Iswaran, who has been put on a leave of absence as he assists in investigations into a case uncovered by the anti-graft agency. Ong will be travelling from Jul 14 and will surrender his passport to CPIB upon his return to Singapore.

The manager of ESR-Logos Reit (E-Log) said on Friday (Jul 14) that the divestment of seven non-core assets is in line with its strategy, and dismissed “speculation or insinuation” that the real estate investment trust (Reit) was in financial distress. Last month, E-Log announced a proposed divestment of seven non-core assets in Singapore and Australia for around S$337 million. These included a portfolio of five assets that were being divested for S$313.5 million, representing a 5.1 per cent discount to valuation. The manager said on Friday that the strategy of E-Log is to “rejuvenate the portfolio by divesting non-core assets that the manager believes will underperform when compared to the rest of the portfolio, and pivoting to higher-quality new economy assets”.

Ho Bee Land said on Friday (Jul 14) that the group expects to report an overall net loss for the first half ended June 2023. The property developer and investor said in a bourse filing that the losses are mainly attributable to fair-value loss based on indicative valuations of the group’s portfolio of investment properties in London. Further details will be disclosed when Ho Bee Land announces its H1 2023 results on or before Aug 10.

A long-term main tenant of IReit Global’s Berlin Campus, whose lease was due to expire on Jun 30 next year, has extended its lease by six months until Dec 31, 2024. The real estate investment trust (Reit) manager on Friday (Jul 14) said its tenant, German pension insurance company Deutsche Rentenversicherung Bund (DRV), will pay a revised rent that is about 45 per cent higher than its current office rent effective Jul 1, 2024. On top of this rent revision, DRV will pay an additional amount of about 18.5 months of its total current rent. IReit Global’s manager said this will allow for the initiation of its repositioning strategy of Berlin Campus into a multi-let asset. The transaction is estimated to improve Berlin Campus’ pro-forma weighted average lease expiry (Wale) to 1.8 years, from 1.3 years as at Mar 31, 2023. This would in turn boost the Reit portfolio’s Wale to 4.9 years from 4.8 years previously, said the manager.

It is not clear how much time or money would be needed to replace Sabana Reit’s manager or internalise its management function, should unitholders vote to do so at an upcoming extraordinary general meeting (EGM), the trustee of the real estate investment trust (Reit) said in a draft statement. Unitholders will vote on two resolutions – first, the removal of SREIM, and second, the internalisation of the Reit management function of Sabana Reit. If either or both resolutions are passed, the trustee will be directed to implement them without a replacement manager having been identified or an internalised management structure in place to transition the management of Sabana Reit to, HSBC Trustee said.

Samudera is considering re-entering the dry bulk vessel market to meet the increasing demand arising from Indonesia’s prospering mining sector. Similar to the strategy it has for its container ship fleet, Samudera is taking an asset-light approach to its dry bulk operations – that is, some of the vessels may be leased while others may be owned. This is to provide Samudera with the flexibility and nimbleness to adjust to market conditions. Tapping the strong demand for dry bulk shipping will mitigate the impact of freight-rate fluctuations on its mainstay container ship business. Boxship accounted for 98 per cent of Samudera’s pre-tax profit of US$325.7 million for FY2022. Contributions from Samudera’s two other divisions – bulk and tanker shipping, and agencies and logistics – were insignificant.


Tesla on Saturday (Jul 15) announced that its first electric pickup Cybertruck had rolled off the assembly line at its plant near Austin, Texas. The company had promised in April that it would be rolling out the first Cybertrucks before the end of the year. In May, Musk said the company hoped to build 250,000 of the trucks a year – a number he said could eventually double, given a relatively accessible price tag. Tesla will be making three models of the Cybertruck. The basic model will cost US$39,900 and offer a 400 kilometres range between charges; the top-line truck will have twice that range and sell for US$69,900.

A US appeals court on Friday (Jul 14) rejected the Federal Trade Commission’s (FTC) request that it order Microsoft to temporarily hold off on closing its US$69 billion purchase of “Call of Duty” maker Activision Blizzard. The appeals court decision removes one of the few remaining hurdles stopping Xbox maker Microsoft from expanding its gaming business by closing its deal to buy Activision. The FTC had also asked Judge Jacqueline Scott Corley of the US District Court in northern California for a stay but she rejected that request late on Thursday. The deal, the largest in the history of the videogame industry, still needs to be approved in Britain. The merger agreement between Microsoft and Activision will expire on Jul 18. After Jul 18, either company will be free to walk away from the deal unless they negotiate an extension.

JPMorgan Chase posted a 67 per cent jump in profit for the second quarter on Friday (Jul 14) as it earned more from borrowers’ interest payments and benefited from the purchase of First Republic Bank that bolstered its net interest income (NII), which measures the difference between what banks earn on loans and pay out on deposits. The bank’s NII jumped US$21.9 billion, up 44 per cent, or up 38 per cent excluding First Republic. The bank sees NII of about US$87 billion for the full year, higher than the US$83.37 billion expected by Wall Street. JPMorgan’s profit climbed to US$14.47 billion, or US$4.75 per share, for the quarter ended Jun 30. That compares with US$8.65 billion, or US$2.76 per share a year earlier.

Citigroup’s profit tumbled 36 per cent in the second quarter as weakness in the Wall Street bank’s trading business blunted gains from its personal banking and wealth management unit. Citi’s markets revenue fell 13 per cent to US$4.6 billion on more subdued activity in fixed income and equities, while its investment banking fees plunged 24 per cent to US$612 million. While its Wall Street operations dragged, the lender’s consumer business helped partly offset some of the weakness. Revenue from its personal banking and wealth management division climbed 6 per cent to US$6.4 billion, including an 8 per cent gain for branded cards to US$2.4 billion. Net income sank to US$2.92 billion, or US$1.33 per share, in the three months to Jun 30, the bank reported on Friday (Jul 14). That compares with US$4.55 billion, or US$2.19 per share, a year earlier.

Wells Fargo raised its annual forecast for net interest income (NII) after its profit surged 57 per cent in the second quarter. NII climbed 29 per cent to US$13.16 billion, benefiting from higher interest rates as Wells Fargo and other banks raised their borrowing costs. The bank said NII is expected to be about 14 per cent higher than last year’s US$45 billion. It had earlier forecast a 10 per cent rise. Wells Fargo reported profit of US$1.25 per share for the three months ended Jun 30, beating analysts’ average estimate of US$1.16 per share. The bank set aside US$1.71 billion in provisions for credit losses in the second quarter, compared with US$580 million a year earlier.

US online sales during Amazon.com’s Prime Day shopping event rose 6.1 per cent to US$12.7 billion from last year, as inflation-hit Americans hunted for discounts on the e-commerce platform. Shoppers spent US$6.3 billion on the second day of the big sale as deep discounts on products such as toys and appliances drew in customers who have otherwise cut their non-essential purchases due to rising prices. Amazon said over the two-day event, Prime members bought more than 375 million items worldwide and saved more than US$2.5 billion on several deals, making it the biggest Prime Day event ever.

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


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