Daily Morning Note – 17 May 2019


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Asian stocks climbed early Friday after U.S. equities posted a third day of gains, with investors for now looking through the flare-up in the U.S.-China trade war, which has left the yuan at its weakest in five months.

Japanese equities rose along with those in South Korea and Australia. The S&P 500 climbed 0.9% Thursday as solid earnings and strong housing data buoyed shares. The 10-year Treasury yield was back at 2.39% after testing 2019 lows earlier this week. Weakness is enduring for China’s offshore yuan amid the trade stand-off, with the currency down for a second week. In most recent developments, the Trump administration threatened to blacklist China’s Huawei Technologies Co. and Walmart Inc. warned tariffs would lead to higher consumer prices.


Keppel Corp Ltd

Current Sentiment: BULLISH

Keppel Corp bullish rally can be further echoed since it breaks the inverted head and shoulder neck line resistance during mid march 2019. Base on the following technical factors presented, the market might rally after 2 weeks of downslide correction


Singapore City Developments Limited – A sincere stride into China

BUY (Upgraded); TP S$11.820, Last close: S$8.630, Analyst: Tara Wong

– Revenue missed our estimates due to weakness at its hotel operations while PATMI was within our expectations.

– Recurring income shone, being the only segment that reported YoY revenue growth.

– Singapore residential sales is still going strong – launch of Boulevard 88 (highest unit psf sold to date of S$4.9k psf) in March 2019 comprised c.43% of total sales value.

– Hotel operations in the red, mainly due to US hotel losses and higher net finance costs.

– Proposed c.24% stake in Sincere Property Group would accelerate its entry into China’s residential segment. EPS-accretive notwithstanding accounting reversals. Proposed 70% stake in Sincere’s key commercial asset also bumps recurring income.

– Upgrade to BUY with unchanged TP of S$11.82. Our target price incorporates a 30% discount to RNAV.

ComfortDelGro Corp Ltd – Lifted by organic and inorganic growth

ACCUMULATE (Maintained); TP S$2.72, Last close: S$2.54. Analyst: Natalie Ong

– Revenue and EBITDA were marginally above our estimates. ARPU from cable TV business was more resilient than expected.

– Broadband disappointed with a steep drop in ARPU.

– Cable TV subscribers contracted for the fifth consecutive quarter.

– The strategic review announced by the company on 15 April 2019 has virtually removed all valuation discounts of APTT against its Taiwanese peers. Since the review, the share price had appreciated 38%. APTT’s peers are trading at a dividend yield of c.4.4% and a EV/EBITDA multiple of 11x. Our target price of S$0.16 is an aggressive 10% discount to these peers. We are downgrading APTT to REDUCE.

Singapore Telecommunications Limited – Remain vested for yield and recovery

ACCUMULATE (Maintained); TP S$3.310, Last close: S$3.120, Analyst: Alvin Chia

– EBITDA and net profit were within expectations. Full-year net profit was down 44% YoY. Excluding one-off gains in FY18 net profit would have been down 14% YoY.

– Associates Airtel continued to drag down earnings, expanding its losses to S$98mn. Telkomsel improved 2% YoY with a profit of S$223mn. Globe’s earnings surged 53% YoY on the back of higher data revenue and increase demand for internet services.

– Digital business is gaining traction, revenue spiked 33% YoY and accounts for 6% of revenue.

– We roll over our valuations to FY20e. Maintain ACCUMULATE with a higher TP of S$3.31.

Sembcorp Industries Ltd – More seasonal effects

BUY (Maintained); TP S$3.750, Last close: S$2.550, Analyst: Chen Guang Zhi

– 1Q19 revenue and net profit missed our expectations due to the lower revenue recognition from the Marine segment and seasonality.

– Both SEIL Project 2 and UKPR enjoyed seasonal benefits.

– Temporary shutdown of SEIL Project 1 translated into a net loss.

– A trivial profit contribution from Marine segment, and liquidity issue raises concerns.

– After incorporating the target price of S$1.76 for SMM, based on sum-of-the-parts method, we maintain our call to BUY with an unchanged target price of S$3.75.

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Oil futures were up more than 1 per cent on Thursday as tensions in the Middle East grew, with a Saudi-led coalition launching air strikes in retaliation for recent attacks on its crude infrastructure. Brent crude futures settled at US$72.62 a barrel, up 85 US cents, or 1.18 per cent, after touching their highest level in three weeks. US West Texas Intermediate (WTI) crude futures settled at US$62.87 a barrel, gaining 81 cents, or 1.37 per cent, after hitting its strongest level in two weeks.

Singapore Airlines reported a 28 per cent drop in fourth-quarter net profit to S$202.6 million from S$281.1 million a year ago on the back of weaker operating performance and a jump in non-operating costs related mainly to SilkAir’s re-fleeting and restructuring. Revenue grew 1.4 per cent to S$4.08 billion from S$4.02 billion a year ago, which was partially offset by higher net fuel cost – this was up 8 per cent – and non-fuel costs on capacity injection. Non-fuel costs increased 2.1 per cent, below the group’s passenger capacity growth of 8 per cent.

Malaysia‘s economic growth slowed in the first quarter, dragged down by weaker trade and investment in the export-reliant nation. Gross domestic product expanded 4.5 per cent from a year ago, down from 4.7 per cent in the fourth quarter, the central bank said in Kuala Lumpur on Thursday. The median estimate in a Bloomberg survey of 22 economists was for growth of 4.3 per cent.

Baidu on Thursday reported lower-than-expected first-quarter earnings and forecast quarterly revenue below estimates, sending its shares down 8 per cent in extended trading. Revenue from its online marketing services business, a major contributor to overall sales, rose nearly 3 per cent to 17.66 billion yuan (US$2.57 billion or S$3.52 billion), but missed estimates of US$2.66 billion, according to research firm FactSet.

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

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