Daily Morning Note – 17 May 2021
PHILLIP SUMMARY
Stocks are set to start the week firmer in Asia, as easing commodity prices and slightly softer U.S. data allay investor concerns about excessive inflation. Futures rose in Japan, Australia and Hong Kong. The main threat to a renewed rally is the latest series of lockdowns in the region to curb spiking coronavirus cases. U.S. futures edged higher. Stocks ended in the green Friday after gathering price pressures pushed equity markets globally to their worst weekly loss since February. Currencies were steady in early Asia trading.
The dollar edged lower against major currencies on Friday after US retail sales unexpectedly stalled in April and as concerns about prospects of accelerating inflation receded.The greenback was down half a per cent against a basket of currencies at 90.317, retracing most of the gains made earlier last week after data showed a surprise surge in consumer prices.
BREAKING NEWS
SG News
Food and beverage as well as retail businesses will get more help to defray operational costs and tap on the online market, amid the tighter Covid-19 restrictions. A Food Delivery Booster Package will fund five percentage points of the commission cost charged by the three food delivery platforms Deliveroo, Foodpanda and GrabFood; and an E-Commerce Booster Package, which helps brick-and mortar retailers including heartland shops to go online, will be re-introduced from Sunday.
First Resources on Monday reported net profit of US$8.8 million for the first quarter ended March 31, down 60.5 per cent from US$22.2 million the year before. This came despite an increase in sales, reflecting the impact of higher export taxes from the new export levy structure implemented in Indonesia since December 2020, the palm oil producer said in a business update. Sales rose by 40.3 per cent to US$196.9 million, from US$140.4 million the year prior, mainly due to the recovery in production volumes and yields.
ST Group Food Industries’ joint venture partner Papparich Group Sdn Bhd (PGSB) was ordered by the High Court of Malaya on May 5 to wind up. A winding-up petition dated May 15, 2020 was filed by Chen Khai Voon against PGSB. Chan Siew Mei of KPMG Deal Advisory Sdn Bhd has been appointed as the liquidator. PGSB is the group’s joint venture partner in relation to Papparich Australia Pty Ltd, in which the group has a 50 per cent equity interest. It is not a subsidiary or an entity within the group.
Mapletree Commercial Trust (MCT) on Sunday said it is committed to providing the necessary rental and operating assistance to its retail tenants as Singapore tightens its Covid-19 measures till June 13. Since the start of the pandemic, MCT has implemented support packages comprising more than S$70 million of rental rebates to help eligible retail tenants offset, on average, more than four months of fixed rent. This includes the passing on of property tax rebates, cash grants from the government and other mandated grants to qualifying tenants.
JD Logistics will price its shares between $HK39.36 and $HK43.36 each as the company aims to raise up to $3.4 billion, according to the company’s filings, in one of Hong Kong’s largest share sales in 2021. The logistics offshoot of JD.com Inc will sell 609.1 million shares in the deal which is 10% of the company’s total shares, the filings said.An over-allotment option, or so-called greenshoe, exists to sell a further 91 million shares that would raise up to a further $510 million. At that size, JD Logistics will be one of the biggest deals in Hong Kong this year following the Kuaishou Technology IPO in late January which raised $5.4 billion.
Chinese logistics giant SF Holding is looking to raise US$340 million through a listing of its unit, SF real estate investment trust (SF Reit), in Hong Kong. It is offering some 520 million units ranging from HK$4.68 (S$0.81) to HK$5.16 each. The company had started book building on Wednesday and expects to list the Reit on May 17. At maximum deal size, the initial public offering (IPO) will be the largest Reit or business trust IPO in Hong Kong since 2014.
US News
Bitcoin traded below US$45,000 on Sunday after a tweet by Tesla CEO Elon Musk, an outspoken supporter of cryptocurrency, suggested Tesla may be considering or may have sold off its bitcoin holdings. On May 12, Mr Musk said Tesla will no longer accept bitcoin for car purchases, citing long-brewing environmental concerns for a swift reversal in the company’s position on the cryptocurrency.
Consumer sentiment dropped sharply in early May, as inflation spiked and consumers prepared for higher interest rates. The preliminary estimate of the University of Michigan’s index of consumer sentiment released Friday came in at 82.8, a drop of 6.2% from the month ago reading of 88.3
Both the current conditions and future expectations indices fell, by 6.6% and 6.2%, respectively.
This week’s slate of quarterly earnings results will include big box retailers Target (TGT) and Target (WMT), which will provide investors with more information on consumer spending trends during the COVID-19 pandemic recovery. New economic data on housing starts, building permits and existing home sales will also offer an update on the state of the housing market, which has started to cool as mortgage interest rates tick up and inventory tightens.
The auto industry will suffer a $110 billion hit to revenues this year due to the ongoing shortage of semiconductor chips, according to a new analysis from AlixPartners consulting firm. That is a steep increase from January estimates of $60 billion. With no clear resolution in sight, the industry will likely produce about 3.9 million fewer vehicles than originally planned for all of 2021, the firm said. The chip shortages are not only curbing production of current models but may also force delays in the rollout of some 2022 products. Consumers, meanwhile, already are finding it harder to find the vehicle of choice — or any vehicles, in some cases. At the same time, prices are surging
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
TECHNICAL PULSE
Keppel DC REIT
Analyst: Chua Wei Ren
Recommended Action: Technical BUY
Keppel DC REIT (SGX: AJBU) corrective downside is potentially coming to an end after the technical indicate bullish signals
Buy spot: 2.58 Stop loss: 2.48 Take profit 1: 2.75 Take profit 2: 3.04
RESEARCH REPORTS
IREIT Global – Growth spurt
Recommendation: ACCUMULATE (Maintained), Last Done: S$0.635
Target Price: S$0.68, Analyst: Tan Jie Hui
– 1Q21 likely in line as portfolio occupancy was stable at 95.9%. No rent rebates or deferrals were provided.
– New sale and leaseback of Decathlon portfolio in France to increase scale and diversification. Greater income stability from longer portfolio WALE of 4.5 years.
– Maintain ACCUMULATE with lower DDM TP (7.85% discount rate) of S$0.68 from S$0.70. FY21e DPU dips 7% to reflect impending equity fund-raising. Our TP implies 7% yields and total prospective returns of 14.1%.
NetLink NBN Trust – Stable as expected
Recommendation: ACCUMULATE (Maintained); TP S$1.03, Last close: S$-
0.98; Analyst Paul Chew
– Revenue and EBITDA in FY21 modestly below expectations, at 98%/95% of our FY21e forecasts due to write-off of IT assets.
– FY21 DPU up 0.6% YoY to 5.08 cents (FY20: 5.05 cents). Current annual distribution of S$198mn backed by operating cash flows of S$264mn.
– Core residential revenue expanded 1.5% YoY in 2H21, in tandem with a 1.4% improvement in fibre connections to 1.44mn. Net adds slowed down to 9,424 residentials in 2H21 (1H21 9,915; 2H20 16,818).
– ACCUMULATE rating and DCF TP of S$1.03 (WACC 5.9%) unchanged. Dividend yield of 5.2% supported by monthly recurring revenue from 1.44m residential fibre connections. Growth to be sustained by estimated 25,000 new residential homes per year. Company is exploring telecommunication infrastructure opportunities overseas, including emerging countries and minority stakes.
PropNex Ltd – Reinforcing another record year
Recommendation: BUY (Maintained); TP S$1.36, Last close: S$1.14; Analyst Paul Chew
– 1Q21 results beat by a large margin. Revenue and PATMI were 40%/51% of our forecasts. Private resales were up the most, by 91% YoY to S$55mn.
– Revenue growth of 63% was led by all segments.
– PATMI almost doubled YoY to S$14.8mn, raising net cash to S$118.9mn (4Q20 S$105.8mn; FY19 S$81.6mn). Operating cash flows were S$13mn.
– BUY maintained with higher DCF TP (WACC 9.8%) of S$1.36, from S$1.00. Our FY21e PATMI is raised 34% to S$41.3mn as we lift revenue by 23%. The buoyant property market implies further upside. That said, we build in a buffer given the recent COVID-19 lockdown and potential property-cooling measures. Yields of 5.7%, S$119mn net cash and 33% ROEs remain PROP’s investment merits
CapitaLand Limited – More green shoots
Recommendation: BUY (Maintained), Last Done: S$3.51
Target Price: S$4.38, Analyst: Natalie Ong
– Residential sales powered further ahead. Units sold in 1Q21 in Singapore and China catapulted 3.9x and 3.3x YoY. Higher capital recycling lifted total fee income by 9% YoY.
– Retail, office and industrial properties resilient. Lodging recovery stalled by movement restrictions in several countries.
– Maintain BUY and TP of S$4.38, based on probability-weighted RNAV and SOTP. We assume 80% probability of approval for demerger. CAPL still our top pick for the sector. High recurring income and pivot to New Economy assets are expected to keep earnings stable and portfolio future-ready
ComfortDelGro Corp Ltd – Back to core profitability
Recommendation: BUY (Maintained); TP S$1.83, Last close: S$1.58; Analyst Paul Chew
Target Price: S$4.38, Analyst: Natalie Ong
– 1Q21 PATMI of S$56.2mn was 29% of our FY21 expectations. Earnings were supported by government relief of S$33mn.
– Public transport EBIT down 47% YoY to S$17mn, excluding government relief. Singapore ridership at 65% of pre-pandemic levels. Australia bus services stable.
– FCF surged to S$101.6mn from S$38.6mn in 1Q20. Cash from operations was S$224.9mn (1Q20: S$105.5mn).
– No change in our BUY recommendation and DCF target price of S$1.83 (WACC 7.7%). Singapore’s return to lockdown is expected to delay Comfort’s recovery this year. Lockdown hurts rail revenue and increases the likelihood of more rental relief for taxi drivers. We are still modelling a recovery this year albeit delayed. Another share price driver will be the restructuring of Downtown Line revenue model. In Australia, Comfort is looking to unlock value from its operations via an IPO or partial sale. Australia accounted for 19% of FY19 EBIT.
SG Bonds Weekly – Week 20
Credit Analyst: Timothy Ang
– Inflationary fears drove an equity markets selloff last week as the US reported a spike in consumer inflation by 4.2% in April. 10yr US Treasury yields widened to 1.65%.
– Despite this, Asia primary debt market activity picked up with high yield issuers picking up the pace.
– Yanlord Land Group returned to the US dollar bond market with its first US$500mn green bond offering through Yanlord Land (HK).
HK Reports – Read up on our Hong Kong reports here
Webinar Of The Week
Market Outlook: Weekly Market Outlook: Ascott, Lendlease, SPH, UOB, OCBC, Starhub, SG Weekly
Date: 11 May 2021
Updates summarised in 3 minutes
Phillip Research in 3 minutes: #29 – Keppel Corporation; Initiation
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