DAILY MORNING NOTE | 17 November 2022
Singapore shares struggled for direction on Wednesday (Nov 16), with the Straits Times Index (STI) closing 0.3 per cent or 9.11 points lower at 3,266.17 amid mixed regional performance. In the broader market, gainers beat losers 292 to 271, after 1.7 billion securities worth S$1.5 billion were traded. On the STI, ST Engineering was the index’s strongest performer, gaining 2.3 per cent or S$0.08 to close at S$3.50. This comes after the company announced on Tuesday evening that its subsidiary, TransCore, has secured a contract worth S$1.47 billion to modernise the tolling infrastructure in New Jersey. Yangzijiang Shipbuilding was at the bottom of the table, declining 3 per cent or S$0.04 to S$1.31. The trio of local banks ended in the red. DBS shed 0.3 per cent or S$0.11 to S$35.07, OCBC lost 0.4 per cent or S$0.05 to S$12.42, while UOB fell 0.5 per cent or S$0.16 to close at S$29.84.
US stocks closed lower on Wednesday as markets grappled with a mixed picture involving resilient retail sales but a gloomier outlook for the holiday season. The Dow Jones Industrial Average slipped 0.1 per cent to finish the session at 33,553.83. The broad-based S&P 500 dipped 0.8 per cent to 3,958.79, while the tech-rich Nasdaq Composite Index tumbled 1.5 per cent to close at 11,183.66. The slump came after major US retailer Target reported weaker-than-expected third quarter profits, citing an “increasingly challenging environment” as American households were squeezed by soaring inflation. Target shares plunged 13.1 per cent after it warned of a softer holiday season, which weighed on other merchants as well. US retail sales data on Wednesday suggested resilience in consumer spending despite price pressures, but there was a slight dip in discretionary segments such as electronics and appliance stores. Meanwhile, Federal Reserve Governor Christopher Waller said he was “comfortable” considering a slower pace of interest rate hikes given recent signs of easing inflation and a slowing economy, although more increases are still needed. But even with a smaller, half-point step at the Fed’s December policy meeting – following four straight three-quarter point hikes – he cautioned that “this would still be a very significant tightening action.”
South-East Asian on-demand player Grab narrowed its net loss to US$327 million for Q3 ended September, an improvement from the US$970 million loss a year ago. This was primarily due to the elimination of non-cash interest expenses from Grab’s convertible redeemable preference shares upon its December 2021 listing. Revenue for the company grew 143 per cent to US$382 million in Q3, lifted by a doubling in mobility revenue and 250 per cent growth in deliveries’ revenue year on year. This came as gross merchandise value (GMV) was up 26 per cent to US$5.1 billion. With this set of earnings, Grab’s deliveries segment has hit positive adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) for the first time, three quarters ahead of previous guidance. This was possible due to the optimisation of incentive spend and contributions from its Malaysian retail chain, Jaya Grocer. The food-delivery sub-segment also turned adjusted-Ebitda positive in Q3, two quarters ahead of previous guidance. On the back of the positive showing, Grab has lifted its FY2022 revenue guidance to between US$1.32 billion and US$1.35 billion, up from the US$1.25 billion-to-US$1.3 billion range. It has aso revised its H2 2022 adjusted Ebitda guidance to negative US$315 million, an improvement from negative US$380 million. Looking ahead, Grab’s management noted that a potential growth catalyst would be the relaxation of Covid-19 restrictions in China, which would boost demand from Chinese tourists across the region. Asked whether Grab would explore merger and acquisition (M&A) opportunities in the current climate, Oey replied: “We’re very focused on organic growth… Cash preservation is critical for us, and our bar on M&A is high also.” Grab shares had closed at US$3.13 on Tuesday (Nov 15), up 5.7 per cent.
Singapore’s state-owned investor, Temasek International, invested between US$200 million and US$300 million into cryptocurrency firm FTX before its implosion, according to people familiar with the matter. Temasek is now preparing to write off the entire amount, one of the people said, asking not to be identified as the matter is private. Another backer, Sequoia Capital, wrote down the full value of its US$214 million bet on the exchange, while a person with knowledge of the situation said SoftBank Group Corp. is expecting a loss of around US$100 million on its investment. A Temasek representative declined to comment. The meltdown of Sam Bankman-Fried’s FTX empire and the evaporation of capital from its institutional backers is shaking confidence throughout the crypto world. The firm had been considered by some investors as one of the safer bets in the sector thanks to its size and role as an exchange, rather than being just an active manager of digital currency. A potential FTX writedown wouldn’t have a major impact on Temasek’s overall financial standing. The Singaporean firm, which managed SUS$403 billion (US$294 billion) in assets as of March 31, said in July it didn’t invest in crypto directly, focusing instead on building the ecosystem. When asked about the valuations of FTX and Amber Group, another crypto company it backed, Temasek US West Coast head Martin Fichtner expressed confidence in the long-term performance of its portfolio companies. “What we focus on is this: Are the businesses healthy and are they growing, and do we think the prospects are strong?” he said at the time. “We feel strongly about the companies in our portfolio performing well over time, and we’ll see cycles in terms of multiples go up and down as the cycles occur.” Since then, FTX has filed for Chapter 11 bankruptcy and Bankman-Fried has stepped down as its chief executive officer. Amber, which was seeking to raise funds at a US$10 billion valuation earlier this year, is now aiming for a US$3 billion value.
The US dollar slid back on Wednesday (Nov 16) towards the multi-month lows it hit a day earlier after the flight to the safe-haven greenback caused by a missile strike on Poland reversed, as it emerged the blast was likely caused by Ukrainian air defences. The euro was last 0.67 per cent higher at US$1.04 and closing in on the four-and-a-half month peak of US$1.05 it touched on Tuesday after US producer price inflation came in below expectations. That data reinforced bets that last week’s cooler-than-expected consumer price inflation was not a one-off. Slowing US inflation, if sustained, should mean the US Federal Reserve can slow or even pause the aggressive rate hikes that sent the US dollar to multi-decade highs against the pound, euro and yen this year. Daily moves were more a function of geopolitical concerns, however, as the European common currency rebounded from as low as US$1.03 on Tuesday when news of the explosion sent traders to the safety of the US dollar, which also caused falls in equities. Nato-member Poland and Ukraine initially said the blast was likely caused by a Russian missile, but Poland and Nato on Wednesday said it was likely caused by a Ukrainian air defence missile. The US dollar was flat against the Japanese yen at 139.32, near Tuesday’s two-and-a-half-month low of 137.67, and was also down 0.5 per cent on the Swiss franc at 0.94, near Tuesday’s seven-month low. The US dollar index, which tracks the greenback against six main peers, was 0.44 per cent lower at 105.9.
US chip designer and computing firm Nvidia on Wednesday (Nov 16) said it is teaming up with Microsoft to build a “massive” computer to handle intense artificial intelligence computing work in the cloud. The AI computer will operate on Microsoft’s Azure cloud, using tens of thousands of graphics processing units (GPUs), Nvidia’s most powerful H100 and its A100 chips. Nvidia declined to say how much the deal is worth, but industry sources said each A100 chip is priced at about US$10,000 to US$12,000, and the H100 is far more expensive than that. In addition to selling Microsoft the chips, Nvidia said it will partner with the software and cloud giant to develop AI models. Buck said Nvidia would also be a customer of Microsoft’s AI cloud computer and develop AI applications on it to offer services to customers. The rapid growth of AI models such as those used for natural language processing have sharply boosted demand for faster, more powerful computing infrastructure. Nvidia said Azure would be the first public cloud to use its Quantum-2 InfiniBand networking technology which has a speed of 400 gigabits per second. That networking technology links servers at high speed. This is important as heavy AI computing work requires thousands of chips to work together across several servers.
Elon Musk sent a message to Twitter staff telling them they had until Thursday (Nov 17) to decide whether they wanted to stay on at the company to work “long hours at high intensity” or take a severance package of three months pay. Musk told Twitter employees that anyone who had not clicked on a link confirming “you want to be part of the new Twitter” by Thursday evening New York time would be considered to have quit. A copy of the message, which was reported by The Washington Post, was reviewed by Reuters. Three sources who had received the message at Twitter confirmed its content. Twitter did not immediately respond to a request for comment from Reuters. The latest move to restructure the company comes after Twitter slashed half of its workforce earlier this month as Musk took control of the social media company. Musk has criticised Twitter’s spending and work culture, and said that the company needs steep cost cuts and a reboot of its services. The billionaire CEO of Tesla has taken to cost-cutting with a vengeance. Even after mass layoffs that forced it to attempt to offer some employees in critical divisions to return, some employees on Tuesday said they had been fired, which they suspected was due to posting critical comments of the company or Musk on Twitter or its internal message platform. Musk called himself a “free speech absolutist” when he pursued the Twitter purchase. Last week, in his first company-wide email, Musk said remote work would no longer be allowed and that employees would be expected in the office for at least 40 hours per week, while warning that Twitter may not be able to “survive the upcoming economic downturn.” He also told employees that if “you do not show up at the office, resignation accepted,” according to a transcript of a meeting reported by Verge.
US chip design firm Advanced Micro Devices (AMD) on Wednesday (Nov 16) said Japan’s major automotive supply company Aisin has chosen AMD’s micro processor to power a new system that can help cars park themselves. The chip is called the Zynq UltraScale+ MPSoC and was developed by Xilinx, which was acquired by AMD this year. Xilinx specialises in chips called FPGAs, or field-programmable gate array. Their circuits can be reconfigured after the chip is installed in things like cars. This will allow automakers to update not only software, but also the chip, after the car is sold, Rehan Tahir, AMD’s senior product marketing manager for automotive told Reuters. Tahir said the Aisin auto parking system will start production on 2024 models, but declined to say which car brands would use it. Aisin is a member of the Toyota Group of companies. Toyota Motor introduced one of the first parking assist systems in Japan in the early 2000s. The system, which guides vehicles into parking spaces, was offered in 2006 in the United States on the top-of-the-line Lexus LS sedan, and now is marketed on a wide range of Toyota and Lexus models, including the Prius. Tahir said the Aisin system works with four cameras and 12 ultrasonic sensors on the car to parallel park and also back into parking spaces. But the human in the car will have to decide if that spot is in a no-parking zone, he said.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Recommendation: BUY (Maintained); TP S$1.75, Last close: S$1.30; Analyst Paul Chew
• 3Q22 earnings were below expectations. YTD22 revenue and PATMI were 74%/50% respectively of our FY22e forecast. UK and Australia earnings disappointed due to lags in repricing higher bus fuel and wages. A performance worse than the pandemic.
• Operating profit in Singapore recovered significantly from S$1.8mn to S$46.7mn. Recovery is from the surge in rail ridership and lower taxi rental rebates plus maiden booking commissions.
• We cut our FY22e PATMI by 24% to S$207.3mn. The recovery in Singapore from the surge in rail ridership and lower taxi rebates will continue in 4Q22. However, the time lag to pass through higher labour and fuel costs in Australia and UK will place pressure on operating margins. We lowered our DCF target price from S$1.80 to S$1.75.
Recommendation : BUY (Maintained); TP: US$110.00, Last Close: US$58.76
Analyst: Jonathan Woo
• 3Q22 revenue beat expectations by 7%; net loss was a beat by 35% on employee expense cuts and more prudent spending on sales & marketing. 9M22 revenue was at 69% our FY22e forecasts. Net loss was at 73% of our FY22e forecasts.
• Improving monetization is driving Shopee growth, with a 1.5% YoY increase in take rate. Operating losses in SeaMoney were cut by half due to 33% YoY reduction in sales & marketing expenses.
• Weakness in gaming continues to weigh on Garena; revenue was down 19% YoY due to reduced user engagement and monetization.
• We maintain a BUY recommendation with an unchanged DCF target price of US$110.00, with a WACC of 7.6%, and a terminal growth rate of 3.0%.
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