DAILY MORNING NOTE | 17 November 2023

Summary of Trades Initiated in Past Week

Singapore’s stocks turned in a flattish performance on Thursday (Nov 16), although that came after narrowing losses during the day. Singapore Airlines shares closed at S$6.22, having risen 0.3 per cent a day after the national carrier reported a 24.5 per cent year-on-year increase in passenger traffic in October, amid robust passenger traffic across all its route regions. However, its passenger load was 87.4 per cent in October, declining marginally by 0.3 percentage points from September’s 87.7 per cent. iFast’s closing price reached a 52-week high at S$7.73, up 0.4 per cent, following a three-week climb since it published a 308 per cent surge in its third-quarter net profit in late October. Its shareholders can look forward to more generous dividend payouts in tandem with expected “substantially” higher revenue and profits, its chief executive had said at the October results briefing.

A rally in Wall Street stocks showed signs of fatigue Thursday (Nov 16) as shares of Cisco Systems and Walmart plunged following corporate forecasts, weighing on the Dow. The Dow Jones Industrial Average finished down 0.1 per cent at 34,945.47. The broad-based S&P 500 added 0.1 per cent at 4,508.24, while the tech-rich Nasdaq Composite Index also climbed 0.1 per cent to 14,113.67. Major indices rallied the last two days following economic data showing moderating inflation that has suggested the US economy is slowing but may avert recession. But shares of Walmart tumbled 8.1 per cent despite solid earnings from the retailing giant on the back of a 4.9 per cent jump in comparable sales at US stores.

SG

Singtel said the upgrading of Singtel Internet Exchange, STiX, was not the root cause of the Optus network outage on Nov 8. STiX is Singtel’s Internet peering exchange, acting as an infrastructure “shortcut” that helps move vast amounts of data across the world. The company referred to recent media reports indicating that “changes to routing information” from STiX, following a routine upgrade, led to Optus’ 14-hour-long network meltdown last week. The outage was first reported about 4 am in Australia last Wednesday (1 am SGT on Nov 8).

The Monetary Authority of Singapore (MAS) is pushing ahead with plans to explore the potential of issuing and using digital money here. The central bank on Thursday (Nov 16) published a blueprint outlining the infrastructure required for a digital Singapore dollar, and announced that it will be expanding trials on digital money. MAS will also issue a “live” central bank digital currency (CBDC) for wholesale settlement, with plans to start developing CBDCs for wholesale interbank settlement next year. The expanded digital money trials will cover four areas: tokenised bank liabilities, wallet interoperability, supplier financing, and institutional payment controls. These will be undertaken with industry players, including various merchants and financial institutions, to examine relevant infrastructure components and commercial models.

Well Chip, a company set up to own shares in ValueMax Group’s Malaysian associated companies, has applied for a listing on the main market of Bursa Malaysia. On Thursday (Nov 16), Well Chip applied to the Securities Commission Malaysia (SC) to register its listing prospectus, ValueMax disclosed in a bourse filing. Well Chip also applied to the Ministry of Investment, Trade and Industry to allocate 75 million of its new ordinary shares to selected approved investors. It made a separate application to the Equity Compliance Unit of the SC for the listing. The move takes ValueMax a step closer towards listing its Malaysian associated companies on the domestic bourse.

US

The US dollar nudged higher on Thursday (Nov 16) after a volatile two days that saw sharp declines followed by a rebound, as traders took incoming economic data as signalling the Federal Reserve will wait longer before cutting interest rates. The US dollar index – which tracks the US currency against six other units – rose 0.2 per cent to 104.53. It fell by 1.51 per cent plunge on Wednesday – its largest drop for a single trading day in a year. The greenback drew some support from better-than-expected retail sales combined with more signs of cooling inflation, feeding into the narrative for an economic “soft landing”, which would give the Fed more time before cutting rates.

Walmart raised its annual sales and profit forecast on Thursday (Nov 16) for the second straight quarter, signalling a strong start to the holiday season. The US retail giant has used its size and scale to keep prices low despite inflation, drawing in not just low-income shoppers but also more high-income consumers looking for cheaper options to stretch their budgets. The strong demand for low-priced products from groceries to clothing and gifts, coupled with better in-stock levels, has helped Walmart take more market share from other retailers – including dollar stores – in recent months. Walmart now expects fiscal 2024 earnings per share of between US$6.40 and US$6.48, up from its prior forecast of US$6.36 to US$6.46. It sees comparable sales for the full year rising in a range of 5 per cent to 5.5 per cent, compared with an increase of between 4 per cent and 4.5 per cent estimated previously.

Tether Holdings is taking steps to become one of the world’s top Bitcoin miners, as the US$87 billion stablecoin operator makes a hefty investment in the already highly competitive sector. The company plans to spend about half a billion dollars over the next six months, its incoming chief executive Paolo Ardoino said in an interview, both through constructing its own mining facilities and by taking stakes in other companies. That investment includes part of a US$610 million credit facility that Tether had extended to publicly-traded Bitcoin mining company Northern Data this month, after acquiring shares in the Frankfurt-based firm in September.

A little over a month after launch, Amazon on Thursday announced its pair of prototype internet satellites were fully successfully in operations and testing. Project Kuiper is Amazon’s plan to build a network of 3,236 satellites in low Earth orbit to provide high-speed internet access anywhere in the world. The company plans to invest upwards of $10 billion to build Kuiper and recently broke ground on a $120 million pre-launch processing facility in Florida. With the prototypes’ testing in space now complete, Badyal said Amazon plans to begin building the first production Kuiper satellites in December and launch the first satellites for its network in the “latter part of the first half” of 2024.

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

RESEARCH REPORTS

Sea Ltd. – Buying market share

Recommendation: BUY (Maintained); TP US$61.00, Last close: US$38.49; Analyst Jonathan Woo

– 3Q23 revenue was in line with expectations, while the -US$144mn net loss was a disappointment due to a 50% YoY surge in e-commerce sales and marketing (S&M) spend. 9M23 revenue/PATMI were at 71%/68% of our FY23e forecasts.
– Shopee is gaining market share against its competitors as GMV and gross orders return to strength, driven in part by Shopee Live. Market share gains have come at the cost of profitability. Garena user trends negatively impacted by back-to-school seasonality.
– We cut our FY23e/FY24e EBITDA by 19%/16% to reflect a ramp-up of investments in Shopee. FY23e PATMI is cut by 46% as a result. Even as its near-term outlook is clouded by increasing spend and competition, we still believe SE is well-positioned to capture e-commerce growth in many under-penetrated emerging markets due to its scale and logistics infrastructure. We expect FY24 to be profitable given comments from SE regarding its commitment to not overspend on Shopee, plus profitability contribution from Garena and SeaMoney. We maintain BUY with a reduced DCF target price of US$61 (prev. US$87), and an unchanged WACC/growth rate of 7.6%/3%.

ComfortDelGro Corp Ltd – Higher pricing supporting margins

Recommendation: BUY (Maintained); TP S$1.57, Last close: S$1.33; Analyst Paul Chew

– 3Q23 normalised PATMI jumped 48% YoY to S$48mn and was within our expectations. Revenue was softer than expected. 9M23 revenue and PATMI were 73% and 78% of our FY23e forecast.
– Earnings growth was driven by a turnaround in the UK bus operation and growth in Singapore taxi operations. UK benefited from higher pricing through contract indexation and renewal. Singapore taxi margins expanded with platform fees.
– We lower our FY23e revenue by 4% and PATMI is maintained. Our BUY recommendation and DCF target price of S$1.57 is unchanged. Earnings momentum will be sustained by higher bus service fees in the UK, taxi platform fees in Singapore and lagged pricing of rail services in Singapore.

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