DAILY MORNING NOTE | 17 October 2022
Local stocks continued their losing streak on Friday (Oct 14), even as most Asian markets rallied, following robust overnight gains on Wall Street. The benchmark Straits Times Index (STI) fell for the seventh straight day, dipping 0.03 per cent or 0.84 points to 3,039.61, hitting a fresh 19-month low. For the week, the market barometer was down 3.4 per cent or 106.20 points. Economic data on Friday showed that Singapore’s economy beat expectations and grew 4.4 per cent year on year in the third quarter – higher than expectations for 3.5 per cent growth in a Bloomberg poll. Meanwhile, the Monetary Authority of Singapore also tightened monetary policy to fight inflation, but it was less aggressive than the “double-barrelled” move expected by some economists. While Singapore stocks opened stronger, the market turned negative at the close of trading, with real estate investment trusts (Reits) among the biggest losers. Frasers Logistics & Commercial Trust and Mapletree Pan-Asia Commercial Trust were the top STI decliners, falling 5.1 per cent and 3 per cent respectively. Capitaland Ascendas Reit was the only STI Reit to end the day higher, climbing 0.4 per cent to S$2.61.
Wall Street stocks closed sharply lower on Friday (Oct 14) as investors worried about inflation and rising interest rates while the dollar rose against the yen and sterling after the British prime minister’s firing of her finance minister. Sterling fell sharply after Britain’s Liz Truss fired finance chief Kwasi Kwarteng and scrapped parts of their economic package, which had caused an uproar in financial markets. The dollar also kept rising against Japan’s beleaguered yen, hitting a fresh 32-year peak of 148.86. Oil settled sharply lower as recession concerns translated to worries about demand. In US Treasuries, benchmark 10-year yields gained some ground after data showed US retail sales were unexpectedly flat in September as high inflation crimped demand and investors continued to bet on aggressive Federal Reserve rate hikes. The US third quarter earnings season started on a positive note with shares of JPMorgan Chase, Wells Fargo and Citigroup rising after their reports. But as the session wore on, equity declines deepened with oil prices pushing energy stocks down sharply and consumer stocks falling sharply. The Dow Jones Industrial Average fell 403.89 points, or 1.3 per cent, to 29,634.83, the S&P 500 lost 86.84 points, or 2.4 per cent, to 3,583.07 and the Nasdaq Composite dropped 327.76 points, or 3.1 per cent, to 10,321.39. The pan-European Stoxx 600 index rose 0.6 per cent and MSCI’s gauge of stocks across the globe shed 1.3 per cent.
UG Healthcare Corp. is proposing to diversify its existing glove manufacturing and distribution business and be involved in the development, management, and operation of active retirement homes and healthcare and wellness business. A joint venture consortium intends to begin the Active Retirement Homes project in Malaysia, which is located 21 kilometres south from the newly-opened Desaru Coast Ferry Terminal in Johor. As the Proposed New Business is substantially different from the existing business and is envisaged to change the risk profile of the Group. Hence, the Proposed Diversification is subject to the approval of shareholders at an extraordinary general meeting.
Comment: We view the transaction as a major change in business strategy and risk. We see little synergy or advantage between manufacturing of gloves and property development and investment. Our NEUTRAL recommendation and target price of S$0.20 is under review.
Head Of Research,
Keppel Corporation Limited will be commencing charters for four rigs assets in Saudi Arabia. The four KFELS B Class jackup rigs will be deployed on bareboat charters in Saudi Arabia this month. The rigs are being chartered in pairs to Arabian Drilling Company (ADC) and ADES Saudi Limited Company (ADES) respectively and are expected to generate a total charter revenue of about S$250mn over three to five years. These four rigs and their bareboat charter agreements form part of Keppel O&M’s legacy rigs and will be transferred to Asset Co, which is majority-owned by external investors, upon completion of the proposed combination of Keppel O&M and Sembcorp Marine.
Comment: As utilisation and day rates continue to rise (~US$20k/day on average), demand for modern, high specification jackup rigs continue to grow. In our view, the deployment of the bareboat charters in Saudi Arabia will strengthen the value proposition of Keppel’s rig assets to its customers and investors. We believe this further reinforces Keppel’s ability to monetise its legacy rigs and is a positive event for the deal with Sembcorp Marine. Our BUY recommendation and target price of $8.95 is maintained.
Senior Research Analyst,
AEM Holdings announced in a bourse filing on Friday (Oct 14) that it has raised its revenue guidance for the full year ending Dec 31 upwards to between S$820 million and S$850 million. This is up from its previous FY2022 revenue guidance of between S$750 million and S$800 million as part of its investor presentation for the half year ended Jun 30 this year.
It attributed the revised revenue guidance to increased demand from new and existing companies. The announcement comes after AEM saw huge sell-offs over the last week as a result of fears over tapering semiconductor demand. Notably, DBS Group Research downgraded the counter to “hold” from “buy” and nearly halved its target price to S$3.19 from S$5.88 on expectations of prolonged weakness from key customer Intel. AEM shares closed 2.2 per cent or S$0.07 lower at S$3.18 on Friday, before the announcement was made.
Agri-food company Japfa on Friday (Oct 14) said that its China dairy unit AustAsia Investment Holdings, now referred to as AustAsia Group, has filed an application to extend its proposed listing on the Stock Exchange of Hong Kong. The company did not give a revised timeline for the application or the listing in the bourse filing. Back in March, Japfa proposed a distribution-in-specie of its entire shareholding in AustAsia, a move that would result in eligible shareholders receiving AustAsia shares in proportion to their respective shareholdings in Japfa. In the announcement on Friday, Japfa said in a “cautionary statement” that it does not intend for the proposed distribution to be effective until the listing date. The company also said the proposed listing, as well as the proposed distribution, are dependent on factors such as the requisite approvals from the relevant regulatory authorities and the then-prevailing market conditions. Japfa added that its board, or the board of AustAsia, could also decide not to proceed with the proposed listing or the proposed distribution should they deem it to be a transaction that is “not in the interests” of either Japfa or AustAsia, even if all requisite regulatory approvals have been obtained. “Accordingly, there is no assurance that the proposed distribution and proposed listing will materialise in due course or at all,” said Japfa. The company said it will make the relevant announcements when required, or when material developments arise in respect of the transactions. Shares of Japfa closed flat on Friday at S$0.51 prior to the announcement.
Amazon shoppers appear to have shrugged off promotions for discounted phone chargers and air fryers during this week’s Prime Day-like sales bonanza. The 48-hour event, dubbed the Prime Early Access sale, ran through Wednesday. For Amazon, the event tested how members of its Prime subscription program would respond to two major discount events in the same year, after the company’s main Prime Day sale in July. Amazon on Thursday said that tens of millions of Prime members ordered more than 100 million items from third-party vendors. It disclosed little else about the results, such as sales figures. But data collected by third-party analysts gives a deeper look into how the Prime Day sequel went over with shoppers compared to Amazon’s sales event in July. Sales during this week’s event seemed “lighter” compared to Prime Day in July, Bank of America analysts said. They estimate Amazon brought in $5.7 billion in revenue from the Prime Early Access Sale vs. $7.5 billion in July. Commerce data company Klover said it observed slower spending and volume, noting transaction frequency was down 30% between the July event and October event.
Comment: The Prime Early Access Sale event faces tough comparison to this year’s Prime Day, which was referred as the “biggest Prime Day event” by Amazon. We suspect consumers may have already spent their shopping budget during the July event and decided not to make any more purchases. Nonetheless, we feel that the October event has helped in boosting Amazon’s 4Q22 performance and clearing the currently high level of inventory. Our NEUTRAL rating and target price of US$133.00 for Amazon is maintained.
Morgan Stanley on Friday posted third-quarter results that missed analysts’ expectations as investment banking revenue collapsed by 55%. The New York-based bank said profit of $2.63 billion, or $1.47 a share, fell 29% from a year earlier. Revenue of $12.99 billion dropped 12% from a year earlier, driven by the fall-off in investment banking and declines in investment management revenue. Shares of the bank slumped 4.8%. Investment banking revenue fell 55% to $1.28 billion in the quarter, essentially matching the estimate of analysts surveyed by StreetAccount. Investment management revenue, however, dropped 20% to $1.17 billion, which was below the $1.29 billion estimate. Morgan Stanley’s investment banking, trading and investment management operations are all impacted by the vagaries of the market, and the quarter was a choppy one. Wall Street banks are grappling with the collapse in IPOs and debt and equity issuance this year, a sharp reversal from the deals boom that drove results last year. The slowdown was triggered by broad declines in financial assets, recession concerns and the Ukraine war. Shares of the bank have dropped 19% this year through Thursday, holding up better than the 25% decline of the KBW Bank Index. JPMorgan Chase , a rival to Morgan Stanley in Wall Street trading and advisory activities, posted results that topped expectations on strong interest income. Wells Fargo and Citigroup also posted mixed results Friday. Bank of America is scheduled to report on Monday, followed by Goldman Sachs on Tuesday.
JPMorgan Chase on Friday posted results that topped analysts’ estimates as the biggest U.S. bank by assets took advantage of rising rates to generate more interest income. The bank said third-quarter profit fell 17% from a year earlier to $9.74 billion, or $3.12 a share, as the firm added to reserves for bad loans by a net $808 million. Excluding a 24 cent per share hit tied to losses on investment securities, the bank posted earnings of $3.36 a share, handily topping analysts’ estimate. Revenue jumped 10% to $33.49 billion in the quarter, thanks to higher interest rates as the Federal Reserve battles inflation. Net interest income surged 34% to $17.6 billion in the period because of higher rates and an expanding book of loans. That topped analysts’ expectations by more than $600 million. Shares of the New York-based bank rose 2.6%. JPMorgan CEO Jamie Dimon noted that while consumer and businesses were financially robust in the period, the economic picture was darkening.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
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