DAILY MORNING NOTE | 18 March 2024

Trade of the Day

Broadcom Inc. (NASDAQ: AVGO)

Analyst: Zane Aw

(Current Price: US$1262.27) – TECHNICAL SELL
Sell stop: US$1247.00 Stop loss: US$1285.00 (-3.05%)
Take profit 1: US$1200.00 (+3.77%) Take profit 2: US$1145.00 (+8.18%)

Factsheets


Palantir Technologies Inc. (NYSE: PLTR)

Analyst: Zane Aw

(Current Price: US$24.43) – TECHNICAL SELL
Sell stop: US$24.14 Stop loss: US$25.50 (-5.63%)
Take profit 1: US$22.30 (+7.62%) Take profit 2: US$20.30 (+15.91%)

Factsheets


Trades Initiated in the past week

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Week 12 Equity Strategy

The S&P advanced to a new high last week, led by six stocks in the Magnificent 7. The strength is led by strong EPS growth expectations vs the rest of the S&P 500, with Nvidia accounting for more than half of the increase YTD. The biggest cuts in earnings revisions YTD are in energy, healthcare and materials.

The March FOMC meeting will be the main event in the coming week. After the firm increase in core CPI last week, the market has abandoned any hope of a rate cut in March. Still, the market is pricing in three rate cuts this year. The updated Summary of Economic Projections will shed light on FOMC’s directions going forward. Even with lower base rate, corporates’ costs of funds are still expected to be higher YoY. For instance, SIA issued US$500mn 5.25% notes due 2034 – priced at yield of 5.296% – to fund the redemption of a S$750mn 3.03% note maturing on 28 March 2024.
Japan reported higher wage growth at 5.28%, up from 3.8% in March 2023. For smaller firms, the wage growth was 4.42%, up from 3.45%. The wage growth acceleration could prompt the BOJ to raise the policy rate from the current -0.1% to 0% or +0.1% at their meeting this week or in April. Higher rates could strengthen Yen, raising the value of Yen-based assets. This could benefit REITs with Japanese assets.

In Singapore, job vacancies rose slightly to 79,800 in Dec 23 (Sep23: 78,200), after falling for 6 consecutive quarters since peaking in Mar 2022. The ratio of job vacancies to unemployed persons was 1.74, which have been rising since Mar 2021 (0.96). A tight labour market would sustain affordability for residential properties.

Peggy Mak
Research Manager
peggymak@phillip.com.sg


Singapore shares closed lower on Friday (Mar 15), tracking a decline across most regional markets as investor sentiment was hit by inflation concerns. Three counters ended in the black on Friday, including DBS and Hongkong Land, which climbed 0.1 and 0.6 per cent, respectively. Shares of Jardine Matheson led the index gainers, climbing 1 per cent to close at US$39.79. Meanwhile, Emperador extended its losing streak, falling 7 per cent on Friday to end at S$0.40. The counter has shed 20 per cent over the past five trading days. Other top decliners for the day included Seatrium and Yangzijiang Shipbuilding, which were down 3.3 and 2.9 per cent, respectively.

Wall Street stocks ended the week on a downcast note on Friday (Mar 15), with all three major indices retreating as traders looked ahead to next week’s US central bank interest-rate decision. The Federal Reserve is due to make the policy announcement next Wednesday at the end of a two-day meeting, with all eyes on signs of when the first rate cut could take place. While the Fed has signalled it is likely to start lowering rates this year, hotter than expected wholesale price data and consumer inflation has reignited concerns that cuts could come later than anticipated. The Dow Jones Industrial Average fell 0.5 per cent to 38,714.77. The broad-based S&P 500 Index lost 0.7 per cent to 5,117.15, while the tech-focused Nasdaq Composite Index dropped 1.0 per cent to 15,973.17.

Top gainers & losers

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Events Of The Week

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** We are ceasing coverage of Uni-Asia Group Ltd with immediate effect due to a reallocation of resources. The previous recommendation can no longer be relied upon.**

SG

SIA posts 20.4% y-o-y growth for February in operating update. The group’s passenger load factor decreased 0.3 percentage points (ppts) y-o-y to reach 86.3%. SIA and Scoot posted monthly passenger load factors of 84.5% and 92.6%, respectively. The airlines carried a combined total of 3.1 million passengers during the month, up 28.2% y-o-y. As at end-February, the group’s passenger network covered 121 destinations in 35 countries and territories. SIA served 76 destinations, while Scoot served 67 destinations. The cargo network comprised 126 destinations in 37 countries and territories. Shares in SIA closed 4 cents lower or 0.62% down at $6.38 on March 15.

SATS has announced the proposed acquisition of Terminal & Transporttjänst i Sigtuna AB (TT) and APH Logistics AB (APH) by its wholly-owned subsidiary, WFS Sweden AB, for SEK94 million ($12.1 million). According to SATS, the move will strengthen the group’s presence in the Stockholm market and its specialised cargo handling capability, as well as add new capacity for growth. Both TT and APH operate out of Stockholm Arlanda, the largest airport in Sweden. TT provides cargo handling and transportation services to airlines, freight forwarders and time-critical medical suppliers, while APH specialises in border inspection services with perishable and cold chain facilities, which complements the air cargo services provided by TT. The group says it has been focused on advancing its twin-engine growth strategy by strengthening its core operations in Singapore and replicating its capabilities to expand internationally. The proposed transaction is not expected to have any material impact on SATS’ net tangible assets per share and consolidated earnings per share for the current financial year. Shares in SATS closed 1 cent lower or 0.39% down at $2.55 on March 15.

On March 17, GuocoLand announced that 400 units or 75% of the 533 units at Lentor Mansion, were sold over the two days from March 15-16. The sales include nearly 100 units taken up at the VIP launch on Friday, March 15. Jointly developed by GuocoLand and Hong Leong Holdings, Lentor Mansion has a mix of two- to five-bedroom units across three 16-storey towers and three eight-storey towers. Prices of units sold ranged from $1.149 million for a 527 sq ft two-bedder to $3.512 million for a 1,507 sq ft five-bedder. The two-bedders were the most popular units at the launch, with all 214 units sold. Of the 199 units of three bedders, 84% were taken up. The four-bedders and five-bedders saw 16% and 13% sales respectively. The launch of Lentor Mansion also marked the first development under URA’s new guidelines on harmonisation of the strata and gross floor area, where units are sold based on liveable space, which excludes air-conditioner ledges. Based on the new URA guidelines, units at Lentor Mansion were sold at prices ranging from $2,104 psf to $2,478 psf.


US

Nvidia’s historic 2024 rally keeps piling on records. The stock rose 0.4 per cent over the latest week, making for the chipmaker’s 10th straight positive week, the longest such winning streak in its history. Meanwhile, the Philadelphia Stock Exchange Semiconductor Index fell 4 per cent this week, its biggest one-week drop since January. Nvidia gained about 80 per cent over the 10-week rally, and the streak is the latest example of how investors have continually bid up the company amid sky-high demand for chips used in artificial intelligence. Nvidia is the top gainer among Nasdaq 100 Index components this year, just as it was in 2023. The rally has resulted in a market capitalisation of about US$2.2 trillion for Nvidia, making it the third-largest publicly traded stock, behind Microsoft and Apple. The next major test for the stock will come on Monday (Mar 18), when chief executive officer Jensen Huang will speak at the company’s annual GTC conference.

Tesla on Friday (Mar 15) said it will increase prices for all Model Y cars in the United States by US$1,000 on Apr 1, the automaker said on its website. “Prices will increase by US$1,000 for all Model Y trims on Apr 1,” Tesla said on its website. The company on Mar 1 also raised the prices of its Model Y rear-wheel drive and long-range vehicles by US$1,000 to US$43,990 and US$48,990, respectively. Tesla did not make it explicitly clear if the April increase would come on top of the March increase for the rear-wheel and long-range models. Tesla had temporarily cut prices of some of its Model Y cars in the US in February, nearly a month after it slashed prices across Europe and China. “This is the essential quandary of manufacturing: factories need continuous production for efficiency, but consumer demand is seasonal,” chief executive officer Elon Musk said in February, replying to a post on X from Tesla saying prices would go up in March.

The US dollar rose to a more than one-week high on Friday (Mar 15) after a mixed batch of data showed the US economy remained stable with small pockets of weakness, suggesting the Federal Reserve could keep interest rates higher for longer or reduce the planned number of rate cuts this year. The dollar index, which tracks the US currency against six major peers, was on pace to post a weekly gain of 0.7 per cent, the largest since mid-January. The index was last flat at 103.43. Data on Friday showed a solid US manufacturing sector, with output rebounding by 0.8 per cent last month after a downwardly revised 1.1 per cent decline in the prior month. The Fed is scheduled to meet this week and while it is not expected to make any interest rate moves, hotter-than-expected US producer and consumer price data has led traders to rein in bets on future cuts.

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


RESEARCH REPORTS

Q & M Dental Group Ltd – Data-driven treatments can commence

Recommendation: BUY (Upgraded); TP S$0.36 Last close: S$0.25; Analyst Paul Chew

– 2023 adjusted PATMI exceeded our expectations at 121% of forecasts. Operating margins recovered from higher revenue per patient and more stable employee expenses. Associates also turned around from losses the prior year.

– Q&M is rationalising their network of clinics and closing poor performing clinics. Revenue intensity per patient is raised by utilising its EM2AI software. Data is drawn from dental scans, medical notes and records to ascertain the necessary level and timeliness of the treatments for patients. We view EM2AI as a critical tool for efficiency and differentiation.

– We upgraded our recommendation from ACCUMULATE to BUY and raised our target price to S$0.36 (prev. S$0.34). We value the company at 20x PE FY24e earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.051, Not Rated) is valued at market price with a 20% discount. We expect Q&M to return to growth in FY24e. The key drivers are higher revenue per patient, more stable employee cost (as staffing levels for nurses normalise), deconsolidation of EM2AI R&D expenses and turnaround in associates.

Singapore REITs Monthly – Expectations of rate cuts pushed to 2H24

Recommendation: Overweight (Maintained)

Analyst: Darren Chan

– The S-REITs Index fell 5.1% in February, following the 4.4% decline in January after rate cut expectations were pushed to 2H24. The top performer for the month was Cromwell European REIT (CERT SP, non-rated) – it gained 2.1% after commendable results, with DPU falling only 8.7% despite higher finance costs and the absence of contribution from redevelopment and €197mn of asset sales. The worst performer was Keppel Pacific Oak US REIT (KORE SP, non-rated) – it fell 55.4% after halting distributions to conserve capital. The overseas retail sub-sector was the top performer in February, falling 2.7%, lifted by Sasseur REIT (SASSR SP, BUY, TP S$0.87) which reported strong outlet sales growth (+31.9%). The worst performing sub-sector continues to be overseas commercial.

– S-REITs are now trading at a forward dividend yield of c.6.4% (+0.5x s.d.) and a P/NAV of 0.87x (-1.9x s.d.).

– We remain OVERWEIGHT on S-REITs as we enter a monetary easing cycle. We continue to favour REITs with a healthy balance sheet, strong sponsors, and improving operating metrics, such as REITs in the hospitality and retail sub-sector. Catalysts are expected from a pick-up in the economy, asset recycling, and interest rate cuts. Top picks are CapitaLand Ascott Trust (CLAS SP, ACCUMULATE, TP S$1.04) and Frasers Centrepoint Trust (FCT SP, ACCUMULATE, TP S$2.38).

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