DAILY MORNING NOTE | 19 July 2023

Singapore shares ended Tuesday (Jul 18) largely unchanged with a loss of just 0.17 point to close at 3,254.26. Thinly-traded special-purpose acquisition company Novo Tellus was the top gainer on the local bourse, rising 3.7 per cent or S$0.17 to close at S$4.71. iFast Corp, which is set to announce its H1 and Q2 financial results next Tuesday after the market close, also made significant gains. The counter rose 1.7 per cent or S$0.08 to S$4.83. Venture Corporation was among the top decliners for the day, shedding 0.9 per cent or S$0.13 to S$14.91.

Wall Street stocks rose on Tuesday (Jul 18), with the Dow advancing for the seventh straight session, as solid banking earnings helped extend a market rally. The Dow Jones Industrial Average finished up 1.1 per cent at 34,951.93. The broad-based S&P 500 advanced 0.7 per cent to 4,554.98, while the tech-rich Nasdaq Composite Index gained 0.8 per cent to 14,353.64.

SG

Manulife US REIT (MUST) has reported a decline in the valuation of its portfolio to US$1.63 billion as at June 30, 14.6% lower than the US$1.91 billion that was last reported as at Dec 31, 2022. Most of the reasons behind the declines were due to higher discount rates and terminal capitalisation rates for certain properties, as well as a continued weakening of occupancy performance across the US office market. Following the lowered valuations, the REIT’s aggregate leverage will be around 57%. While the aggregate limit is above the regulatory limit of 50%, MUST’s limit is not considered to be breached if the limit is exceeded due to circumstances that are beyond the control of the manager, says MUST. However, the REIT is in breach of its financial covenant for its existing loans in that its ratio of consolidated total unencumbered debt to consolidated total unencumbered assets is 60.2:100, above the 60% (or 60:100) limit.

Singapore Technologies Engineering (ST Engineering), on July 18, announced that its wholly-owned subsidiary VT Hackney, S.A. de C.V. in Mexico has been placed under members’ voluntary liquidation. The exercise is part of the group’s review to streamline its legal entity structure. It is not expected to have a material impact on its net tangible assets (NTA) per share or earnings per share (EPS) for the group’s current FY.

ComfortDelGro on Tuesday (Jul 18) said its subsidiary ComfortDelGro Transit has bagged a six-year contract to operate rail services in Paris, France. The contract was awarded to ORA, an international consortium comprising ComfortDelGro and two French companies. ComfortDelGro said this marks its first foray into France’s rail operations market, and is the first such move by a Singapore company. The contract is for an initial term of six years, though there is opportunity for a further extension to nine years. The company said that it is also participating in a rail tender in Stockholm, Sweden, in partnership with public transport operator Go-Ahead Nordic.

The Singapore Exchange Regulation (SGX RegCo) has rejected restaurant operator No Signboard’s application for further extension to hold the company’s annual general meeting (AGM) by Aug 18. SGX RegCo also rejected the company’s application to submit its sustainability report by Aug 3, to release its Q1 FY2023 results by Aug 10, to release its Q2 FY2023 results by Aug 17, and to release its Q3 FY2023 results by Aug 24. SGX RegCo has urged the board of No Signboard to take “immediate action” to announce the company’s FY2022 and FY2023 unaudited financial results, issue its FY2022 annual report and sustainability report, as well as hold its FY2022 AGM “as soon as possible”.

Qian Hu Corporation has reported net profit attributable to shareholders for 1HFY2023 ended June of $29,749, down 96.4% y-o-y. This was on the back of a 9.9% decline in group revenue to $34.3 million, as it continues to be impacted by the Russia-Ukraine conflict and geopolitical landscape which dampened demand for its fish segment. Meanwhile, its accessories business was affected by the weakening and conservative purchasing sentiments experienced globally. For 1HFY2023, the group’s earnings per share was 0.03 cent while net asset value per share was maintained at 43.03 cents, down slightly from the year-ago period.

US

US retail sales rose less than expected in June, though consumer spending appeared to be solid, which likely kept the economy afloat in the second quarter. Retail sales increased 0.2 per cent last month from the month before, the Commerce Department said on Tuesday (Jul 18). Economists had forecast retail sales gaining 0.5 per cent. Data for May was revised higher to show sales gaining 0.5 per cent instead of 0.3 per cent as previously reported. Excluding cars, petrol, building materials and food services, retail sales increased 0.6 per cent in June. Data for May was revised slightly up to show these so-called core retail sales increasing 0.3 per cent instead of the previously reported 0.2 per cent.

US industrial production fell by more than analysts expected last month, the Federal Reserve said on Tuesday (Jul 18), with a sharp contraction in output seen in consumer durables such as automotive products and carpeting. June marked the second consecutive monthly decline. The 0.5 per cent dip in industrial production was driven by a steep contraction in the index for consumer durables – such as appliances, furniture and carpeting – which fell by 2.7 per cent, said the Fed. Consumer non durables also contracted by 0.9 per cent due to decreases in clothing, energy, as well as food and tobacco production. The monthly decline was below the median expectation of economists. Although there were monthly declines in May and June, industrial production rose 0.7 per cent on an annual basis in the second quarter, said the Fed.

Bank of America’s (BofA) profit rose nearly 20 per cent in the second quarter as it earned more from customers’ loan payments, while its investment banking business fared better than expected. The bank reported a 7 per cent rise in investment banking fees to US$1.2 billion. That contrasts with peers whose earnings suffered from a dealmaking drought that has persisted for months. BofA’s net interest income (NII) rose 14 per cent to US$14.2 billion in the second quarter, while its consumer banking unit revenue rose 15 per cent to US$10.5 billion. Net income applicable to common shareholders rose to US$7.10 billion, or 88 US cents per diluted share, for the three months ended Jun 30, compared with US$5.93 billion, or 73 US cents per diluted share, a year earlier.

Morgan Stanley’s profit slipped 18 per cent in the second quarter as Wall Street’s deal-making drought stunted revenue from investment banking. Profit applicable to common shareholders fell to US$2.05 billion, or US$1.24 per diluted share, for the three months ended Jun 30, the bank said on Tuesday (Jul 18). That is down from US$2.39 billion, or US$1.39 per diluted share, a year earlier. Revenue from investment banking stood at US$1.16 billion, in line with last year.

Foxconn Technology Group has bought US$33 million worth of equipment from an Apple unit for its operations in India over the past year, signalling the key iPhone assembler’s accelerating expansion in the country. An Indian subsidiary of the Taiwanese company acquired equipment from Apple Operations for operational needs, according to a filing from Foxconn’s Taipei-listed flagship unit Hon Hai Precision Industry. The filing offered a rare glimpse into Foxconn’s dealings with its biggest customer, which sometimes helps finance the cost of equipment that the Taiwanese company uses to make the majority of the world’s iPhones.

An Indian court on Tuesday (Jul 18) said Google cannot remove Disney’s streaming service from its app store in the country and should receive a lower 4 per cent fee for in-app purchases, a significant challenge to its payments business model. Disney’s lawsuit is the latest and most high-profile challenge to Google’s policy of imposing a “service fee” of 11-26 per cent on in-app payments in India. It introduced that after an antitrust directive ruled against Google’s earlier 15-30 per cent fee and forced Google to allow third-party payments.

Microsoft said new corporate artificial intelligence tools that work with Office software, called Microsoft 365 Copilot, will cost US$30 per user per month on top of what most business customers already pay. Copilot will be offered for subscription plans that currently range in price from US$12.50 to US$57 a user each month. Microsoft didn’t say when Copilot, which is based on technology from artificial intelligence startup OpenAI, will be broadly available. The company on Tuesday also previewed a more confidential Bing search engine chat for corporate customers that is included in various versions of Microsoft 365 for business and will be offered as a stand-alone subscription for others at US$5 per user, per month. Microsoft is also rolling out previously announced visual search features in Bing Chat, which let users upload images and ask questions about them or search for related information.

Meta is releasing a commercial version of its open-source artificial intelligence model Llama on Tuesday (Jul 18), the company said, giving start-ups and other businesses a powerful free-of-charge alternative to pricey proprietary models sold by OpenAI and Google. The new version of the model, called Llama 2, will be distributed by Microsoft through its Azure cloud service and will run on the Windows operating system, Meta said in a blog post. The model, which Meta previously provided only to select academics for research purposes, also will be made available via direct download and through Amazon Web Services, Hugging Face and other providers. Asked why Microsoft would support an offering that might degrade OpenAI’s value, a Microsoft spokesperson said giving developers choice in the types of models they use would help extend its position as the go-to cloud platform for AI work.

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

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