Daily Morning Note – 19 May 2021


Asian stocks on Wednesday are set to track U.S. declines as concern about faster inflation shadows the economic recovery from the pandemic. A dollar gauge was near the lowest level this year. Futures slipped in Japan and Australia and U.S. futures dipped as they opened in Asia. A slide in crude on the possibility of more supply from Iran hurt energy stocks. The dollar retreated further and Treasury yields dipped. Markets are closed Wednesday in Hong Kong and South Korea for holidays.

Bitcoin and other major cryptocurrencies slumped after the People’s Bank of China reiterated that the digital tokens cannot be used as a form of payment. The largest cryptocurrency fell as much as 5.3% to $42,430 in New York, continuing a week-long slide sparked by Elon Musk’s back-and-forth comments on Tesla’s holdings of the coin. Bitcoin is now at its lowest level since early February. Ether lost more than 7% while last week’s sensation, Internet Computer, continued its plunge. Dogecoin also slid. Some Bitcoin chartists see the coin heading back to $40,000. Still, “long bitcoin” is the world’s most crowded trade right now, fund managers say.


SG News

Singapore-based Sea Ltd , which owns e-commerce platform Shopee and game developer Garena, reported on Tuesday a net loss of US$422.1 million for the quarter ended March 31, 2021, up 50.3 per cent from a year earlier. The higher loss came even as Q1 revenue more than doubled to US$1.76 billion in 2021, from US$714.9 million in the previous year. Sea, which is listed on the New York Stock Exchange, reported an increase in operating expenses during the quarter, rising to US$993.8 million from US$474.5 million in Q1 2020, with around two-thirds of expenses coming from sales and marketing. Under the digital entertainment segment, which is Sea’s gaming arm, revenue rose 111.4 per cent from the previous year to US$781.3 million. Bookings, which represent GAAP (generally accepted accounting principles) revenue plus change in deferred revenue, totalled US$1.1 billion, up 117.4 per cent. The e-commerce segment saw revenue more than triple year on year in Q1, rising from US$263.2 million to US$922.3 million. Gross orders totalled 1.1 billion, up 153 per cent from Q1 2020, while gross merchandise value doubled to US$12.6 billion.

Prime US REIT posted net property income of US$23.0 million (S$30.6 million) for the first fiscal quarter ended March, down 2 per cent from US$23.5 million in the corresponding quarter last year. Gross revenue for the quarter rose 2.5 per cent to US$35.9 million from US$35.1 million, said the Reit in its key business and operational update on Tuesday. Meanwhile, distributable income for Q1 fell 1.2 per cent to US$17.6 million from US$17.8 million in the year-ago period. The Reit’s manager said a “solid rent collection rate” of 99 per cent was maintained in the quarter, with minimal rent concessions made. In terms of leasing activity in Q1, Prime US Reit booked a total of 80,084 sq ft leased at a positive rental reversion of 8.5 per cent. This includes 57,647 sq ft of long-term leases with a positive rental reversion of 9.5 per cent.

Chocolate confectionery company Delfi posted earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$18.0 million (S$23.9 million) for the first fiscal quarter ended March, down 6 per cent from Ebitda of US$19.1 million in the corresponding quarter last year. The group attributed the decline to lower sales and gross margins, which were partially mitigated by lower operating expenses, mainly selling and distribution ones. Revenue for the quarter fell 5.7 per cent to US$119.4 million from US$126.6 million in the year-ago period. Segmentally, revenue contributions from Indonesia slipped 7.4 per cent year on year (yoy) to US$84.8 million, while revenue from regional markets fell 1 per cent to US$34.6 million. Although categories such as baking and breakfast and food service posted y-o-y growths of 1.3 per cent and 1.9 per cent respectively on the back of stay-home consumption and other trends exhibited by consumers since last year, Delfi said this was unable to offset the decline in other categories.

The Place Holdings (TPH) is continually pursuing potential investment, collaboration and expansion projects, and opportunities to boost growth and enhance shareholder value, the company said late on Tuesday, in response to a query by the Singapore Exchange Regulation (SGX RegCo) earlier in the day. Although the group is engaging in various discussions on such opportunities and projects, it said no definitive agreements have resulted from these talks, and there is no assurance any of them will materialise. Just after 4.30pm on Tuesday, the bourse regulator had queried TPH about the unusual movements in its share price. The counter had closed at 11.4 Singapore cents on Monday, opened at 11.5 cents on Tuesday, and then hit 11.9 cents before the mid-day break.

New digital exchange gets MAS nod for green asset trading. A new kid on the block is riding on the growing popularity of digital exchanges for asset-backed tokens – but with a green finance twist. Singapore-based Cyberdyne Tech Exchange (CTX) will soon introduce a platform to enable trading of green assets, such as solar or wind farms and electric-vehicle infrastructure in tokenised form. On its platform, set to launch in July, issuers and investors will be required to disclose their carbon footprint. Dr Bai, formerly from private equity firm Warburg Pincus, told The Business Times in an interview: “Part of the fundamental rationale for CTX is that there’s a lot of capital, internationally, waiting to be channelled towards achieving both financial returns and ESG (environmental, social and governance) impact.” The Global Sustainable Investment Alliance estimated in 2019 that at least US$31 trillion in funds were then held in sustainable or green investments.

US News

Walmart Inc.’s sales continued to rise during the spring quarter though at a slower pace than earlier in the Covid-19 outbreak, as some consumers returned to more typical shopping patterns and U.S. government stimulus stoked spending. Comparable sales, those from U.S. stores and digital channels operating for at least 12 months, rose 6% in the quarter ended April 30 compared with the same period last year. U.S. e-commerce sales rose 37%. It was the slowest online growth for Walmart since the coronavirus outbreak in early 2020 upended the retail landscape. Sales of nonfood items jumped more than 20% in the quarter, aided by government stimulus checks as customers splurged on recreation, home improvement and apparel items, the company said. Grocery sales fell compared with the same quarter last year when shoppers hoarded some goods such as food and toilet paper, but the retail behemoth gained grocery share versus last year, Walmart said.

Home Depot sales surge, extending growth during Covid-19 pandemic. Sales for the Atlanta-based home-improvement retailer climbed to $37.5 billion in the three months ended May 2, from $28.26 billion in last year’s fiscal first quarter. Profit rose to $4.15 billion, or $3.86 a share, from $2.25 billion, or $2.08 a share, a year earlier. Home Depot Inc. extended a streak of robust sales growth in its latest quarter as a rise in demand that began with the coronavirus pandemic continued into 2021. Brisk sales to both professional buyers and do-it-yourself customers boosted growth, Home Depot executives said. Demand for supplies has continued into May, they added, following a quarter with a higher level of big-ticket transactions and continuing sales of wood products as lumber prices soar. As the pandemic eases and the U.S. economy reopens, a booming housing market is supporting sales-growth trends, which were initially fueled by consumers stocking up and doing home projects.

The WarnerMedia-Discovery The deal was structured to make a future sale easier. Based on the latest proxy statement filed on Apr. 30, Malone owned 6.2 million Discovery Class B shares, giving him a total of 26.5% voting control — the most of any single owner. He held 19.5 million shares in total, amounting to a 4% economic interest. His voting control was much greater because of the super-voting stock. Malone agreed to turn in those shares for common equity because he wanted to give a combined WarnerDiscovery flexibility to sell itself in the future — most likely to a deep-pocketed technology company like Amazon or Apple or another media behemoth like Disney, according to a person familiar with the matter. Apple, Amazon and Disney could emerge as future buyers assuming WarnerMedia-Discovery gets regulatory approval.

Google is deepening its partnership with Shopify by making it easier for the company’s 1.7 million merchants to reach shoppers in Google Search and across some of its other properties. The move comes as Google and Shopify are ramping up their efforts to compete against Amazon in e-commerce. Amazon is also increasingly competing with Google on search ads for commercial queries, which typically mean a consumer is actively considering a purchase, and is expected to earn 19% of all search ad revenue this year, compared with about 57% for Google, according to eMarketer. Shares of Shopify popped as much as 4% on the news, closing up more than 3% on the day.

Google and Samsung said they were teaming up on a joint software platform for smartwatches and other wearables in a move ramping up competition with market leader Apple. The move, announced at the Google developer conference in California, means Samsung will use Google’s Wear OS for its upcoming Galaxy smartwatches instead of its own Tizen platform. “We’re bringing the best of Wear and Tizen into a single, unified platform,” said Google Wear project director Bjorn Kilburn. The combination will allow all device markets to use this platform, creating an ecosystem that could challenge Apple, the longtime leader in the smartwatch segment with about a third of the market, as Google integrates its newly acquired wearables maker Fitbit.

Flywire Corp is seeking a valuation of up to US$2.4 billion in its initial public offering in the United States, the Temasek Holdings-backed payments firm said in a filing on Tuesday. The company said it is offering 8.7 million shares with voting rights for a price between US$22 and US$24 each. At the top end of the range, the IPO would bring in nearly US$209 million for Flywire. Founded in 2011, Boston-based Flywire focuses on enabling payments in the education, healthcare and travel sectors. Its IPO plan comes amid a surge in interest in the fintech space that has seen companies including Affirm Holdings Inc and Stripe raise capital at sky-high valuations. Flywire had confidentially filed for a listing in March, months after Reuters reported it was planning an IPO at a possible valuation of US$3 billion.

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


Oversea-Chinese Banking Corp Ltd

Analyst: Chua Wei Ren

Recommended Action: Technical BUY

OCBC (SGX: O39) bullish upside remain firmly intact and the recent breakout of the uptrend line has proven to be a false breakout. Hence, the stock has resumed its track to the bullish upside

Buy spot: 12.17 Stop loss: 11.50 Take profit 1: 13.10 Take profit 2: 14.26

Read more technical reports


Yoma Strategic Holdings Ltd – Cost-control mitigation

Recommendation: NEUTRAL (Maintained), Last Done: S$0.146

Target Price: S$0.147, Analyst: Tan Jie Hui

– 1H21 net profit in line, at 54% of our FY21e estimate. Held up by real-estate recognition. Yoma continued to cut costs and capex to conserve cash.

– F&B and Motors hardest hit by Covid-19 and coup d’état. Yoma may close up to one third of its restaurants. Construction of Yoma Central has been suspended.

– Maintain NEUTRAL with lower TP of S$0.147, down from S$0.156. This remains pegged at 0.45x P/BV, slightly above 2007-2010 average P/B during major conflicts, political upheavals and natural disasters. We cut FY21e book value per share by 8% to US$0.244 to reflect the depreciation of MMK/US$.

Q & M Dental Group Ltd – Profits more than tripled

Recommendation: BUY (Maintained); TP S$1.00

Last close: S$0.67; Analyst Paul Chew

– 1Q21 revenue and PATMI were within, at 24% of our FY21e forecasts.

– Core dental revenue surged 41% YoY to S$39.2mn. Dental visits climbed with households having more time and opportunities to undertake regular and elective procedures.

– Revenue from Covid-19 PCR lab tests yet to be material. We estimate only 10% of PATMI this quarter.

– We raise FY21e PATMI (excl. exceptionals) by 10% to S$30.3mn. Estimates for daily PCR tests have been doubled. But we shave off revenue in Malaysia in view of its extended lockdown.

– BUY recommendation maintained. We expect stellar earnings growth from higher patient visits and maiden earnings from PCR testing. Despite Covid-19 vaccinations, PCR testing in Singapore has increased. The threat of variants will likely make PCR tests a norm even when international borders re-open.

– Target price raised to S$1.00 from S$0.73. Our initial 20x FY21e P/E target or 50% discount to historical normalised average has been lifted to 25x. We think this can be justified by greater visibility of the sustainability of PCR revenue and core dental earnings as aggressive expansion of clinics is underway. Another S$0.03 is added from the market value of listed associate, Aoxin (S$0.18, Not Rated), at a 20% discount.

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