Daily Morning Note – 19 May 2022


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A slump in stocks is set to continue in Asia on Thursday after mounting fears of an economic downturn hit US shares and spurred a flight to havens including Treasuries and the dollar.

Futures signal declines for Japan, Australia and Hong Kong in the wake of a 4% S&P 500 plunge, the biggest daily drop in almost two years, and a more than 5% tumble in the tech-heavy Nasdaq 100. US contracts dipped in early trading.

Earnings reports from consumer stalwarts stoked worries that high inflation is weighing on margins and consumer spending. Target Corp. plunged the most since Black Monday in 1987, a day after Walmart Inc. also spiraled lower.

Federal Reserve officials reaffirmed that sharply tighter monetary policy lies ahead to cool economic activity and get price pressures under control. Chicago Fed President Charles Evans said raising interest rates somewhat above the neutral level and stopping there should help bring inflation down.

Stocks to watch: Singapore Airlines

Top gainers & losers




Chocolate confectionary company Delfi posted an earnings before interest, taxes, depreciation and amortisation (Ebita) of US$20.5 million in Q1, up 13.9 per cent from the corresponding period last year. Delfi said in a business update late on Wednesday (May 18) that the growth came from higher sales and continued tight control of operating costs for the period. “The growth achieved reflects the company’s focus on growing core strategic products to capture the momentum from higher consumer demand, supported by improved sentiment in the markets as economies opened up,” the mainboard-listed company added.

Property company IPC Corporation said on Wednesday (May 18) that the firm had recorded 3 consecutive years of losses and might be placed on the Singapore Exchange’s (SGX) watch-list for failing to meet the bourse’s criteria. A company will be included in the watch-list if it records pre-tax losses for the 3 most recently completed consecutive financial years, and has an average daily market capitalisation of below S$40 million over the last 6 months. IPC’s latest six-month average daily market capitalisation was S$12.25 million, as at May 18. For the full year ended Dec 31, 2021, IPC recorded a total loss of S$8.85 million, albeit narrowing from S$28.43 million a year ago. Sales were nearly 23 per cent lower year on year at S$4.17 million.

Singapore Airlines clocked its third annual loss, posting a deficit of S$962 million for the financial year 2022 to March, even as its third quarter was profitable. The smaller loss, compared to a record deficit of S$4.3 billion for FY2021, was achieved on the back of better operating performance and lower non-cash impairment charges, the mainboard-listed flag carrier said in its financial results filing to the Singapore Exchange on Wednesday (May 18). Group revenue doubled to S$7.6 billion from a year ago, as the group flew 3.9 million passengers in FY2022, up six-fold, as international air travel recovered in the last six months amid the reopening of global borders. Also, it recorded an operating cash surplus of S$824 million. SIA posted a net loss of S$125 million for H2 FY2022, on a top line of S$4.8 billion. This was due to primarily better operating performance as well as an improvement in share of results of joint venture and associated companies.

SP Group on Wednesday (May 18) clinched a US$370 million (S$513 million) deal to build and operate a district cooling system at French-Italian chipmaker STMicroelectronics’ manufacturing site in Ang Mo Kio over 20 years. Once the system is operational in 2025, it will be Singapore’s largest industrial district cooling system, dwarfing the one built by Keppel DHCS, a wholly-owned subsidiary of Keppel Infrastructure, at Woodlands Wafer Fab Park. The site, ST AMK TechnoPark, is STMicroelectronics’ single largest wafer-fabrication site by volume, and the district cooling system is expected to help the facility cut back on its emissions by up to 120,000 tonnes a year – equivalent to taking 109,090 cars off the road.

Sembcorp Marine (Sembmarine) has yet to feel the heat from elevated prices on its businesses as a vast majority of its projects are near completion, according to its president and chief executive Wong Weng Sun. “(However), going forward, we are mindful and aware of potential inflation. So, in a way, we cost up our projects as well as the bidding price of our projects to factor in inflation to the extent we consider appropriate,” he said at a media and analyst briefing on Sembmarine’s first-quarter business update on Wednesday (May 18). “For new projects, as we work towards converting actively some of our pipeline potentially into orders, we do have inflation taken into consideration. To the extent (that’s) workable, there will be within the tender specs, such inflation impact taken into account as well. It is important especially for new projects that we are tendering,” he added.


Federal Reserve Chair Jerome Powell emphasized his resolve to get inflation down, saying Tuesday he will back interest rate increases until prices start falling back toward a healthy level. “If that involves moving past broadly understood levels of neutral we won’t hesitate to do that,” the central bank leader told The Wall Street Journal in a livestreamed interview. “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down. “We’ll go to that point. There won’t be any hesitation about that,” he added. Earlier this month, the Fed raised benchmark borrowing rates by half a percentage point, the second increase of 2022 as inflation runs around a 40-year high.

Shares of Southeast Asia’s e-commerce and gaming firm Sea Group popped after its first-quarter revenue beat analysts’ expectations on Tuesday. Sea’s U.S.-listed shares rose 14% to close at $80.21 after the of Singapore-based internet firm reported revenue that exceeded analysts’ expectations in the first quarter this year. Sea’s revenue rose by 64.4% from the same period a year earlier, but fell around 9.5% from the $3.2 billion it made in revenue in the previous quarter, a sign that after two years of pandemic-driven sales, growth is starting to plateau. It’s online shopping platform Shopee and gaming arm Garena grew more slowly as countries opened up. The company warned that inflation and supply chain disruptions could affect business, even as it continues to be loss-making. “As we enter a new period, we recognize that the current macro trend and uncertainties could affect our region and world in the near term,” said Forrest Li, Sea’s chief executive officer and co-founder during the earnings call. Both Shopee and Garena, Sea’s two main money-making divisions, faced lower revenues compared to the previous quarter.

Amazon announced the latest version of its Fire 7 tablet on Wednesday. At $59.99, the tablet is slightly more expensive than its predecessor, but the company is promising longer battery life. Amazon’s Fire tablets have served as a cheaper alternative to Apple’s iPad, but it isn’t a huge business segment for Amazon the way hardware is for Apple. Instead, Amazon’s hardware products serve as a gateway into Amazon’s ecosystem of services, such as the Alexa voice assistant and music, books and apps. The last version of the Fire 7 didn’t have great battery life, and the screen and camera weren’t very sharp. Amazon said the new model has a 40% longer battery life, for up to 10 hours of browsing but that it didn’t make any changes to the display or camera.

Target on Wednesday reported quarterly earnings that fell far short of Wall Street’s expectations, as the retailer coped with pricey freight costs, higher markdowns and lower-than-expected sales of discretionary items from TVs to bicycles. The national retailer, known for its cheap chic brands of apparel, home decor and more, lapped an especially elevated sales period. A year ago, shoppers had extra dollars in their pockets from stimulus checks and reflected a sense of optimism with their purchases as they got their first Covid-19 vaccines. Sales did grow compared with that year-ago period. Comparable sales, a key metric that tracks sales at stores open at least 13 months and online, grew 3.3% in the first quarter. That is on top of a 23% increase in comparable sales in the year-ago quarter and it is higher than Wall Street’s projections for 0.8%, according to StreetAccount estimates.

Cisco Systems tumbled as much as 19 per cent in late trading after warning of a sales decline in the current quarter and slashing its annual forecast, blaming disruptions stemming from Chinese lockdowns and the Ukraine war. Sales will dip 1 to 5.5 per cent in the period ending in July, the company said Wednesday (May 18) in a statement. Analysts had predicted growth of nearly 6 per cent, according to data compiled by Bloomberg. Cisco’s earnings forecast also was short of Wall Street predictions. Makers of tech equipment have already been struggling with chip shortages, and supply snags triggered by China’s Covid-19 lockdowns and the Ukraine conflict have only added to their woes. Cisco, the biggest maker of computer-networking equipment, has struggled to fill all the orders it’s been given.

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

UG Healthcare Corporation Ltd – Below book value and earnings stable

Recommendation: BUY (Maintained), Last Done: S$0.22 Target Price: S$0.32, Analyst: Paul Chew

– 3Q22 PATMI fell 69% YoY to S$10.7mn. YTD3Q22 revenue/PATMI were within expectations at 80%/81% of our FY22e forecasts. Glove selling prices fell by around 30% YoY and glove volume sales were flat YoY.

– The price of generic nitrile gloves prices is still weakening albeit at a slower pace. UGHC can ramp up its trading business to take advantage of these weak prices. Latex prices are stable with healthy demand from China and South America.

– Our BUY recommendation and FY22e earnings forecast are unchanged. The target price is pegged to a 30% discount to the Big 4 glove makers, or 5x FY22e PE. We find valuations attractive. The company is trading below book value, 17% unlevered ROE and 57% of the market capitalisation is backed by net cash of S$77mn. We expect earnings to be stable in FY22e/FY23e. UGHC is taking advantage of low nitrile prices by outsourcing to other manufacturers. Latex glove prices are stable with demand from emerging markets. New capacity is earmarked for latex gloves.

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