DAILY MORNING NOTE | 19 September 2022
Persistent concerns over global high inflation, as well as more rate hikes from the United States Federal Reserve, sent Asian markets closing in the red on Friday (Sep 16). Both the Shanghai and Shenzhen index in China ended 2.3 per cent lower; Japan’s Nikkei 225 declined by 1.1 per cent. Hong Kong’s Hang Seng Index fell 0.9 per cent, and South Korea’s Kospi lost 0.8 per cent. Singapore, however, bucked the trend. The benchmark Straits Times Index (STI) edged up slightly – by 0.01 per cent – rising 0.31 points to 3,268.29. Losers outnumbered gainers 284 to 213, with about 1.71 billion securities worth S$1.9 billion changing hands. Among STI constituents, Yangzijiang Shipbuilding was the day’s top performer, ending 5.6 per cent higher, or S$0.055 to S$1.03. City Developments was the top decliner, falling 2.2 per cent, or S$0.18 to S$8.17.
U.S. stocks closed lower Friday as investors came to grips with corporate warnings that paint an increasingly dire outlook for the health of the U.S. economy. In the past week, companies including Goldman Sachs Group Inc. prepared to cut jobs, exacerbating fears of an impending recession. FedEx cautioned late Thursday that it is closing offices to offset declining demand, and General Electric said supply-chain problems were weighing on profits. The news pushed down stocks, with the Dow Jones Industrial Average falling 139.40 points, or 0.5%, to 30822.42. The S&P 500 dropped 28.02 points, or 0.7%, to 3873.33. For the week, the Dow lost 4.1%, while the S&P retreated 4.8% The Nasdaq Composite declined 103.95 points, or 0.9%, to 11448.40. It fell 5.5% for the week, its worst since June. All three indexes are down four of the past five weeks. The big moves are surprising given how U.S. stocks appeared on the upswing earlier this summer, climbing from their mid-June lows on the back of earnings that weren’t as bad as feared and some strong hiring data. However, investors who had hoped that the midsummer bounce back was the beginning of a new bull market rally got a rude awakening when data on Tuesday confirmed that inflation remains stubbornly high.
A subsidiary of Straits Trading, Straits Real Estate (SREPL), will spend A$63.5 million (S$60 million) to buy over a 20 per cent stake in the Australia-established ILP No 1 Trust from Canoga Industrial Investment Trust, the company said in a bourse filing on Friday (Sep 16). The deal will be made through its indirect wholly owned subsidiary, SRE Australia Industrial 1 (SREAI1), which already holds 80 per cent of the units in the trust. Upon the transaction’s completion, ILP No 1 Trust, which owns a portfolio of industrial and logistics assets in Victoria and South Australia, will become a wholly owned subsidiary of SREAI1. The announcement came after the company made known to shareholders its strategy of redeploying capital from its existing property portfolio of high quality but low yielding investment properties into potentially higher return real estate opportunities via SREPL. It also disclosed that the transaction will be sealed through a subscription and redemption process. This means SREAI1 will subscribe for new units in the trust, the proceeds of which will be used to redeem Canoga’s existing 20 per cent unitholding in the trust.
Frasers Property on Thursday (Sep 16) announced that it has upsized its 5-year green notes from S$420 million to S$500 million after noting that demand for its earlier offer was oversubscribed. The final public offering will now stand at S$350 million, while the final placement tranche is S$150 million. The coupon rate remains at 4.49 per cent. All valid applications under the public offering shall receive at least some allocation of the notes, said the group in its bourse announcement. The increase in issuance size comes after the group’s earlier offer, which had been open for applications for 6 days from Sep 9, was 1.48 times subscribed for its initial public offer of S$300 million and 2.04 times subscribed for the S$120 million initial placement tranche. It has received public applications amounting to S$444.3 million, while the order book from institutional investors came in at S$245 million. The total valid applications for the notes amounted to S$689.3 million, which represents a subscription rate of about 1.64 times of the initial offer. Of a total of 33 investors, 74 per cent was taken up by private banks, 14 per cent by fund managers, insurers or pension funds, and 12 per cent allocated to banks, noted Edmund Leong, head of group investment banking at UOB, which was one of the book runners for the deal. Unless previously redeemed or purchased and cancelled, the notes will be redeemed on Sep 16, 2027. Noteholders will receive semi-annual interest payments on Mar 16 and Sep 16 each year, starting on Mar 16 next year.
LHN Group’s co-living brand Coliwoo has agreed to buy a Pasir Panjang property for S$30 million, as the group eyes an expansion of its co-living portfolio in Singapore. Announcing this in a bourse filing on Friday (Sep 16), the real estate management services company said the 404 Pasir Panjang Road property, which currently operates as Pasir Panjang Inn, a small hotel, will be turned into a co-living space. Once it begins operations, LHN Group will be able to increase Coliwoo’s brand value, which will in turn bring capital appreciation to the group and provide additional opportunities to generate revenue, it said. The group also clarified that it is the property that is being acquired, not the business of Pasir Panjang Inn. The property is sold with vacant possession, it added.
Emperador Inc. commences its inclusion in Straits Times Index (STI) today (Sep 19), replacing ComfortDelGro.
Bytedance is offering to buy back as much as US$3 billion of its own shares from investors at a valuation of about US$300 billion, giving existing backers a way to cash out after plans for an initial public offering (IPO) stalled. The Beijing-based company, parent of the hit TikTok video app, informed shareholders of the plan on Friday (Sep 16) via email. The offered price per share of just under US$177 gave the company an implied valuation of US$300 billion, the company wrote in the memo viewed by Bloomberg News. It also said that it was extending its existing stock incentive plan for another 10 years. ByteDance has grown into the world’s most valuable startup on the success of apps like TikTok and its Chinese counterpart Douyin, but it’s been squeezed between Beijing’s crackdown on Internet firms at home and Washington’s suspicions of the services in the US. Just this week, TikTok chief operating officer Vanessa Pappas came under withering pressure to seal off US user data from Chinese review during Senate hearings. TikTok has already been banned by the government of India, following a border dispute in 2020 that soured relations with China. That forced the service out of what had been its largest market by number of users, with 200 million regular viewers. ByteDance has considered taking TikTok public for years, a move that could both reward investors and ease some political pressure as the company separates from its Chinese parent. It contemplated a separate IPO for Douyin and its China businesses in Hong Kong. But both debuts have been put off repeatedly as Beijing steps up scrutiny of Internet giants and, more recently, a sharp decline in tech stocks.
The dollar index was down slightly on Friday (Sep 16) but registered a gain for the week as investors expected the US Federal Reserve to remain aggressive when it hikes interest rates this week. The dollar mostly held a slight gain following US data showing consumer sentiment improved moderately in September. The University of Michigan’s preliminary September reading on the overall index on consumer sentiment came in at 59.5, up from 58.6 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 60.0 in September. The dollar, measured against a basket of currencies, declined 0.1 per cent on the day to 109.68. It reached a two-decade high of 110.79 earlier this month. For last week, it was up 0.6 per cent, and it is up about 15 per cent for the year so far. Sterling fell against the dollar to a new 37-year low of US$1.1351 and was last down 0.5 per cent at US$1.1416, while the euro was up 0.1 at US$1.0008. British retail sales fell much more than expected in August, in another sign that the economy is sliding into a recession as the cost of living crunch squeezes households’ disposable spending. While the Fed takes centre stage this week, the Bank of Japan (BOJ) and the Bank of England are also expected to have monetary policy meetings. The dollar was 0.4 per cent lower against the yen at 142.87, but was up 0.2 per cent for the week in its fifth straight week of gains.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Frasers Centrepoint Trust – Retail recovery offset by macroeconomic headwinds
Recommendation: Accumulate (Maintained), Last Done: S$2.26
Target price: S$2.38, Analyst: Darren Chan
– Occupancy and tenant sales have recovered above pre-pandemic levels.
– Moderately protected from rising interest rates, with 69% of total borrowings hedged to a fixed rate. Every 50bps increase in SOR/SORA is estimated to impact DPU by c.1.3%.
– Maintain ACCUMULATE, DDM TP (COE 7.08%) lowered from S$2.64 to S$2.38. No change in DPU estimates. Cost of equity increased from 6.41% to 7.08% on higher risk-free rate assumption. The current share price implies a FY22e DPU yield of 5.7%. However, the yield spread has narrowed significantly since the start of the year from 4.36% to 2.65%.
Technical Pulse: Microsoft Corp
Analyst: Zane Aw
Recommendation: Technical BUY
Buy limit: 244.74 Stop loss: 238.00 Take profit: 268.00
Microsoft Corp (NASDAQ: MSFT) A potential bullish reversal to the upside.
Guest Presentation by Emperador Inc. [NEW]
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