Daily Morning Note – 2 August 2021

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U.S. stock futures rose in overnight trading on Sunday as investors geared up for the first trading day of August. Dow futures rose 135 points. S&P 500 futures gained 0.4% and Nasdaq 100 futures added 0.35%. The major averages managed to notch their sixth month of gains in July, although volatility increased amid concerns about the economic recovery in the face of the spreading delta Covid variant. The Nasdaq Composite and Dow Jones Industrial Average added about 1.2% and 1.3%, respectively, in July, while the broad S&P 500 gained close to 2.3% last month.


SG News

Sofa, so good for Koda as the furniture maker looks to grow further It plans to boost production capacity in Vietnam to fulfil demand, and Commune is targeting to have 100 stores in China by 2022.

Sembcorp Marine’s (Sembmarine) latest rights issue was “deliberately priced” at an affordable level to encourage subscription by all shareholders, company executives said in an interview with The Business Times on Friday. Subscribing for the rights shares would allow shareholders to lower their average costs, they added.

4 counters — including Keppel Corp and SPH called for trading halts on Monday morning pending announcements. Keppel Corp, Keppel Reit, SPH and SPH Reit had called the trading halts within minutes of each other before the market opened on Monday. All four counters closed higher on Friday. Keppel was up 1.9 per cent or S$0.10 to S$5.49, while Keppel Reit was up 0.8 per cent or S$0.01 to S$1.20. SPH gained 1.1 per cent or S$0.02 to end the week at S$1.88 and SPH Reit rose 0.6 per cent or 0.5 Singapore cents to 91.5 cents.

The board of Kitchen Culture Holdings lodged a report on Friday with the Commercial Affairs Department (CAD) in relation to “suspected payroll irregularities” of two former employees, which amounted to about S$520,000. The two staff, who were not named, worked at the company’s wholly-owned subsidiary, KHL Marketing Asia-Pacific Pte Ltd. The company has handed over the relevant documents to the CAD to assist in its investigations, it said in a filing on Saturday.

US News

Eviction protections expired on Sunday for millions of Americans who could face homelessness within days, triggering a scramble to unlock billions in stalled rental aid and provoking blame trading in Washington. Renters had been shielded from eviction for nearly a year as part of a government moratorium intended to keep people in their houses during the Covid-19 pandemic.

Square Inc will purchase buy now, pay later (BNPL) firm Afterpay for about US$29 billion in Australia’s biggest-ever buyout, creating an online payments giant to tap into explosive growth in the niche payments sector. Afterpay has been the bellwether of the niche online payments sector which burst into the mainstream last year as more people, especially youngsters, chose to pay in instalments for everyday items during the pandemic.

Zoom Video Communications Inc agreed to pay US$85 million and bolster its security practices to settle a lawsuit claiming it violated users’ privacy rights by sharing personal data with Facebook, Google and LinkedIn, and letting hackers disrupt Zoom meetings in a practice called Zoombombing. A preliminary settlement filed on Saturday afternoon requires approval by US District Judge Lucy Koh in San Jose, California.

The United States on Sunday blamed Iran for a deadly attack on an Israeli tanker off Oman and vowed an “appropriate response” was forthcoming. The MT Mercer Street tanker was struck on Thursday in the northern Indian Ocean, killing two crew members, in what the United States said was a drone-style attack.

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


CapitaLand Integrated Commercial Trust – Braving headwinds

Recommendation: ACCUMULATE (Maintained), Last Done: S$2.15

Target Price: S$2.55, Analyst: Natalie Ong

– 1H21 DPU up 75% YoY to 5.18 cents, in line at 50.8% of our FY21e forecast.

– Phase 2 Heightened Alert dampened recovery but 1H21 tenant sales and 2Q21 office leasing enquiries still grew 5.3% YoY and 1.1x QoQ.

– Office and retail reversions still in the red. Retail occupancy remained high at 97.0%. Singapore office occupancy down 2.4ppts QoQ to 92.4% with backfilling required.

– Maintain ACCUMULATE and DDM-based (COE 6.27%) TP of S$2.54. FY21e DPU cut by 8.3% after factoring in one month of rental rebates for retail tenants: 0.3 month in 1H21 and 0.7 month in 2H21. No impact on TP due to rounding. Stock catalysts expected from further AEI and portfolio reconstitution.

Keppel Corporation – Firing on all cylinders

Recommendation: Buy (Maintained), Last Done: S$5.49

Target price: S$6.28, Analyst: Terence Chua

– Net profit of S$300mn in 1H21 ahead of our forecast, at 70.8% of our FY21e earnings, boosted by recognition of S$269mn from its share of Floatel’s restructuring gains.

– Keppel Offshore & Marine (O&M) turned EBITDA-positive in 1H21. Net orderbook grew over 70% YoY.

– Vision 2030 asset monetisation program ahead of schedule. Updated guidance now at higher end of S$3 – 5bn guidance range by 2023.

– We raise our earnings forecast for FY21e by 46% for higher estimates for its O&M, Urban Development and Asset Management businesses on promising tailwinds.

– Maintain BUY with higher SOTP TP of S$6.28 from S$6.20. We ascribe a higher 0.8x P/BV to its O&M division from an improving outlook in the sector, still with a 10% holding-company discount. Our TP translate to about 1.0x FY21e book value, a slight discount to its 5-year average of 1.05x. Catalysts expected from contract wins and a successful resolution to its O&M unit.

Sheng Siong Group Ltd – Record margins

Recommendation: ACCUMULATE (Maintained); TP S$1.69, Last close:

S$1.57; Analyst Paul Chew

– 2Q21 revenue met but PATMI beat. 1H21 revenue and PATMI at 55%/64% of forecasts.

– Gross margin was a record 28.9%, higher than our 27% modelled for FY21e. Higher contributions from fresh products and house brands were behind this.

– No new stores contributing this year. Any new stores will likely be awarded only in 4Q21.

– We raise FY21e PATMI by 7% to S$109.9mn for better-than-expected margins. We also roll over our target price to FY22e, to better reflect normalised earnings. With borders shut and dining restrictions still effective, revenue should remain elevated in FY21e. Still using its 5-year historical average of 25x PE, our target price dips from S$1.71 to S$1.69. Maintain ACCUMULATE. Stock catalysts expected from new store openings and improving margins.

Technical Analysis: US Market Outlook

Hawks beat the doves; the Fed’s contradicting stance

Analyst: Chua Wei Ren

– The Fed left its monetary policy unchanged but a subtle change in its language suggests tapering may come sooner rather than later. Maybe end-2021 or early 2022.

– Jerome Powell made it clear he believes inflation since May is transitory.

– But where the Fed previously hinted at tapering ONLY when full employment was reached, it now acknowledges the economy is inching towards normalisation.

– Technical indices are trending within range after the S&P 500 and Nasdaq scaled new highs while the Dow and Russell struggled to break new records.

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