DAILY MORNING NOTE | 2 February 2024

Trade of the Day

Thermo Fisher Scientific Inc (NYSE: TMO)

Analyst: Zane Aw

(Current Price: US$538.98) – TECHNICAL SELL
Sell price: US$538.98 Stop loss: US$566.00 (-5.01%)
Take profit 1: US$498.00 (+7.60%) Take profit 2: US$475.00 (+11.87%)

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Trades Initiated in the past week

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Singapore shares ended lower on Thursday (Feb 1), as markets in the region put in a mixed performance. Singapore shares were down 0.3 per cent or 9.95 points to 3,143.06. Across the broader market, losers outnumbered gainers 267 to 258, after 1.4 billion securities worth S$1 billion changed hands. Elsewhere in the region, the Hang Seng Index gained 0.5 per cent, the Kospi Composite Index rose 1.8 per cent, and the FTSE Bursa Malaysia KLCI was up 0.02 per cent. Meanwhile, the Nikkei 225 lost 0.8 per cent.

Wall Street stocks bounced on Thursday (Feb 1), recovering from the prior session’s pullback in a sign of underlying bullishness in anticipation of easing United States monetary policy. The Dow Jones Industrial Average finished up 1.0 per cent at 38,519.84. The broad-based S&P 500 rose 1.3 per cent to 4,906.19, while the tech-rich Nasdaq Composite Index jumped 1.3 per cent to 15,361.64.

Top gainers & losers

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Events Of The Week

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SG

Rising interest rates weighed on CapitaLand Ascendas Reit, as the business and industrial property player saw distribution per unit (DPU) fall 6.1 per cent year on year to 7.441 Singapore cents for the six months ended Dec 31, 2023. The DPU decline came even as the Reit’s H2 gross revenue rose 11 per cent to S$761.7 million, and net property income (NPI) was up 4.6 per cent to S$514.3 million.

Data centre landlord Digital Core Reit on Thursday (Feb 1) announced a 7.3 per cent fall in distribution per unit (DPU) to US$0.0178 for the six months ended Dec 31, 2023. Its H2 gross revenue fell 10.4 per cent to US$49.2 million, while net property income (NPI) was down 17.9 per cent to US$27.9 million. The Reit was partly hit by the bankruptcy of its second-largest customer, which had accounted for around US$16 million or 22 per cent of its annualised revenue. As a result of the bankruptcy, Digital Core Reit recorded a US$3.4 million write-off of straight-line rent in H2.

Recent acquisitions of nursing homes lifted Parkway Life Reits distribution per unit (DPU) by 2.1 per cent to 7.48 cents, for the six months ended Dec 31, 2023. The Reit’s acquisition of five nursing homes in September 2022, and two more in Osaka, Japan in October 2023, helped boost H2 gross revenue by 4.7 per cent to S$73.1 million. The Reit – which has 63 healthcare properties in Singapore, Japan and Malaysia – also enjoyed higher rent from its Singapore properties, under new master lease agreements that commenced in August 2022. With the top line increase, Parkway Life Reit’s H2 net property income (NPI) was up 4.8 per cent to S$69 million.

Lendlease Global Commercial REIT has announced a distribution per unit of 2.10 cents for its 1HFY2024 ended Dec 31, 2023, compared to 2.45 cents for the same period last year, as a result of higher borrowing costs amidst higher interest rates. For the half-year period, gross revenue was up 17.9% y-o-y to $119.9 million, boosted by improved operational performance from the REIT’s retail malls and recognition of supplementary rent from the lease restructure with Sky Italia. Consequently, net property income (NPI) for 1HFY2024 was up 22.2% y-o-y to $93.4 million. Excluding the supplementary rent recognised in advance, both gross revenue and NPI increased by 5.1% y-o-y.


US

Oil prices fell over 2 per cent on Thursday (Feb 1) after unsubstantiated reports of a ceasefire between Israel and Hamas and after a power outage forced a large United States refinery to shut. A Qatari official told Reuters there was no ceasefire yet, but repeated that Hamas had received a ceasefire proposal made earlier this week positively. Brent crude futures dropped US$1.85, or 2.5 per cent, to settle at US$78.70 a barrel, while US West Texas Intermediate crude futures fell US$2.03, or 2.7 per cent, to US$73.82.

Apple reported fiscal first-quarter earnings on Thursday that beat estimates for revenue and earnings, but Apple showed a 13% decline in sales in China, one of its most important markets. Apple reported 2% sales growth in the December quarter, breaking a streak of four straight quarters with annual revenue declines. Apple’s gross margin continues to rise, nearly breaking 46% in the December quarter. Apple reported $33.92 billion in net income during the quarter, up 13% from the same period last year. IPhone sales were just under revised Street expectations and grew nearly 6% to $69.70 billion, a positive sign for the iPhone 15 models released in September. This is Apple’s first full quarter with iPhone 15 revenue.

Amazon on Thursday reported fourth-quarter results that sailed past analysts’ estimates, and gave strong guidance for the current quarter. Revenue jumped 14% to $170 billion in the fourth quarter vs. $166.2 billion expected by LSEG. The period reflects results from the holiday shopping season, and Amazon’s October Prime Day event, both of which the company said exceeded its expectations. Sales at AWS climbed 13% in the fourth quarter to $24.2 billion, in line with Wall Street’s forecast. That marks a slight uptick from the previous quarter, when sales expanded 12%, but it’s a deceleration from the year-ago period, when sales grew 20%. Amazon’s profitable advertising unit saw sales grow 27% year over year to $14.7 billion. Amazon said first-quarter sales will be between $138 billion and $143.5 billion, representing growth of 8% to 13%. Analysts were expecting revenue of $142.1 billion, according to Refinitiv.

Meta beat on earnings and revenue in its fourth-quarter earnings report Thursday and announced its first-ever dividend payment. Revenue jumped 25% in the quarter from $32.2 billion a year earlier, the fastest rate of growth for any period since mid-2021, as the online ad market continued to rebound. Meanwhile, the company’s expenses decreased 8% year over year to $23.73 billion, and its operating margin more than doubled to 41%, a clear sign that cost-cutting measures are bolstering profitability. Net income more than tripled to $14 billion, or $5.33 per share, from $4.65 billion, or $1.76 per share, a year earlier. Meta said it will pay investors a dividend of 50 cents a share on March 26. That comes after cash and equivalents swelled to $65.4 billion at the end of the year. The company also announced a $50 billion share buyback. Meta said it expects first-quarter sales to be in the range of $34.5 billion to $37 billion. Analysts were expecting revenue of $33.8 billion. The stock jumped 15% in extended trading.

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


RESEARCH REPORTS

Alphabet Inc. – AI underpinning ad growth

Recommendation : ACCUMULATE (Downgraded); TP: US$154.00, Last Close: US$140.10

Analyst: Jonathan Woo

– 4Q23 results were within expectations. FY23 revenue/PATMI were at 100%/98% of our FY23e forecasts. 4Q23 PATMI grew 52% YoY on higher operating leverage.

– Advertising is still on the rebound, with 11% YoY growth improving sequentially for a 4th straight quarter. APAC retail strength was the standout again. FY24e CAPEX levels are expected to be significantly higher vs FY23 as GOOGL continues to scale its technical infrastructure to support AI development.

– We cut our FY24e PATMI by ~5% as a result of increasing R&D investments in AI. Due to recent price action, we downgrade to ACCUMULATE from BUY, but raise our DCF target price to US$154 (prev. US$144) as we roll-over an additional year of valuations, with an unchanged WACC of 7.3% and terminal growth rate of 3.5%. We expect GOOGL to remain the market leader in digital advertising by leveraging AI for product improvements and efficiencies, while also being well positioned to capture more eyeballs through YouTube and connected TV.

Phillip Macro Update – Key Points for January FOMC Meeting

Analyst: Shawn Sng

– Holding rates steady, awaiting greater confidence – In this FOMC meeting, the U.S. Federal Reserve (Fed) has decided to maintain its rates at a 22-year-high of 5.25-5.50%. This marks the fourth consecutive meeting where the rate has been held steady and this decision was in line with market expectations.

– Progression toward lower inflationary data – In the latest data releases, including indicators such as the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE), there are consistent indications of progress toward the 2% range.

– Federal Reserve Projection/Guidance – In December’s meeting, the market was pricing for rates to fall by approx. 150bps for this year with rate cuts coming as early as March. However, this optimism was dampened with Chairman Powell saying that he did not expect that it would be appropriate to reduce the target range until more certainty surfaced providing the Fed with the confidence required.

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