Daily Morning Note – 2 March 2022

Stocks are set to come under more pressure Wednesday as the war in Ukraine and sanctions on Russia stoke the cost of commodities including oil, dimming the growth outlook and boosting demand for sovereign bonds.

Futures for Japan, Australia and Hong Kong fell after Wall Street and European shares retreated. Australian debt joined a global rally in fixed income that lowered the 10-year U.S. Treasury yield to 1.73%. Gold and the dollar advanced.

Crude soared as steps to tap reserves failed to ease worries about shortfalls as penalties mount on resources-rich Russia for the invasion of its neighbor.

Stocks to watch: Sea Limited

SG

Singapore-based Sea, which owns e-commerce platform Shopee and games developer Garena, widened its net loss excluding share-based compensation attributable to ordinary shareholders of US$1.5 billion for FY2021 ending Dec 31, up 17.9 per cent from US$1.3 billion a year prior. In a filing on Tuesday (Mar 1), the New York Stock Exchange-listed company reported a 127.5 per cent increase in FY2021 revenue from US$4.4 billion to US$9.9 billion. The increase is driven by growth across all business segments. Loss per share in FY2021 rose 6.5 per cent from US$2.78 to US$2.96.

Industrial agri-food company Japfa on Tuesday (Mar 1) posted a 63 per cent dip in net profit to US$118.8 million for the full year to December 2021, dragged by its Animal Protein Others (APO) segment. This brought Japfa’s earnings per share for the full-year to 5.82 US cents, down from 15.86 US cents the previous year. Excluding the one-off extraordinary net gain of US$140.2 million from the sale of 80 per cent in Dairy South-east Asia in 2020, however, net profit would have been down 34.6 per cent. This was despite a 20 per cent rise in revenue from US$3.9 billion to US$4.6 billion led by higher sales volumes across all segments. The increase in revenue also cushioned the impact of the drop in profit margins as a result of higher feed raw materials costs.

The Singapore Exchange Regulation Company (SGX RegCO) has laid out expectations of what needs to be disclosed about a valuation of an asset for significant transactions. SGX-listed companies should explain how the transaction will benefit the company’s long-term business strategy and its merits to investors. Companies are reminded that they must disclose: The value ascribed to the assets; The party who commissioned the valuation; The basis including the underlying methodologies and assumptions in arriving at the valuation; and The date of the valuation.

Logistics management service provider Cosco Shipping reported a surge of 261 per cent for its FY2021 earnings to S$30.1 million from S$8.3 million a year prior. The mainboard listed company reported a 7 per cent y-o-y increase in FY2021 revenue to S$198.5 million from S$185.8 million in a filing on Tuesday evening (Mar 1). Earnings per share for FY2021 also jumped from 0.37 Singapore cents per share to 1.34 Singapore cents per share. The growth in revenue was driven by higher revenue from logistics and ship repair and marine engineering activities. This was partially offset by lower revenue from shipping and property management. Logistics activities make up the bulk of Cosco’s revenue at 74 per cent.

US

US payment card firms Visa and MasterCard have blocked multiple Russian financial institutions from their network, complying with government sanctions imposed over Moscow’s invasion of Ukraine. Visa said on Monday (Feb 28) it was taking prompt action to ensure compliance with applicable sanctions, adding that it will donate US$2 million for humanitarian aid. Mastercard also promised to contribute US$2 million. “We will continue to work with regulators in the days ahead to abide fully by our compliance obligations as they evolve,”Mastercard said in a separate statement late on Monday.

American manufacturing firms continued to see growth accelerate as demand rose in February, but the expansion was again constrained by supply chain issues and labour shortages, according to an industry survey released Tuesday. The Institute for Supply Management (ISM) said its manufacturing index rose a full point to 58.6 last month, pushed by a 3.8-point jump in new orders and a solid gain in production. Any reading above 50 per cent indicates growth. But the Covid-19 pandemic continued to be felt and the survey showed the backlog of orders posted its biggest increase since 2011 while inventories fell.

Members states of the International Energy Agency (IEA) agreed on Tuesday to release 60 million barrels from oil reserves, Japan’s industry minister said, as the US and its allies seek to cool oil prices soaring from Russia’s invasion of Ukraine. Half the volume will come from the United States, Koichi Hagiuda told reporters after the extraordinary ministerial meeting of the 31 members of the IEA, which represents mostly industrialised nations. “We have agreed that IEA (members) as a whole will make a coordinated oil release of 60 million barrels in total,” Hagiuda told reporters.

Peabody Energy, the biggest US coal producer, is expanding into clean energy. The St Louis-based company is forming a joint venture with Riverstone Credit Parters and Summit Partners Credit Advisors to develop utility-scale solar projects on land around previous coal mining operations, according to a statement Tuesday. The move is a notable shift for a company that has been digging up the dirtiest fossil fuel since its founding in 1883, and comes as utilities around the world increasingly shift to cleaner energy sources to combat climate change. While coal is enjoying a surge in demand during the past six months, that’s seen as a short-term trend as the global economy emerges from the coronavirus pandemic. The long-term trends for coal remain grim, and Peabody characterised the decision as a way to generate new revenue sources.

While US drugmakers like Pfizer and Moderna made a killing from Covid-19 mRNA vaccine sales last year, sustaining similar volumes this year will be a challenge as more parts of the world become fully vaccinated. At their 2021 results briefings last month, both drugmakers said they expect Covid-19 to enter the endemic phase this year, but regular booster shots will be needed to protect the public from new infections. Moving forward, the two companies will roll out new booster shots and vaccines for younger age groups to support revenues. Both Pfizer and Moderna announced that they are in various stages of developing and commercialising new boosters and vaccines that will lower the risk of hospitalisation as a result of Omicron, citing data from studies showing that protection offered by existing boosters against the now-dominant variant is likely to wane after six months of administration.

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

HRnetGroup Limited – Another record year expected

Recommendation: BUY (Maintained); TP S$1.18, Last close: S$0.775; Analyst Paul Chew

– Results beat our estimates. FY21 revenue and PATMI was 114%/108% of our forecast. 2H21 PATMI grew 14% YoY to S$29.6mn. Excluding fair value losses, PATMI would have jumped 37%.

– 2H21 growth was from both permanent recruitment (+36% YoY) and flexible staffing (+43% YoY). FY21 DPS increased 60% to 4 cents, including a 1 cent special dividend.

– We expect another record year in FY22e. Volume growth in permanent hires will come from recovering economic conditions and clients working more with recruiters due to the tight labour market. Rising salaries will be the driver for higher margins. Flexible staffing remains healthy as others sectors start to re-open. We maintain BUY. Our target price is raised to S$1.18 (previous S$1.05) as we raise FY22e earnings by 20%. The valuation metric is lowered from 14x to 12x PE FY22e ex-cash. We tag to the mid-range of the historical 5-year range as the labour recovery has moved past the peak cycle. HRnet pays a dividend yield of 5%, net cash of S$327mn and unlevered ROEs of 16% (or above 100% ex-cash).

BHG Retail REIT – Stable growth with resilient portfolio

(Non-rated); TP: N/A
Last Done: S$0.545; Analyst: Vivian Ye

– Committed occupancy improved to 97.0% from 93.5% in 2H20 as four portfolio assets saw recovery.

– Gross revenue and net property income increased by 10.8% and 6.6% YoY respectively. 2H21 DPU was up by 4% to 1.05 Scts.

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