DAILY MORNING NOTE | 2 May 2023

Week 18 equity strategy. This week, the Fed is set to announce its interest rate decision. We expect a rate hike of 25 bps, something already well telegraphed by Fed Vice-Chairman Williams. We believe this will be the last rate hike. Firstly, based on March Core PCE (Fed’s favourite inflation gauge) MoM rise of 28bps, inflation could hit 3.8% by the year-end. This is close to the Fed’s median projection of 3.5%. Secondly, the recent failure of First Republic Bank, the 2nd largest bank failure in US history, is a reminder that banks are just one week from failure if liquidity or deposits are not shored up. This means much tighter lending standards by banks.

In Singapore, UOB reported better-than-expected results; earnings jumped 74%. But the market was disappointed because net interest margins declined QoQ. The margin decline was really the bank shoring up liquidity. The CASA ratio had in fact risen marginally to 47.9%. Another dampener for the market was property cooling measures. After all the dire predictions the recent Blossoms by the Park sold over 70% over the weekend. There were 745 cheques or bookings for the available 275 units. The cooling measures do not affect first time home buyers, and the resilient demand comes from the annual 20-25k household formations, increased migration and attractive HDB grants.

Paul Chew
Head Of Research
paulchewkl@phillip.com.sg

Singapore shares fell 0.4 per cent or 11.52 points to 3,270.51 on Friday (Apr 28) despite a rally among major Asian indices. Across the broader market, gainers beat losers 308 to 208 after 1.8 billion securities worth S$1.1 billion changed hands. The top gainer was CapitaLand Ascendas Reit, which gained 1.8 per cent or S$0.05 to close at S$2.86. At the bottom of the table was CapitaLand Investment, which shed 4.1 per cent or S$0.16 to close at S$3.72. Friday was the ex-date for the company’s dividend, which offered shareholders S$0.12 and 0.057 CapitaLand Ascott Trust units per share.

Wall Street stocks ended slightly lower on Monday after JPMorgan Chase acquired the embattled First Republic Bank, as markets traded cautiously ahead of a Federal Reserve decision. The Dow Jones Industrial Average finished 0.1 per cent lower at 34,051.70. The broad-based S&P 500 dipped less than 0.1 per cent to 4,167.87, while the tech-rich Nasdaq Composite Index also declined 0.1 per cent to 12,212.60.

SG

DBS’ 1Q2023 results beat expectations with net profit of S$2.57bn vs consensus estimate of S$2.36bn. Bulk of the beat was from stronger than expected net interest income of S$3.27bn (+50% YoY) and net interest margin growth to 2.12% (+66bps YoY). Fee income continued to decline but moderated to a 1% decline YoY and rose 21% QoQ to S$1.01bn. More details to follow after 11.30am analyst call.

Sheng Siong on Friday (Apr 28) reported a 5.2 per cent fall in Q1 2023 profit to S$33.2 million from S$35.1 million in Q1 2022. Revenue for the quarter fell 0.4 per cent to S$356.5 million, driven by the normalisation after easing of pandemic restrictions. Gross profit margin improved 0.1 point to 28.8 per cent in Q1 2023 from 28.7 per cent in Q1 2022, driven by an improved sales mix of products with higher margins. Rising inflation and geopolitical tensions continue to dampen the economic outlook. Supply chain disruptions have eased but are expected to continue further in 2023, said Sheng Siong.

Wilmar International reported a 26.2 per cent drop in net profit to US$391.4 million in the first quarter ended Mar 31, 2023, down from US$530.3 million in the same period a year prior. Revenue in Q1 fell 3.8 per cent to US$16.9 billion, from US$17.6 billion in the year-ago quarter. This was partially offset by higher sales volume in its food products, and feed and industrial products business segments.

CapitaLand Integrated Commercial Trust (CICT) reported an 11.3 per cent rise in net property income to S$276.3 million for the first quarter ended Mar 31, 2023. Gross revenue for the quarter was up 14.4 per cent year on year to S$388.5 million. Q1 2023 performance was boosted by contributions from the acquisitions of a 70 per cent interest in CapitaSky and three Australian assets, as well as higher income from existing properties, partially offset by higher operating costs and the divestment of JCube that was completed in March. Portfolio occupancy for the quarter was 96.2 per cent, up from 93.6 per cent in 2022. Its weighted average lease expiry remained stable at 3.7 years. CICT also secured positive rental reversions of 6 per cent for its retail portfolio and 4.2 per cent for its office portfolio in Q1 2023.

Frasers Hospitality Trust’s (FHT) distribution per stapled security (DPS) rose 79.7 per cent to S$0.012649 for the first half ended Mar 31, 2023. Gross revenue grew 41.1 per cent to S$62.2 million for the half-year period as travel outlook and demand in FHT’s operating markets continued to recover. Net property income (NPI) was up 42.9 per cent at S$45.2 million. Income available for distribution stood at S$27.1 million, 79.7 per cent higher than the S$15.1 million the year before.

Mapletree Logistics Trust (MLT) reported a 1.1 per cent increase in the fourth quarter of FY22/23 distributable income to S$109.2 million, but distribution per unit (DPU) for the quarter remained flat at S$0.2268, similar to the year prior. Gross revenue for Q4 FY22/23 also fell 2.2 per cent to S$178.9 million, mainly driven by the depreciation of foreign currencies to the Singapore dollar. Net property income for the quarter also fell 1.8 per cent to S$154.3 million.

The manager of Mapletree Industrial Trust (MIT) said that two-thirds of its portfolio may be made up of data centres within the next two years – with the “possibility” that this might be increased to 75 per cent further down the line. However, CEO Tham Kuo Wei stressed that this was not a target the Reit manager has in mind. For the full year ended March, MIT reported a 1.7 per cent dip in distribution per unit (DPU) to S$0.1357 largely due to an enlarged unit base with additional units issued under the distribution reinvestment plan. The amount available for distribution to unitholders rose 1.6 per cent to S$356.6 million. FY22/23 gross revenue was 12.3 per cent higher at S$684.9 million, while net property income grew 9.7 per cent to S$518 million. The Reit manager attributed the growth to contribution from the acquisition of 29 data centres in the US, partially offset by higher borrowing costs.

Far East Hospitality Trust (FEHT) has reported gross revenue of $25.2 million for the 1QFY2023 ended March 31, 20.1% higher y-o-y, mainly due to the increase in revenue for hotels and commercial premises to a lesser extent and offset by lower revenue from its serviced residences segment. Net property income (NPI) for the quarter rose by 24.4% y-o-y to $23.7 million. Income available for distribution rose by 24.1% y-o-y to $18.2 million.

CDL Hospitality Trusts (CDLHT) has reported gross revenue of $60.8 million in the 1QFY2023 ended March 31, up 31.5% y-o-y. Its net property income (NPI) increased by 35.0% y-o-y to $32.7 million. The higher gross revenue and NPI came as the trust saw growth in its revenue per available room (RevPAR) across most of its portfolio driven by higher occupancies and better recovery. Looking ahead, CDLHT expects to see continued growth in its portfolio markets as China reopens its borders although this may be offset by high interest rates and the weak global economic environment.

Samudera Shipping Line on Friday (Apr 28) signalled that first-quarter revenue and net profit for the three months ended Mar 31, 2023 “recorded a contraction”, as compared to the year-ago period. “This was due to softening of freight rates and a decline in container volume handled during the quarter compared to the same period last year,” said the carrier. It added: “Nevertheless, the group’s performance in Q1 2023 is better than Q1 2021.”

Micro-Mechanics on Friday (Apr 28) reported a 63 per cent fall in profit for Q3 FY2023 to S$1.6 million, from S$4.4 million in Q3 FY2022. Revenue for the quarter fell 24.2 per cent to S$14.9 million, from S$19.7 million the year prior, reflecting the cyclically slower conditions in the global semiconductor industry, said the company.

US

US regulators said on Monday (May 1) that First Republic Bank has been seized, and a deal agreed to sell the bank to JPMorgan. The banking giant will take US$173 billion of loans and about US$30 billion of securities of First Republic Bank, including US$92 billion of deposits, JPMorgan said in a statement. It is not assuming the bank’s corporate debt or preferred stock.

US personal consumption expenditures (PCE) price index gained 0.1 per cent in March after rising 0.3 per cent in February. In the 12 months till March, the PCE price index increased 4.2 per cent after climbing 5.1 per cent in February. Excluding the volatile food and energy components, the PCE price index rose 0.3 per cent after increasing 0.3 per cent in February. The so-called core PCE price index gained 4.6 per cent on a year-on-year basis in March after rising 4.7 per cent in February.

EXXON Mobil on Friday (Apr 28) reported a record first-quarter profit that was more than double from a year ago and topped Wall Street estimates. The biggest contributor to the better-than-expected earnings came from strong production growth, said CFO Kathryn Mikells. Its income rose to US$11.43 billion, or US$2.79 per share, compared to US$5.48 billion a year ago that included a writedown to exit Russia. Its oil and gas production rose by nearly 300,000 barrels per day (bpd) compared to year-ago levels excluding asset sales and its exit from Russia.

Chevron beat market expectations on Friday as profit nudged higher in the first quarter, with earnings from refining compensating for a slide in energy prices and in oil and gas production. Net profit climbed 5% to $6.57 billion or $3.46 per share. The company’s standout business was oil refining, where higher margins helped income surge more than five-fold to $1.8 billion. But its oil and gas production division saw its net profit tumble 25% on a big year-over-year decline in prices.

Snap reported first-quarter results that missed analysts’ expectations on revenue. Its first-quarter revenue declined 7% to $989 million from $1.06 billion during the year-earlier period, while the net loss narrowed to $328.7 million from $359.6 million in the first quarter of 2022. Although the company didn’t provide official guidance for the second quarter, it said in a letter to shareholders that its “internal forecast” for revenue would be $1.04 billion, representing a 6% year-over-year decline.

General Motors cut several hundred full-time contract positions primarily from its engineering hub in suburban Detroit. The contract workers, from GM’s product-development operation that employs roughly 20,000 engineers, were terminated over the weekend, a company spokeswoman said Monday.

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

RESEARCH REPORTS

United Overseas Bank Limited – Fee income decline staunched

Recommendation: Buy (Maintained), Last done: S$28.22, TP: S$35.70, Analyst: Glenn Thum

– 1Q23 adjusted earnings of S$1,577mn were slightly above our estimates due to higher other non-interest income and lower allowances offset by lower-than-expected NII growth. 1Q23 adjusted PATMI was 28% of our FY22e forecast.

– Positives include fee income recovery of 14% QoQ and other non-interest income surging by 457% YoY, while negatives include a slowdown in NIM to 2.14% for 1Q23 and loan growth decline of 1% YoY. Nonetheless, 1Q23 NII was up 43% YoY but fell by 6% QoQ. Management has lowered its loan growth guidance from mid-single digit to low to mid-single digit, while maintaining its guidance of NIMs at around 2.1-2.2%, double-digit fee income growth, stable cost-to-income ratio and credit costs at 20-25bps for FY23e.

– Maintain BUY with an unchanged target price of S$35.70. Our FY23e estimates remain unchanged. We assume 1.48x FY23e P/BV and ROE estimate of 12.9% in our GGM valuation. Continued NIM and NII improvement and fee income recovery will boost earnings.

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