Daily Morning Note – 2 November 2020

PHILLIP SUMMARY

Stocks saw renewed pressure at the start of a crucial week that could set the tone for the remainder of the year, with the U.S. election and a Federal Reserve policy meeting. Oil tumbled about 5%.

S&P 500 futures were lower and the dollar edged higher. Australian shares erased early gains with global equities coming off the back of two months of losses. The pound slipped as increased restrictions in England aimed at controlling the coronavirus overshadowed signs of progress on Brexit. Traders will later watch the release of data on Chinese manufacturing for any clues on the trajectory of the recovery there after official readings at the weekend topped estimates.

BREAKING NEWS

A joint venture of Yanlord Land Group has acquired two prime residential integrated development sites in Jingan District of Shanghai for 4.2 billion yuan (S$859.8 million), the property developer said in a bourse filing on Friday. Yanlord entered into the joint venture with Huafa Industrial Co Ltd Zhuhai through an indirect wholly-owned subsidiary, and holds an effective interest of 30 per cent in the joint venture.

Tencent Holdings led a US$50 million investment in real-time communications software developer Zego, underscoring widespread interest in online education and videoconferencing in the post-pandemic era.The Shenzhen-based startup’s financing round was also joined by existing backers Qiming Venture Partners and IDG Capital, Zego said. The company – now part of Tencent’s massive investment portfolio – didn’t disclose its latest valuation.

Westpac Banking Corp on Monday slashed its annual dividend and reported a 62 per cent plunge in cash earnings due to write-downs and a record A$1.3 billion (S$1.24 billion) fine over a money-laundering case. The fine to settle a lawsuit accusing Westpac of enabling millions of payments to people exploiting children brought an end to a difficult chapter for Australia’s oldest bank, which saw it lose about a third of its value since the bombshell announcement in November last year.

Huawei Technologies plans to build a chip plant in Shanghai without using American technology, as China’s biggest tech company by sales seeks a new strategy to overcome increasingly tight US sanctions, the Financial Times reported. The fabrication facility is expected to start with the manufacture of low-end 45nm chips, the paper said on Sunday, citing people familiar with the project. Huawei aims to make 28nm chips for “Internet of things” devices by the end of 2021, and produce 20nm chips for 5G telecom equipment by late 2022, the report said.

From Monday, small and medium-sized enterprises (SMEs) in financial distress because of the Covid-19 pandemic will be able to access the Sole Proprietors and Partnerships (SPP) Scheme and Extended Support Scheme – Customised (ESS-C) to restructure credit facilities and debts owed to multiple lenders. The two schemes, both launched on Sunday, are part of a package of extended relief measures announced by the Monetary Authority of Singapore (MAS), the Association of Banks in Singapore (ABS) and the Finance Houses Association of Singapore on Oct 5.

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

TECHNICAL REPORTS

Technical Analysis: US indices – Neutral ground for a short term but buying on rebound looks like a safe idea

Analyst: Chua Wei Ren

– All three indices has been on the downside and since its sell down on September, rebound fails to clear above the high which eventually a regular flat was formed which the report dated on 28th September 2020 predicted a higher chance of it forming.

– The Sell-off in end October was in reaction to the stimulus failing to pass.

– The sell-off may well be a correction and a smoke screen but the prospect into 2022 will very much be in a ranging zone. While all the major U.S indices are making new highs, only Dow remain below the all-time high.

>> Read more Technical reports

RESEARCH REPORTS

U.S. Elections – Sector Overview

Analyst: Yeap Jun Rong

– In past election years, defensive sectors tended to outperform sensitive and cyclical sectors going into election day. This likely reflected investors’ jitters over election results. Returns across the sectors were generally weak.

– Market performances tended to be muted for several weeks after elections. In a close race, the certification process for elections is even more crucial and may take longer, causing market volatility. Some investors could opt to stay on the sidelines until the results are finalised.

– Investors who adopted a longer-term timeframe of 3-6 months after election day would have benefitted from a bullish turn in sentiment on all sectors. Traditionally, cyclical sectors outperformed, with financials, materials and consumer discretionary being the strongest-performing.

– Going into election day, we summarised the impact of a Biden win on various sectors and industries.

Micro-Mechanics (Holdings) Ltd – Record revenue and profits

Recommendation: ACCUMULATE (Downgraded), Last Done: S$2.66

Target Price: S$2.93, Analyst: Paul Chew

– 1Q21 revenue and net profit exceeded our expectations by 10% due to better-than-expected sales.

– Revenue rose 18% YoY to S$18.1mn. PATMI was up 42% YoY to S$4.7mn. Both were record highs.

– We raise FY21e earnings by 9% and TP to S$2.93 from S$2.50. Our TP remains based on 18x FY21e PE (ex-cash). There are no direct comparables to MMH. We benchmarked our valuations to the average PE for global back-end semiconductor equipment companies. Growth to be underpinned by an upswing in the semiconductor cycle and new customers in the U.S. That said, downgrade to ACCUMULATE from BUY as we believe some of the positives have been priced in after its recent rally.

Ascendas REIT – Standing steady

Recommendation: BUY (Upgraded), Last Done: S$2.88

Target Price: S$3.61, Analyst: Natalie Ong

– Portfolio reversion of -2.3% in 3Q20 but occupancy inched up from 91.5% to 91.9%. Low-single-digit positive reversions for FY20e still achievable owing to stronger leasing in 1H20, in line with our rental reversion forecasts.

– Weaker industrial outlook mitigated by scale and diversified tenant mix. No pre-terminations except for SG portfolio: nine tenants accounting for 1,800sqm of NLA.

– Upgrade to BUY with lower DDM TP of S$3.61, down from S$3.63, mainly due to higher debt and perpetual securities. Estimates tweaked for recent acquisition of MQX4. Recent pullback in share price presents better entry price, and total returns of 31.5% to our TP – upgrade to BUY.

Sheng Siong Group Ltd – Grocery demand remains elevated

Recommendation: NEUTRAL (Maintained); TP S$1.71, Last close: S$¬¬1.67;

Analyst Paul Chew

– 3Q20 earnings beat our estimates by 5% on the back of higher-than-expected same-store sales growth. Revenue rose 28.9% YoY to S$327mn. Net profit jumped 54% to S$31.8mn.

– Of the revenue growth, 20% points was from same-store sales (SSS) and 9% from new stores.

– With more time being spent at home, household cooking and eating should remain elevated, supporting grocery retailing. SSG’s positioning as an affordable and modern fresh-food store for the younger generation should enable it to take more wallet share from wet markets. We raise FY20e/FY21e net profits by 5%/4% to S$129mn/S$103mn. Our TP climbs to S$1.71 from S$1.65 with the rise in Fy21e earnings. We use FY21e as it is more reflective of normalised earnings.

SG Bonds Weekly – Week 45

Credit Analyst: Timothy Ang

– Activity in the Asia primary debt market tapered down mid-week as market volatility spiked. The sharp equity markets sell-off on Wednesday claimed casualties in the primary bond market in Asia.

– New issue pipeline winds down leading up to US elections with 1 new mandate outstanding from the ones announced over the fortnight.

ESR-REIT – Little Change (Credit View)

Credit Analyst: Timothy Ang

– Little change in credit profile.

– Leasing demand was driven by pharmaceutical and precision engineering sectors.

– We are sanguine on ESR-REIT (EREIT) given its stable outlook. However, we hold a Neutral view on the EREIT 4.6% NC5 Perpetual with a yield to worst of 3.27% and yield to call of 6.01% given the potential of non-call.

>> Read more research reports

HK Reports – Read up on our Hong Kong reports here

RESEARCH VIDEOS

Webinar Of The Week

Market Outlook: (PSR) US Election (Healthcare), Bond Model Portfolio Review, Nanofilm Tech IPO & more

Date: 26 October 2020

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