Daily Morning Note – 20 August 2021

Dear valued client,

Wall Street stocks ended a choppy session little changed on Thursday as markets weighed better employment data against global growth worries. The Dow Jones Industrial Average dropped 0.2 per cent to 34,894.12. Americans filed 348,000 new unemployment claims, seasonally adjusted, in the week ended August 14, fewer than expected and bringing the total closer to the pre-pandemic level, before Covid-19 forced nationwide business closures that caused millions of layoffs. Treasuries and the US dollar rose as concern about the withdrawal of Federal Reserve stimulus mixed with growing angst around the coronavirus and global supply chains. The S&P 500 was down for a third day, and a gauge of equity volatility headed for its biggest weekly increase since January. Commodities sold off, with iron ore plunging and oil on track for its longest losing streak since the early days of the pandemic.

European shares tumbled to their biggest daily loss in a month on Thursday as a slump in commodity prices dragged down mining stocks, while luxury stocks were hit by a Chinese wealth redistribution push. The pan-European STOXX 600 was down 1.6 per cent at a two-week low, with mining stocks sliding 4.2 per cent in their biggest one-day decline since March. Luxury stocks with a large exposure to China’s economy such as LVMH, Kering and Richemont dropped between 5.8 per cent and 9.2 per cent on Beijing’s plans to target excessive corporate profits and wealth inequalities.


SG News

Singapore will classify countries and regions into four categories, with differentiated border measures for each category. The Ministry of Health (MOH) on Thursday (Aug 19) said the higher vaccination rates among the population provide a foundation for the country to introduce vaccination-differentiated border measures for travellers. Under the new Vaccinated Travel Lane (VTL) from Sept 8, fully vaccinated passengers to and from Singapore can travel without quarantine, provided they undergo several Covid-19 polymerase chain reaction (PCR) tests. For a start, the VTL will be introduced for travel to Germany and Brunei from Sept 8. Fully vaccinated travellers from the two countries can also use the VTL. Singapore, Hong Kong scrap travel bubble due to different Covid-19 strategies.

Singapore Medical Group (SMG) has proposed to acquire the 50 per cent stake it does not own in its joint-venture company, SMG International Vietnam (SMG IV), for S$3.04 million as part of plans to expand in Vietnam amid rising private healthcare demand. SMG IV was incorporated in December 2016 to explore and invest in potential growth and acquisition opportunities. Following the proposed acquisition, SMG will in turn effectively own a 42 per cent stake in CityClinic Asia Investments (CCAI), which operates three medical centres in Ho Chi Minh City, said the group in a bourse filing on Thursday. CCAI’s wholly-owned subsidiary, CityClinic Vietnam Limited, holds a 100 per cent foreign-investor licence for Vietnamese healthcare operations and runs the CarePlus Vietnam brand of medical centres.

Shanaya debuts on Catalist following CPH reverse takeover. Ship waste management company Shanaya Environmental Services debuted on the Catalist board on Thursday following the completion of the reverse takeover of CPH, a printed circuit board company, on Aug 18. Shanaya shares opened at 22 Singapore cents, down 4.5 cent or 17 per cent from its adjusted closing price of 26.5 cents on Aug 18. That gives it a market capitalisation of S$24.8 million and an implied price-to-earnings ratio of 32.1 times, taking into account the company’s profit of S$773,692 for the financial year ended Dec 31, 2020.

Q&M Dental Group has proposed a bonus issue of up to 157.46 million new ordinary shares, representing about 20 per cent of its existing issued and paid-up share capital of 787.31 million shares. This is on the basis of one bonus share to be credited as fully paid for every five existing ordinary shares in the capital of Q&M held by shareholders, fractional entitlements to be disregarded, as at the record date to be determined by the directors, said the group in a bourse filing on Thursday.

Alibaba Group Holding shares slumped as much as 5.4 per cent to a record low in Hong Kong on Thursday, extending a sell-off in Chinese technology giants after Beijing hit the industry with a fresh round of regulations. Shares dropped after China said it is studying separate proposals to further ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry. Sentiment for China’s largest advertising platform also soured after peer Tencent Holdings executives said in a post-earnings conference call that the government can make fairly substantial changes to how companies use data for advertising. Beijing’s recent crackdowns on the tech sector wiped off about US$1 trillion of market value from Chinese shares listed globally last month as they quickly expanded from antitrust and e-commerce concerns to private tutoring, data security and online content.

US News

Facebook Inc on Thursday launched a test of a new virtual reality (VR) remote work app where users of the company’s Oculus Quest 2 headsets can hold meetings as avatar versions of themselves. The beta test of Facebook’s Horizons Workrooms app comes as many companies continue to work from home after the Covid-19 pandemic shut down physical workspaces and as a new variant is sweeping across the globe. Facebook sees its latest launch as an early step towards building the futuristic “metaverse” that CEO Mark Zuckerberg has touted in recent weeks. The world’s largest social network has invested heavily in virtual and augmented reality (AR), developing hardware such as its Oculus VR headsets, working on AR glasses and wristband technologies and buying a bevy of VR gaming studios, including BigBox VR.

Amazon.com Inc is planning to open large physical shops in the United States that will operate like department stores, the Wall Street Journal reported here on Thursday, as the e-commerce giant expands its footprint in brick-and-mortar retail. Some of Amazon’s first department stores are expected to open in Ohio and California, the report said, adding that the shops will be about 30,000 square feet in size and offer products from well-known consumer brands. Amazon declined to comment on the report. Sales at large department stores, which were shopping havens until the entry of online players especially Amazon, have since taken a beating, even leading to the bankruptcy of once popular retail chains such as Sears, Neiman Marcus, and J.C. Penney.

Microsoft Corp on Thursday said it will raise prices as much as 20% for a bundle of software called Microsoft 365 that includes popular apps like Teams and Outlook. The increases will take effect within six months, Microsoft said in a blog post announcing the change. The Microsoft 365 suite is the cornerstone of the company’s productivity and business process segment, which had sales of $53.9 billion in its most recent fiscal year, about a third of Microsoft’s overall $168 billion in sales. The increases will affect commercial customers and are the first since Microsoft rolled out the service a decade ago. Jared Spataro, corporate vice president for Microsoft 365, said the company has added two dozen apps to the suite since it launched.

Estee Lauder Cos Inc forecast fiscal 2022 sales largely above estimates on Thursday, boosted by a rebound in demand for makeup products at its brick-and-mortar stores as people start venturing out following the easing of COVID-19 curbs. Shares of the cosmetics maker rose 2.5%, as sales in its makeup division climbed for the first time in more than a year, surging 76% in the fourth quarter. Sales of the M.A.C brand owner’s foundations and lipsticks rebounded after a year of pandemic-induced lockdowns, which have now eased with people returning to offices and stepping out for events.

Adobe Inc said on Thursday it would buy Frame.io, a cloud-based video collaboration platform, in a $1.27 billion deal. Frame.io streamlines the video production process by enabling video editors and key project stakeholders to collaborate using cloud-first workflows. Adobe said Frame.oi has more than a million users across media and entertainment companies, agencies, and global brands.

Shares of Robinhood Markets Inc fell 9% on Thursday as the fee-free broker’s warning about a slowdown in trading raised concerns about its reliance on a pack of small-time investors to sustain a frenzy in stocks, options and cryptocurrencies. In its first results as a public company on Wednesday, Robinhood said the crypto trading mania this year helped double its second-quarter revenue, but also warned it expected retail investors who trade on its popular app to take a breather in the third quarter.

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


Apple Inc – Super-cycle in price, margins and product

Recommendation: BUY (Initiation); TP: US$187.00

Last Done: US$146.70; Analyst: Timothy Ang

– Record iPhone sales expected in FY21e and FY22e, topping its 4G super-cycle in 2015. 5G push for iPhone upgrading.

– Margins to stay elevated from fast-growing services and higher selling prices of new 5G products.

– Initiate coverage with BUY recommendation and DCF target price (WACC 5.8%) of US$187.0.

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