DAILY MORNING NOTE | 20 February 2023

Trade of the Day

CapitaLand Ascott Trust (SGX: HMN)

Analyst: Zane Aw

(Current Price: S$1.05) – TECHNICAL BUY

Buy price: S$1.05 Stop loss: S$1.02 Take profit 1: S$1.12

Take profit 2: S$1.15

Week 8 equity strategy: Market belief in the disinflation theme is wavering following a strong US jobs report plus slightly disappointing CPI. Nevertheless, we think disinflation is underway. And we favour REITs near term as investors search for yield as economic conditions slow.

Global trade is contracting rapidly. Singapore, Taiwan and Korean exports were down a combined 19% YoY in January. US retail is overstocked. In a typical year, US retail inventory rises by US$21bn. In 2022, inventory jumped more than 4-fold to US$92bn. From just-in-time inventory, the situation has swung to just too much. This week will be filled with multiple results announcements including Genting SG, Sembcorp Ind., Wilmar, SIA, UOB, CDL, OCBC and Venture.

THE Straits Times Index (STI) pulled out from underwater territory on Friday (Feb 17) to eke out gains, bucking losses across regional bourses, which took their cue from Wall Street’s overnight falls. The index edged higher by 17.14 points or 0.5 per cent, to cap the week at 3,328.37. It fell just over 32 points or 1 per cent in an eventful week led by domestic happenings. These included Budget 2023, economic data for the fourth quarter of 2022, as well as January trade data.

WALL Street stocks finished mostly lower on Friday to conclude a mixed week pressured by worries over more interest rate hikes. The yield on the 10-year US Treasury note inched lower, but stood within striking distance of four per cent after inflation reports earlier in the week lifted yields. The rise has come as Federal Reserve officials talked up the need for more interest rate increases in recent days.

The US markets will be closed on 20th February 2023 due to the holiday, President’s Day, and will reopen on 21st February 2023.

Stocks to watch: SIA Engineering Company

Top gainers & losers





Despite higher revenue, SIA Engineering Company (SIAEC) reported on Friday (Feb 17) lower net profit for its third quarter (Q3) ended Dec 31, 2022, as pandemic-related wage support ended. Net profit for the three months fell to S$12.8 million, down 61.4 per cent from S$33.2 million in the corresponding period a year earlier. On a per-share basis, earnings fell to S$0.0114 in Q3 FY23, from S$0.0296 in Q3 FY22. The lower net profit came amid higher group expenditure, mainly due to the absence of wage support. SIAEC said in its business update on the Singapore Exchange that this was the first quarter since the pandemic with no wage support.

Tech solutions provider Aztech Global reported a 45.9 per cent fall in net profit to S$24.3 million for the second half of the year ended Dec 31, 2022, from S$45 million a year earlier. Earnings per share for the half year stood at S$0.0315, down from S$0.0588 previously. This was despite revenue rising 21.6 per cent to S$455.7 million, from S$374.7 million the year before. In a bourse filing on Friday (Feb 17), the group said the decline in net profit mostly stemmed from foreign exchange losses amounting to S$56.6 million, with several foreign currency contracts maturing in FY2022.

Mainboard-listed Challenger Technologies reported on Friday (Feb 17) a 40 per cent decline in net profit for the second half, despite higher revenue. The company said in a bourse filing that net profit for the six months ended Dec 31, 2022 fell to S$5.1 million, down from S$8.4 milliion in the year-ago period. On a per share basis, earnings fell to S$0.0126 in H2 FY22, down from S$0.0238 in H2 FY21. A final cash dividend of S$0.0125 per share was proposed, down from the final dividend of S$0.028 per share in the year-ago period. The dividend is payable May 18, 2023.

SunMoon Food Company, whose business is in food supply chain, plans to raise net proceeds of around $2.82 million by placing out 125 million new shares. The placement shares, at 2.3 cents each, is a premium of around 5% to the weighted average price of 2.2 cents on Feb 17, the last trading day before the placement announcement was made on Feb 18. The investor is Champion Financial (Hong Kong), an investment holding company fully-held by one Song Xiao Jun.

Don Agro International has warned that it expects to report a loss for the FY2022. The Russia-based agriculture company explains that the losses will be due to significant changes in the fair value of its biological assets, specifically, its crops, as a result of lower prices agriculture produce can fetch within Russia. In addition, it got to bear with a “significant leap” in costs of seeds, fertilizers and spare parts in FY2022. The company expects to report its FY2022 numbers by March 1. For its 1HFY2022 ended June 30 2022, the company reported earnings of $3.8 million, down 19.5% y-o-y. Revenue was up 91.6% in the same period to $18.1 million.


Facebook, the social network that was supposed to stay free “always,” and its stablemate Instagram launched on Sunday a paid subscription service, as the advertising-based business model that has long dominated the internet falters. Mark Zuckerberg, the CEO of Facebook-parent Meta, announced on Sunday the launch of Meta Verified, a service starting at US$11.99 a month to authenticate one’s account, which follows a similar move by Elon Musk at Twitter. “This new feature is about increasing authenticity and security across our services,” Zuckerberg wrote in a statement posted to Facebook and Instagram.

Financing arrangements across the Adani Group conglomerate have sent a fresh chill through environmental, social and governance (ESG) markets as investors wake up to a new risk. Norway’s largest pension fund, KLP, recently dumped its entire holding of shares in Adani Green Energy, the renewables part of the empire, amid concerns that it might inadvertently have helped finance some of the world’s most polluting activities via the stake. A Feb 10 public filing has since made clear that Adani is using stock from its green companies as collateral in a credit facility that’s helping to finance the Carmichael coal mine in Australia, via Adani Enterprises.

German carmakers Mercedes-Benz and VW have urged the government to do more to scale up the number of electric vehicle charging stations across the country, German paper Bild am Sonntag wrote on Sunday (Feb 19). “To speed up the change (to electric vehicles), we need to be sure that the charging station infrastructure is being built up,” Mercedes-Benz chief executive Ola Kallenius was quoted as saying by the paper. “That’s also a question for politics.” VW chief executive Oliver Blume agreed more speed was needed and that the construction of charging stations was “a common task of the economy, federal government and communes”.

Twitter said on Friday it will allow only paid subscribers to use text messages as a two-factor authentication (2FA) method to secure their accounts. After March 20, “only Twitter Blue subscribers will be able to use text messages as their two-factor authentication method,”the company tweeted. Two-factor authentication, meant to make accounts more secure, requires an account holder to use a second authentication method in addition to a password. Twitter allows 2FA by text message, authentication app and a security key.

Abbott Laboratories is facing another probe into its role in last year’s baby formula shortage that left millions of American families scrambling for vital nutrition products. Last month, Abbott received a civil investigative demand from the US Federal Trade Commission seeking information in connection with its probe of companies that participate in bids for formula contracts, according to a financial statement filed Friday with the US Securities and Exchange Commission. The investigation could lead to a lawsuit by the FTC if the agency finds Abbott engaged in anticompetitive conduct, such as collusion with other manufacturers on pricing.

Boeing on Friday awarded chief executive Dave Calhoun an incentive worth approximately US$5.29 million to induce him to stay throughout the company’s recovery from the twin crises of the Covid-19 pandemic and two deadly 737 MAX crashes that led to the fleet’s grounding. Boeing’s board of directors on Feb 16 approved giving 25,000 in restricted stock units to Calhoun, which will vest in two instalments on the first and second anniversary of the grant, according to regulatory filings by the company published on Friday.

Microsoft has started discussing with ad agencies how it plans to make money from its revamped Bing search engine powered by generative artificial intelligence (AI) as the tech company seeks to battle Google’s dominance. In a meeting with a major ad agency this week, Microsoft showed off a demo of the new Bing and said it plans to allow paid links within responses to search results, said an ad executive, who spoke about the private meeting on the condition of anonymity.

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


Singapore Telecommunications Ltd – Currency headwinds everywhere

Recommendation: ACCUMULATE (Maintained); TP S$2.84, Last close: S$2.45; Analyst Paul Chew

– 9M23 revenue met expectations at 73% of our FY23e estimates. EBITDA was below at 67%. There was an 8% point drag from the weaker Australian dollar. Underlying PAT rose 18% YoY to S$532mn, supported by a 23% rise in associate profit to S$407mn.

– Bharti net profit spiked 151% YoY to S$113mn, despite a 7% decline in the Indian Rupee. Optus operating metrics were stable post the cyber-attack in September.

– We lower our FY23e revenue/EBITDA by 5% and 7% respectively as we lower our Australian dollar assumptions by 10%. Our target price declined from S$3.05 to S$2.84 and we maintain our ACCUMULATE recommendation. Earnings growth continues to build up in India and Singapore. Weaker segments are sluggish earnings in Optus and NCS.

Airbnb Inc – Impressive earnings on strong travel demand

Recommendation: ACCUMULATE (Downgraded); TP: US$149.00

Analyst: Ambrish Shah

– FY22 revenue was in line with expectations at 101% of our forecasts, but PATMI exceeded at 110%. 4Q22 revenue grew 24% YoY to US$1.9bn despite 7% FX headwinds. PATMI spiked 480% YoY driven by a strong jump in travel demand that led to more bookings and higher operating leverage.

– Gross booking value (GBV) grew 20% YoY to US$13.5bn mainly driven by growth in nights and experiences booked (up 20% YoY to 88.2mn), with momentum continuing into 1Q23e.

– We downgrade to ACCUMULATE from BUY after the recent jump in its stock price. We raise our DCF target price to US$149.00 (prev. US$128.00) with a WACC of 7% and terminal growth of 4%. We increased our FY23e Revenue/PATMI by 1%/15% due to continued travel demand and lower expenses. While consumer discretionary spending is being squeezed, we believe Airbnb is well-positioned as the platform offers better non-urban location listings versus hotels, benefits travellers looking for long-term stays, and is more family and group travel-friendly.

FAANGM Monthly January 23 – Strong start to the year

Recommendation: NEUTRAL (Maintained); Analysts: Jonathan Woo, Maximilian Koeswoyo, Zane Aw, Phillip Research Team

– The FAANGM was up 11.3% in January, beating both the S&P 500 and Nasdaq, which were up 6.2% and 10.6% respectively. We suspect that this could be a bear market rally given the lack of any catalysts for FAANGM growth.

– META, AMZN, and NFLX were the biggest gainers, all up more than 20%; with META and AMZN buoyed by higher-than-anticipated holiday sales (8.3% YoY) and cooling goods inflation, and NFLX 4Q22 subscriber additions surprising to the upside of 3.2mn. MSFT was the laggard, up only 3.2%.

– We expect the near-term slowdown in digital advertising, weakness in consumer tech demand and pullback in Cloud spending to weigh on FAANGM price performance, with FAANGM LTM P/S trending in a similar direction. FY23e revenue growth for FAANGM is expected to be in the mid-high single digits (roughly half its 5-yr CAGR of 15% and similar to FY22). We remain NEUTRAL on FAANGM.

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