DAILY MORNING NOTE | 20 July 2023

Singapore stocks ended higher on Wednesday (Jul 19), gaining 0.6 per cent or 20.98 points to 3,275.24. UOB was the largest gainer on Wednesday, rising 3.4 per cent or S$0.95 to close at S$28.64. The lender will be the first among the trio of local banks to report its second-quarter earnings next Thursday. The other two local lenders also ended the day higher. DBS gained 0.7 per cent or S$0.21 to close at S$32.74, while OCBC rose 1.6 per cent or S$0.20 to close at S$12.67. Wednesday’s biggest loser was DFI Retail Group, which lost 2.1 per cent or US$0.06 to close at US$2.86.

Wall Street stocks ended slightly higher on Wednesday (Jul 19), with the Dow rising for an eight straight day, extending a bullish run on better-than-expected economic figures in recent weeks. The Dow Jones Industrial Average ended the day up 0.3 per cent at 35,061.21, building on recent gains. The broad-based S&P 500 advanced 0.2 per cent to 4,565.72, while the tech-rich Nasdaq Composite Index was flat at 14,358.02.

SG

Sabana Industrial Real Estate Investment Trust (Sabana Reit) posted a distribution per unit (DPU) of S$0.0161 for the first half of its fiscal year ended Jun 30, 2023, up 1.3 per cent from S$0.0159 in the corresponding year-ago period, its manager announced on Wednesday (Jul 19). Gross revenue for H1 was up 23.2 per cent on year to S$55.3 million from S$44.9 million, mainly due to higher portfolio occupancy of 93.9 per cent. But revenue growth was largely offset by higher property expenses, which grew year on year to S$28.1 million, from S$17.8 million. This included higher utility costs. Net property income rose 0.5 per cent to S$27.2 million from S$27 million. Total amount available for distribution came in at S$17.8 million, 3.9 per cent higher than the preceding year’s S$17.1 million. Sabana Reit’s rental reversion for H1 came in at a record 20.1 per cent. It also posted a record 27.1 per cent rental reversion for Q2. The manager added it has also renewed and replaced 52.5 per cent of its leases expiring in FY2023, with another 23.6 per cent under negotiation or lease documentation.

Douglas Foo, executive chairman of Sakae Holding, is looking to sell a 20 per cent stake in the restaurant operator for S$26.5 million, the company said on Wednesday (Jul 19). On Tuesday, Foo entered into a sale and purchase agreement with Makara Capital to sell 27.8 million shares in the company. If the proposed sale is completed, Foo will remain as executive chairman and controlling shareholder with 64.1 million shares, or about 46.15 per cent of the company’s total number of issued shares. The deal’s completion is subject to the meeting of certain conditions, Sakae noted.

Keppel, along with a consortium with Mitsubishi Power Asia-Pacific and Jurong Engineering, broke ground on Wednesday (Jul 19) for Singapore’s first hydrogen-ready co-generation plant. Located in the Sakra sector of Jurong Island, the Keppel Sakra Cogen (KSC) Plant will be a 600 MW advanced combined-cycle gas-turbine power plant, the three companies said. The plant is expected to be completed in H1 2026, and will reportedly be the “most energy efficient” among the operating fleet in Singapore, with lower emission intensity and higher operation flexibility.

US

Netflix said Wednesday that its quarterly revenue and subscriptions rose, as efforts to curb password sharing took hold. The company said it added 5.9 million customers during the second quarter amid its broader crackdown on password sharing in the U.S. Netflix said it would roll out its new policy to the rest of its customers on Wednesday. The company reported revenue of $8.19 billion (vs $8.30 billion expected), up 3% from $7.97 billion in the prior-year period. Net income of $1.49 billion (EPS of $3.29 vs $2.86 expected) climbed from $1.44 billion in the year-ago quarter. Netflix said Wednesday it expects a boost in revenue in the second half of the year as it begins “to see the full benefits of paid sharing plus the steady growth in our ad-supported plan.” Netflix said it now forecasts revenue of $8.5 billion, up 7% year over year, for the third quarter. The company also anticipates paid net subscriber additions in the third quarter will be similar to the second quarter. Meanwhile, Netflix expects revenue growth in the fourth quarter to “accelerate more substantially” as the efforts to curb password sharing gain steam and as advertising revenue grows.

Tesla reported earnings after the bell, showing a record for quarterly revenue but lower margins thanks to price cuts and incentives. Revenue was $24.93 billion, versus $24.47 billion expected. Earnings came in at 91 cents per share adjusted, versus 82 cents per share expected. Net income (GAAP) was $2.70 billion, an increase of 20% from last year. Operating income, however, was off 3% from the year-ago quarter at $2.40 billion. Operating margins came in at 9.6%, the lowest for at least the last five quarters. Total gross margin came in at 18.2%, also a low for the same period. Revenue from Tesla’s core automotive business rose 46% year-over-year to $21.27 billion. Its energy generation and storage revenue rose 74% year-over-year to $1.51 billion. With more vehicles on the road, Tesla’s “services and other” revenue, including fees for out-of-warranty vehicle repairs, rose 47% to $2.15 billion. Tesla’s research and development costs rose to $943 million (from $771 million in the first quarter) with the company writing in a shareholder deck that it is focused on “being at the forefront of AI development,” and has started production of its Dojo “training computers.”

Goldman Sachs Group reported a bigger-than-expected drop in second-quarter profit as a retreat from consumer businesses and declining investment values took a toll on the Wall Street giant. The bank took a writedown of US$504 million tied to its GreenSky business and US$485 million related to its consolidated real estate investments. Earnings fell more than 60 per cent to US$1.07 billion, or US$3.08 per share, for the three months ended Jun 30, the bank reported on Wednesday (Jul 19). That compares to US$2.79 billion, or US$7.73 per share, a year earlier. Analysts had expected a profit of US$3.18 per share. Goldman’s asset and wealth management unit brought in 4 per cent lower revenue compared to last year, hurt by losses from real estate investments. Investment banking fees for the quarter fell 20 per cent to US$1.43 billion. Trading revenue for fixed income, currency and commodities fell 26 per cent, while equities trading revenue was broadly unchanged.

IBM’s second-quarter revenue fell short of Wall Street expectations on Wednesday (Jul 19), bogged down by a decline in sales of its mainframe computers as businesses cut tech spending. Revenue growth in the US and Western Europe was “muted” as the company wrapped up the cycle for its mainframe computers it launched last year, chief financial officer James Kavanaugh said. IBM reported the top line of its business that houses the mainframe computers shrank by 14.6 per cent. Total revenue for the quarter that ended Jun 30 fell 0.4 per cent to US$15.48 billion compared with analysts’ average estimate of US$15.58 billion. Excluding items, the company earned US$2.18 per share, beating estimates of US$2.01 per share.

Broadcom’s proposed US$61 billion takeover of VMware was provisionally waved through by the UK’s antitrust watchdog, easing the path towards one of the largest technology deals in history. The Competition and Markets Authority (CMA) said it took an initial view that the deal wouldn’t substantially reduce competition in the supply of key computer server products, according to a statement published Wednesday after an in-depth review. The CMA will now consult on its interim findings and will issue a final decision on Sep 12.

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

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