DAILY MORNING NOTE | 20 June 2022

Stocks are set for a cautious start to the week as sentiment in markets remains fragile under a Federal Reserve determined to tame inflation.

Equity futures rose for Japan but dipped for Australia and Hong Kong, while S&P 500 and Nadsaq 100 contracts edged up in early Asian trading. Volatility is likely to continue to whipsaw markets as inflation remains elevated and investors fret that assets have further to decline. Treasury Secretary Janet Yellen said that “unacceptably high” prices are likely to stick with consumers through 2022 and that she expects the US economy to slow down.

As the crypto market crumbled this year, short-term speculators were among the first to dump their holdings. Now, as losses mount, even some of the most steadfast investors look like they’re bailing out. A measure tracking daily profit from market activity in digital currencies on a blockchain has declined to its lowest level in a year. Overall, the crypto market has shed more than $1 trillion in value this year. Bitcoin had a wild ride at the weekend, with a steep drop Saturday being followed by a 16% climb Sunday.

SG

Zilingo co-founders made a last-ditch offer to buy the embattled fashion e-commerce platform as the board debates its future, according to people familiar with the matter.Co-founder Dhruv Kapoor on Sunday (June 19) proposed a management buyout to the Singapore-based company’s board, according to the people, who asked not to be named as the matter is private. He has secured commitments from a small group of new investors including a United States private equity firm, the people said. Under the preliminary proposal, the investor group will inject $8 million in new equity in a newly incorporated entity in tranches, while the remaining assets and the old corporate entity will be liquidated in due course, according to Mr Kapoor’s e-mail sent to investors and seen by Bloomberg News. All outstanding debt owed to creditor Zorro Assets will be frozen for three years, according to the e-mail.

As vaccine demand wanes, Singapore Paincare seeks growth from new TCM arm, acquisitions. WITH its newly launched traditional Chinese medicine (TCM) brand, Singapore Paincare Holdings (SPCH) has taken another step towards its goal of building a holistic suite of end-to-end pain care treatment offerings. And Bernard Lee, the company’s chief executive, also hopes the move will help it capture a bigger slice of the niche healthcare pie. The Catalist-listed medical services group opened an integrated pain care and wellness centre in Singapore in March this year. Dr Lee said in an interview that Singapore Paincare TCM Wellness aims to both integrate TCM with Western treatment interventions and capture a more pro-TCM patient profile. An integrated ecosystem would facilitate 2-way referrals of patients across the group’s existing network of 3 specialist clinics and 7 general practitioner (GP) clinics, he added. The hope is that the new TCM revenue stream will help make up for the revenue that SPCH stands to lose as Singapore’s national vaccination programme tapers off.

Private car rental and motor financing company SRS Auto Holdings has made a privatisation offer of S$0.0088 per share in cash for metal stamping manufacturer Allied Technologies. With 1.77 billion shares, the deal values Allied Tech at S$15.6 million. The privatisation value is also 20 per cent lower than its last traded price of S$0.011. Shares in the company have been voluntarily suspended since May 8, 2019.The company’s net asset value per share stood at S$0.0379 as at Mar 31, 2022.In a bourse filing on Friday (Jun 17), the company said that SRS Auto and persons acting in concert with it control 42.7 per cent of the total number of issued shares. The offerors also intend to delist the company if they gain control of more than 90 per cent of its shares. Kenneth Low, who is an executive director of Allied Tech and has a shareholding of 5.7 per cent, is also acting in concert with SRS Auto. The company said that the deal offers shareholders an opportunity to exit their investments since the counter has been suspended from trading. In addition, the offeror believes that it will have more flexibility to manage the business and optimise Allied Tech’s resources if it is privatised. Delisting will also save the company compliance costs, it said.

US

Bitcoin plunged to about $17,749 and ether fell to about $897 at around 4:15 E.T. on Saturday afternoon, as the sell-off in the crypto market accelerates. The world’s two most popular cryptocurrencies are down more than 35% in the past week, as both breach symbolic price barriers. Bitcoin bounced back to around $18,955 and ether was trading at about $995 just after 8 p.m. ET. The carnage in the crypto market is partly caused by pressure from macroeconomic forces, including spiraling inflation and a succession of Fed rate hikes. We have also seen these blue chip cryptos track equities lower. It doesn’t help that crypto firms are laying off large swaths of employees, and some of the most popular names in the industry are facing solvency meltdowns.

Holiday weekend sees massive amount of flight cancellations. More than 2.4 million people traveled through TSA checkpoints on Friday, according to the agency. The same day, airlines had cancelled more than 1,100 flights by early afternoon, following more than 1,700 cancellations on Thursday, according to the Associated Press. Faced with staffing shortages, and a pilot shortage in particular, many airlines have already cancelled thousands of flights for the summer season, including Southwest Airlines, which cut nearly 20,000 summer flights, according to a report from the Dallas Morning News. Delta is cancelling 100 daily departures from destinations in the U.S. and Latin America, affecting travel from July 1 to August 7. The airline company published an open letter to customers on Thursday acknowledging both the labor shortage and customers’ frustrations with cancelled and delayed flights.

Casino stocks have underperformed the S&P 500 as consumers grapple with inflation and recession concerns. Shares of casino companies have plummeted even as inflation has soared at rates not seen in four decades and fears of a recession rattle consumers and investors alike. Caesars Entertainment stock has plummeted 50% so far this quarter. Bally’s has dropped 40% over the same time period, and Penn National Gaming and MGM Resorts shares have declined 35%. To compare, the S&P 500, which recently entered a bear market, is down nearly 19% this quarter. Yet, the nation’s commercial casinos just had their best April ever, according to the American Gaming Association. The industry posted $4.99 billion in revenue, up 12.4% year over year. It’s the second-highest grossing month ever, following March of this year. On earnings calls in April and May, casino executives collectively denied seeing any slowdown in customer spending, in spite of soaring gas, housing and food costs, except in the very lowest demographic of customer.

China’s JD.com posts slowest growth ever in ‘618’ shopping event. Total sales by China’s e-commerce giant JD.com rose 10.3 per cent over the 18 days to Sunday (Jun 19) during the first major shopping festival since a recent Covid-19 outbreak, the company said, sharply down from the 2021 event’s growth of 27.7 per cent. This year’s figure was the slowest for the retailer, showing how consumer appetite in the world’s second largest economy has been hit by lockdowns to halt the Omicron variant of coronavirus and slowing economic conditions. “We are further improving delivery services in urban and rural areas,” it added in statement, referring to efforts during the event that built on its supply chain infrastructure and digital intelligence technology. The 618 event is China’s second largest shopping festival after Singles Day in November, and was initiated in 2004 to mark JD.com’s founding anniversary. Despite efforts by the e-commerce companies this year, such as to simplify promotion rules and offer deeper discounts, “reaction from the market was lukewarm”, Syntun said in a report on Sunday.

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

RESEARCH REPORTS

Singapore REITs Monthly – Temporary pain; impending rally
Recommendation: OVERWEIGHT (Maintained), Analyst: Natalie Ong
– FTSE S-REIT Index dipped 1.3% MoM, as interest rates climb. Hospitality REITs led the pack while overseas industrial SREITs were the biggest losers (-11.4ppts MoM) due to refinancing jitters surrounding EC World REIT (ECWREIT SP Equity, Not Rated) and a high proportion of unhedged interest rate and higher interest costs.
– Based on the median FOMC member’s Fed fund rate forecast of 3.4% at year end, we could see another 165 bps increase in the Fed rate. Our research team believes that the rate of interest rates would likely peak in 3Q22 before moderating.
– We remain OVERWEIGHT on the REIT sector with preference on the office and hospitality sectors. SREITS under our coverage are expected to deliver FY22e DPU yields of 4.3-9.9%. We remain OVERWEIGHT on the REIT sector as we think REITs could rally once central banks begin lowering rates.