Daily Morning Note – 20 May 2021


Wall Street’s main indexes closed lower on Wednesday (May 19) after minutes from an April Federal Reserve meeting showed participants agreed the US economy remained far from the central bank’s goals, with some considering discussions on tapering its bond buying programme. The S&P 500 added to losses after the release of the minutes revealed a number of Fed policymakers thought that if the economy continued rapid progress, it would become appropriate “at some point” in upcoming meetings to begin discussing a tapering of the Fed’s monthly purchases of government bonds, a policy designed to keep long-term interest rates low. All three main indexes hit their session lows in morning trade after opening sharply lower, then partially recovered before the release of the Fed minutes pressured them anew.

Oil prices dropped over US$2 a barrel on Wednesday to their lowest in three weeks, on worries that surging Covid-19 cases in Asia would dent demand for crude and that US inflation fears could prompt the Federal Reserve to slow economic growth with interest rate hikes.


SG News

Mapletree Industrial Trust, has entered into a purchase and sale agreement to acquire 29 data centres located across 18 states in the United States at a purchase consideration of US$1.32 billion from Sila Reality Trust. The Transaction is expected to be completed in one or more closings during the third quarter of 2021.

Qatar Investment Authority is in talks to inject HSBC Holdings Plc’s London headquarters building into a planned property trust being listed by City Developments, people with knowledge of the matter said. The potential deal would boost the value of the real estate investment trust portfolio to £1.8 billion (S$3.46 billion) from £600 million, said the people, who asked not to be identified as the information is private. The Gulf sovereign wealth fund and the Singaporean homebuilder aim to raise £500 million from an initial public offering of the sterling-denominated REIT, the people said. The IPO could take place in the city-state as soon as the third quarter, they said.

City Developments Limited (CDL) said that there are signs of improvement across its core business segments, but the prolonged Covid-19 pandemic remains a concern as it continues to adversely impact operations. CDL and its joint venture (JV) associates sold 319 units with a total sales value of S$513.6 million in the first quarter of 2021 ended March 31, a 72 per cent increase from a year ago, it said in an operational update on Wednesday. In the same period last year, it sold 185 units with a total sales value of S$278.1 million.

Real estate agency PropNex has expanded to Cambodia, its fourth overseas market. It has also collaborated with developers for two projects in the market. The expansion brings PropNex’s salesforce to over 12,000 across Singapore, Indonesia, Malaysia, Vietnam and Cambodia. The master franchise of PropNex Cambodia will be led by Alan Neo, who will take on the role of chief executive. He has 15 years of experience in the business and will oversee PropNex Cambodia, which has 500 salespersons, with headquarters in Phnom Penh and branch offices in Siem Reap and Sihanoukville. PropNex Cambodia has also collaborated with Hong Kong developer Urban Hub (Cambodia) Co for Urban Village – a mixed-use development spanning 760,000 square metres situated in Phnom Penh along Hun Sen Blvd.

Mainboard-listed flag carrier Singapore Airlines (SIA)’s net loss narrowed to S$662 million for the fourth quarter to March, from S$732 million in the corresponding period a year ago. But, it will tap the additional mandatory convertible bonds to raise a further S$6.2 billion, given international air travel remains severely constrained and recovery trajectory is still unclear. The carrier was awash in red ink for the financial year 2021, chalking up a record net loss of S$4.3 billion in its “toughest year in its history”, said SIA in a financial results filing on Wednesday. The losses mark a full year of the brunt from the coronavirus pandemic that hit international travel in early 2020, grounding most of SIA’s fleet and causing it to burn through cash to the tune of hundreds of millions of dollars a month. Net loss for FY2020 was S$212 million, it having been profitable for three quarters of that year before the novel coronavirus started to wreak havoc.

Chip Eng Seng announced on Wednesday after trading hours that its wholly-owned subsidiary, CEL Development, together with joint venture (JV) partners SingHaiyi Investments and Chuan Investments, has incorporated two JV companies Maxwell Residential and Maxwell Commercial. This comes as the three parties have successfully tendered for the enbloc acquisition of Maxwell House for S$276.8 million. Each JV company has an issued and paid-up share capital of S$10. CEL Development will hold a 40 per cent stake in the JV, with SingHaiyi and Chuan Investments each holding a 30-per-cent stake. The JV partners have provided shareholders’ loans in the aggregate principal amount of S$22.14 million, with the portion of each shareholders’ loan provided by each of the JV partners in accordance with their respective stakes. The loans are meant to provide funding to the JV companies for the acquisition, including satisfying the tender fee, stamp duty and the purchase price of the property.

US News

Federal Reserve officials at their April meeting said a strong pickup in economic activity would warrant discussions about tightening monetary policy, according to minutes from the session released Wednesday. “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the meeting summary said.

Markets have been watching closely for clues about when the central bank might start tapering its bond purchases, which currently are at least $120 billion a month. The Fed balance sheet is just shy of $7.9 trillion, nearly double its level before the Covid-19 pandemic. Fed officials have been steadfast that they won’t change policy until their economic goals, particularly regarding employment and inflation, have been hit. The discussion revealed in the minutes is the first time that central bankers have indicated that a reduction in purchases could happen ahead, though there was no timetable.

Oatly Group AB, the vegan food and drink maker, priced its initial public offering at the top of a marketed range to raise more than $1.4 billion. The company and its investors sold more than 84 million American depositary shares for $17 each on Wednesday, according to a statement. The Swedish company had offered the shares for $15 to $17 each. The listing gives Oatly a market value of about $10 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission.U.S. markets dropped for the third day in a row, with the S&P 500 index falling 0.3% Wednesday. The IPO underscores plant-based products’ jump into the mainstream, as environmental and health concerns spur consumers to seek alternatives to traditional meat and dairy products. Investors have been looking for ways to replicate the public-market success of Beyond Meat Inc., whose shares have surged more than 300% since it went public in May 2019.

Cisco Systems Inc (CSCO.O) on Wednesday cautioned that supply chain issues will linger through the end of 2021 and forecast its current-quarter profit below estimates, sending shares of the network gear maker down 5%. The warning comes as all tech companies are facing a global chip shortage. “Notwithstanding what’s going on in the supply chain, our revenue guide would have been higher, which could have probably flowed through to improving EPS as well,” Chief Executive Officer Charles Robbins said during an earnings call. Cisco forecast fourth-quarter profit of 81 cents to 83 cents per share, compared with estimates of 85 cents per share, and said it expected 6% to 8% revenue growth.

Apple’s head of software, Craig Federighi, said in court on Wednesday that Apple is not pleased with the amount of harmful software, or malware, on its operating system for Mac computers, MacOS. Federighi said the ability Apple gives users to install software from the internet on Mac computers is “regularly exploited” and that the iPhone’s operating system, iOS, has a “dramatically higher bar” for customer protection. “Today, we have a level of malware on the Mac that we don’t find acceptable and that is much worse than iOS,” Federighi testified in the Epic Games v. Apple trial.

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


Prime US REIT – Towards normalisation

Recommendation: ACCUMULATE (Downgraded), Last Done: US$0.85

Target Price: US$0.94, Analyst: Tan Jie Hui

– 1Q21 NPI and distributable income met 23% of our FY21e estimates. Portfolio occupancy dipped 0.7% to 91.7%.

– 99% rent collection with minimal lease expiries of 8%/8.4% in FY21e/FY22e, evenly spread across properties. Leasing pick-up expected with greater return to offices.

– Downgrade to ACCUMULATE from BUY as recent share-price improvements have likely priced in some positives. DDM target price of US$0.94 (COE 9.5%) unchanged.

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