Daily Morning Note – 20 May 2022
Stocks in Asia look set for a steady start Friday after another choppy US session overshadowed by worries about a darkening economic outlook amid high inflation.
Futures were higher for Hong Kong and edged up for Japan while Australia’s dipped. US contracts rose after Wall Street shares posted modest losses.
Sovereign bonds extended a rally, taking the US 10-year Treasury yield to 2.84%. A dollar gauge trimmed its biggest one-day drop since 2020.
Markets continue to reflect mounting concerns about an economic downturn as the Federal Reserve hikes interest rates to quell price pressures. In China, banks may cut benchmark lending rates for a second time this year as Covid lockdowns sap growth, according to a Bloomberg survey.
SG
Frasers Logistics & Commercial Trust (FLCT) plans to acquire a fully-leased freehold suburban commercial property in Victoria, Australia for A$60.25 million (about S$58.4 million). In a filing to the Singapore bourse on Thursday, FLCT said that the purchase price took into consideration an independent valuation of A$60.25 million conducted by consultancy CIVAS (VIC) as at April, 30, 2022. The deal is slated for completion on May 20. Located at Blackburn Road, Mount Waverley, the building sits in the heart of the City of Monash. Completed in November 2016, the five-storey, A Grade suburban office building has a total net lettable area of 7,297 square metres (sq m) comprising two retail tenancies on the ground level and four upper levels of office space. It is fully leased to nine tenants with a weighted average lease expiry (WALE) of about five years, as at March 31, 2022.
Engineering firm PEC has won new contracts totalling S$80 million for engineering, procurement and construction (EPC) as well as mechanical works across various projects in the energy and chemicals, and the floating production storage and offloading (FPSO) sectors. Among them are S$50 million in contracts awarded to its unit, PEC Process Systems, to provide EPC and commissioning of oil, water and gas-handling packages. In Singapore, PEC has been contracted to provide mechanical works for an integrated manufacturing complex, it said in a filing to the Singapore Exchange on Thursday (May 19).
Centurion Corp will acquire a 103-bed freehold student accommodation asset in Nottingham in the United Kingdom for £10.4 million (S$18 million), the mainboard-listed company said in a late-night bourse filing on Thursday (May 19). The group expects the acquisition to enlarge its purpose-build student accommodation (PBSA) portfolio in the UK to 2,910 beds in 11 assets across 5 cities. This includes 5 assets in Manchester, 3 in Nottingham, and 1 each in Liverpool, Bristol and Newcastle. The building in Nottingham was built in 2018 and is now operating as The Orbital. It will be rebranded as dwell Orbital upon completion of the purchase, and be managed with the group’s 2 other PBSA assets in Nottingham – dwell Castle Gate Haus and dwell Archer House.
Azalea investment management on Thursday (May 19) launched its latest batch of Astrea private equity (PE) bonds for public subscription, with retail investors having access to Class B bonds that pay a higher fixed interest rate for the first time. The public offer of Astrea 7 PE bonds comprises S$280 million in Class A-1 bonds, which pay a fixed interest rate of 4.125 per cent per annum, above the coupon for Class A-1 bonds in the previous Astrea V and VI issuances. Retail investors can also apply for Class B bonds, which pay a higher fixed interest rate of 6 per cent per annum. However, these bonds come with a higher credit risk profile, as they rank junior to Class A-1 and A-2 bonds and are behind Class A bonds in terms of priority of payment.
US
Superapp Grab has reported a loss of US$435 million ($601 million) in 1QFY2022 ended March, 35% lower than the loss recorded in the previous corresponding quarter at US$666 million ($902 million). This was attributed to the elimination of non-cash interest expense of Grab’s convertible redeemable preference shares that converted to ordinary shares in December 2021. This will no longer be incurred going forward, the company said in its results statement. Revenue in 1QFY2022 stood at US$228 million, a 6% growth y-o-y and 87% growth q-o-q as total incentives in the deliveries segment moderated. This is also the first quarter that included Jaya Grocer financial results since Grab completed its acquisition of the Malaysian supermarket chain at the end of January this year.
Billionaire Leo Koguan, who claims to be the third largest individual shareholder of Tesla stock, is calling on the carmaker to announce a $15 billion stock buyback as the company’s share price continues to fall. In a tweet to Martin Viecha, Tesla’s senior director of investor relations, Koguan said the company should immediately announce that it plans to buy back $5 billion of Tesla shares this year and $10 billion next year. He added that Tesla should use its free cashflow to fund the buyback and that it shouldn’t affect its existing $18 billion cash reserves. In a follow up tweet, Koguan said Tesla’s free cash flow amounted to $2.2 billion in the first quarter of the year. He added that he expects it to climb to $8 billion this year and $17 billion next year, after capital expenditure has been factored in.
U.S. electric vehicle maker Lucid Group will set up its first overseas factory in Saudi Arabia, the company has announced. The manufacturing facility will be able to produce 155,000 vehicles a year, and will initially serve the local market, the luxury car maker said in a press release Wednesday. The vehicles will later be exported to global markets. Lucid’s factory in Arizona can produce 350,000 units a year. “That means we can accelerate plans to produce half a million cars a year from what was going to be 2030, to mid decade,” CEO Peter Rawlinson told CNBC’s Hadley Gamble. “And that’s really important because the planet can’t wait.”
Chinese tech giant Tencent reported disappointing first quarter revenue across all major business segments, including a hit to mobile pay from Covid lockdowns. Shares of Tencent, the largest Hong Kong-listed Chinese stock by market value, traded nearly 7% lower Thursday, pulling down the broader Hang Seng index. Fintech and business services revenue, the company’s second-largest revenue driver, dropped by 10.8% quarter-on-quarter in the period ended March 31 to 42.77 billion yuan ($6.29 billion). That’s the first sequential drop since an 11.5% decline from the fourth quarter of 2019 to the first three months of 2020, according to Wind Information data.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
BRC Asia – Construction sector recovery surpass our estimates
Recommendation: Buy (Maintained), Last Done: S$1.68
Target price: S$2.26, Analyst: Terence Chua
– 1HFY22 revenue and net profit was ahead of our expectations at 81%/83% of FY22e. The beat came from a faster-than-expected recovery of the construction sector. We estimate that volume moved increased ~30% YoY in 1HFY22.
– $1.8mn in net reversal for onerous contracts made in 1HFY22 as contracts were fulfilled, though this was offset by additional provisions for deliveries beyond the period.
– Provision for impairment on trade receivables fell over 60% YoY aided by the recovery of the construction sector and government support.
– Maintain BUY with a higher target price of S$2.26 (prev. S$1.84). Our TP is based on 8x FY22e P/E, still at a 15% discount to the 10-year historical average, on account of the uncertain external environment. We revised upwards our FY22e earnings by 37% to account for the faster pace of recovery in the construction sector. 1H22 dividends jumped 50% YoY to 6 cents.
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Date: 9 May 2022
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