Daily Morning Note – 21 May 2019


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Asian stocks are set to decline Tuesday after U.S. tech stocks led a broad selloff. The fallout from the White House’s moves against Huawei reverberated, hitting some of the biggest component makers and fueling more trade angst. The dollar fell against most major currencies, with the Aussie pacing gains. Treasuries declined, with 10-year yields up more than two basis points. Oil rose, while gold was flat.

China warns about “unwavering resolve” to fight U.S. “bullying.” Asian equities are poised to follow U.S. stocks, which sank amid the Huawei fallout as tech shares got battered. And Ford is cutting back across the globe, eliminating 10% of its white-collar workforce.

China will retaliate after Trump blacklisted Huawei, Beijing’s ambassador to the EU said. “This is wrong behavior, so there will be a necessary response,” Zhang Ming told Bloomberg, describing the action as politically motivated. “The U.S. government is trying to bring down Huawei through administrative means.” Meanwhile, Nike, Adidas and other footwear giants urged Trump to reconsider his tariffs on shoes made in China.


SATS Ltd – Eyes set on growth abroad

Recommendation: Accumulate (Maintained), Last Done: S$5.08

Target Price: S$5.47, Analyst: Natalie Ong

– FY19 net income was in line with our expectations.

– Food Solutions and Gateway Services revenue grew 4.4% and 7.9% YoY, with growth
showing in both Aviation (+11.7%) and Non-Aviation (+8.8%) industries.

– Deepening presence in China through accretive acquisitions

– Food and cargo volumes at Brahims and PT CAS remain flat.

– Maintain ACCUMULATE; unchanged target price of $5.47.

Penguin International Ltd – Waddling is normal

Recommendation: BUY (Maintained), TP S$0.61

Last close: S$0.44, Analyst: Paul Chew

– Revenue is historically volatile and lumpy. No changes to our earnings forecast.

– Jump in inventories, non-financial liabilities and asset held for sale point to a healthy

– Balance sheet still in net cash position of S$43.8mn, or 45% of the market

– Our BUY recommendation and target price of S$0.61 remain unchanged.

China Everbright Water Ltd – On-Track expansion

Recommendation: BUY (Maintained), TP S$0.500

Last close: S$0.385, Analyst: Chen Guangzhi

– Both 1Q19 revenue and PATMI met our expectations.

– Two projects secured, 14 projects under construction and one project commenced
operation during 1Q19. Seven WWT projects hiked tariff in 1Q19

– 10% price difference between HK and SG market post-dual-listing

– We raise our target price to S$0.50 (previously SG$0.48) based on FY19e EPS of 5.5
SG cents and the slightly higher peers’ PER of 9.0x (previously 8.9x), and we
maintain our BUY recommendation.

SHS Holdings Ltd – Ceasing coverage

Analyst: Alvin Chia

– 1Q19 results missed our forecasts. The gestation period for the growth drivers were
much longer than expected.

– We are ceasing coverage on SHS Holdings Ltd. We had a NEUTRAL recommendation
with a TP of S$0.194. Our previous recommendation can no longer be relied on.

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US eases some restrictions on China’s Huawei to keep mobile networks operating. The US Commerce Department will allow Huawei Technologies to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets. The company is still prohibited from buying American parts and components to manufacture new products without license approvals that likely will be denied. The roll back, which is in effect for 90 days, suggests changes to Huawei’s supply chain may have immediate, far-reaching and unexpected consequences.

Oil touches multi-week highs as Opec signals it may extend cuts. US West Texas Intermediate crude futures rose 34 cents to settle at US$63.10 a barrel, after hitting US$63.81, the highest price since May 1. Brent crude futures fell 24 cents to settle at US$71.97 a barrel, having earlier touched US$73.40, their highest since April 26. Opec indicated it was likely to maintain production cuts that have helped boost prices this year, while escalating Middle East tensions provided further support.

2019 growth forecast for Singapore non-oil exports cut to -2 to 0%; fell 6.4% in Q1. Both the electronic and non-electronic NODX registered declines of 17.2 and 2.6 per cent respectively. The latest decline led Enterprise Singapore to revise down the projected NODX performance for the full year from 0 to 2 per cent growth to minus 2.0 to 0.0 per cent growth.

MTI downgrades Singapore’s 2019 economic growth forecast to 1.5-2.5% on weak outlook. This comes as the economy saw growth of 1.2 per cent in the first quarter of 2019, coming in a notch lower than earlier estimates of 1.3 per cent and revised figures from Q4 2018. This was also below economist expectations of 1.5 per cent. On a sequential basis, the Singapore economy expanded by 3.8 per cent, compared to the 0.8 per cent contraction in the preceding quarter.

Tianjin Zhongxin gets GMP certification for herbal medicinal slices. Anhui Medical Products Administration has recently awarded its wholly-owned subsidiary a certificate of good manufacturing practices (drug GMP certification) for its pharmaceutical products. The subsidiary, Tianjin Darentang (Bozhou) Chinese Herbal Medicinal Slices, develops, manufactures and sells traditional Chinese herbal medicinal slices.

Olam prices US$120m of notes in private placement. The wholly-owned subsidiary Olam Americas Inc (OAI) has successfully priced a US$120 million issuance of five-year fixed rate notes via a private placement. The notes were placed to nine investors at a fixed coupon of 3.89 per cent for five years. Proceeds from the notes issue will be used by OAI and its US affiliates for the repayment of existing debt and general corporate purposes.

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

Clients of Phillip Securities can keep updated with Country Strategy and Singapore Sector Reports by logging into: www.poems.com.sg > STOCKS > Research

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