Daily Morning Note – 22 Febraury 2021


Wall Street stocks finished little changed last week, concluding a choppy week in which optimism over coronavirus vaccines and stimulus competed with inflation fears.

Appearing at a pharmaceutical plant in Michigan, US President Joe Biden again called for Congress to boldly boost the coronavirus-ravaged US economic and enact his US$1.9 trillion rescue package. But a jump in yields on 10-year US Treasury notes amid inflation worries “appears to be keeping gains in check,” said a market note from Charles Schwab.

In its semi-annual monetary policy report to Congress, the Federal Reserve said the risks of coming business failures “remain considerable” in the US even as the economy emerges from the coronavirus pandemic. While banks and household balance sheets remain in reasonable shape, the comment on business debt highlights the possibility that the post-pandemic recovery may suffer as companies work through the overhang of loans taken on to try to get through a historically trying year.



ST Engineering’s cost savings measures and expected partial business recovery should help it offset the government grants that will drop off this year. Cost savings will come from lower manpower expenses as a result of a reduction of contract labour and outsourced contractors, natural attrition, and less overtime costs, as well as higher productivity. ST Engineering’ s net profit for the half year ended Dec 31 slid 14 per cent to S$264.4 million from S$308.6 million a year ago. Top line declined by about 18 per cent to S$3.6 billion from S$4.4 billion, on lower customer demand, supply chain challenges and workforce disruption.

DBS is facing legal tussles in India arising from its recent takeover of troubled Lakshmi Vilas Bank (LVB), but maintains that provisions have already been made on this front. In response to queries from The Business Times, it acknowledged that lawsuits have been filed by holders of equity shares and the tier II bonds written off prior to the effective date of amalgamation in various high courts in India. DBS went on to state that it has ” no incremental unprovided risks” on these lawsuits. ” Other legal liabilities in the normal course of business have also been suitably provided for,” it added.

Mainboard-listed StarHub expects service revenue to be stable year on year in 2021, as the economy and tourism are unlikely to recover ” until quite late in the year” from the impact of the Covid-19 pandemic. The outlook, given in a briefing by new chief executive officer Nikhil Eapen, came as the telco on Friday posted a 10 per cent drop in full-year service revenue, to S$1.59 billion. Overall group revenue was down by 13 per cent to S$2.03 billion for the 12 months, while net profit shed 15.2 per cent to S$157.9 million.

Catalist-listed Singapore Medical Group (SMG) posted a 36.1 per cent fall in net profit from S$13.7 million to S$8.7 million for the year ended Dec 31. Revenue for FY2020 was S$87.3 million, down 7.7 per cent year on year from S$94.7 million. This was attributed to a fall in patient load as non-essential medical services and temporary clinics were closed as part of circuit breaker measures. The company added that the topline decrease was also due to a significant decline in medical tourism as a result of travel restrictions stemming from the pandemic.

The trustee-manager of First Ship Lease (FSL) Trust has cited weaker earnings prospects as the rationale for its decision to sell two LR2 product tankers, in response to queries from the Singapore Exchange (SGX). The trustee-manager also revealed that the FSL Trust is selling each vessel at US$52.5 million to nominees of a Libyan state-owned shipping firm. FSL Trust had paid US$97.6 million in total for the construction of the vessels, as disclosed in 2018.

Beverage player Yeo Hiap Seng (YHS) recorded a S$3.3 million loss for H2 ended December, as sales took a hit from the impact of Covid-19. This reversed the S$3.1 million net profit from a year ago. Nevertheless, the firm has recommended a final dividend of S$0.02 per share for FY2020, with the option to receive the dividend in scrip. YHS said that its sales had slowed down due to channel shifts, softer consumer spending as well as lower agency sales.


Facebook is back at the negotiating table, Australian Prime Minister Scott Morrison said on Saturday after the tech giant this week blocked news on its site in the country. Facebook’s abrupt decision to stop Australians from sharing news on the site and strip the pages of domestic and foreign news outlets also erased several state government and emergency department accounts, causing widespread anger.

Apple is in discussions with multiple suppliers of self-driving car sensors known as lidar, according to people familiar with the matter, a key milestone toward development of its first passenger vehicle. The company has been working on a driverless vehicle project for several years and has developed on its own most of the necessary software, underlying processors and artificial intelligence algorithms needed for such a sophisticated system.

Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits. Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5 per cent of its global sales, chief executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.

Pfizer Inc and BioNTech SE have asked the U.S. health regulator to relax requirements for their COVID-19 vaccine to be stored at ultra-low temperatures, potentially allowing it to be kept in pharmacy freezers, they said on Friday. Approval by the Food and Drug Administration (FDA) could send a strong signal to other regulators around the world that may ease distribution of the shot in lower-income countries.

AstraZeneca and Oxford University’s Covid-19 vaccine is more effective when its second dose is given three months after the first, instead of six weeks, a peer-reviewed study published in The Lancet medical journal showed on Friday. The study confirmed the Anglo-Swedish drugmaker’s findings from earlier this month that showed the vaccine had 76 per cent efficacy against symptomatic coronavirus infection for three months after the first dose.

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


BRC Asia Ltd

Analyst: Chua Wei Ren

Recommended Action: Technical BUY

BRC Asia (SGX:BEC) managed to recover from last year sell-down in March and prices exhibit potential upside based on the technicals.

AbbVie Inc

Analyst: Chua Wei Ren

Recommended Action: Technical SELL

AbbVie Inc (US: ABBV) upside has met with some slowdown of the upside momentum and this momentum should see some persistence downside going forward based on the technicals .

>> Read more Technical reports


Singapore REIT’s Monthly – A Better Future

Recommendation: OVERWEIGHT (Maintained), Analyst: Natalie Ong

– FTSE S-REIT Index fell 4.6% MoM, in line with the Singapore market. Industrial was the only sub-sector in the green (+0.3%). Retail REITs fared the worst, down 4.8%.

– Sector yield spread dipped 13bps MoM to 288bps (-0.9 SD), following lower 12-month trailing DPUs and a 23bp MOM increase in 10YSGS yield. 3MSOR was largely unchanged at 0.24%.

– Remain OVERWEIGHT on SREITs with catalysts expected from acquisitions fuelled by conducive interest rates. Sub-sector preferences are retail and hospitality. Top picks are Manulife US REIT (MUST SP, BUY, TP US$0.84), Frasers Centrepoint Trust (FCT SP, BUY, TP S$2.93) and Ascendas REIT (AREIT SP, BUY, TP S$3.73).

BRC Asia – Light at the end of the tunnel

Recommendation: BUY (Initiation), Last Done: S$1.59

Target price: S$1.87, Analyst: Terence Chua

– Record earnings of S$42mn and S$45mn expected for FY21e and FY22e respectively

– Construction demand is expected to recover to S$23bn – S$28bn in 2021 recovering from S$21.3bn in 2020. Their huge market share of 70% means BRC is well positioned to capitalise on the growth.

– Potential for dividend payout to recover from FY21e and FY22e.

– Initiate with a BUY recommendation and a target price of $1.87. Our target price is derived based on 11x FY21e P/E, a 15% discount to their historical average P/E on account of the uncertain environment.

StarHub Limited – Cost-control saves the day

Recommendation: NEUTRAL (Maintained), TP S$1.24, Last close: S$1.28

Analyst Paul Chew

– 4Q20 revenue and EBITDA were within expectations, at 101%/97% of our FY20 forecasts.

– Revenue contracted 4.8% YoY to S$579mn, dragged down by a 27% fall in mobile revenue to S$138mn. Cybersecurity revenue was up 63% YoY to S$73mn.

– FY20 FCF jumped 77% to S$387mn, led by a S$130mn improvement in operating cash flow to S$576mn.

– Service revenue declined a massive S$176mn in FY20. To overcome this, StarHub cut staff costs (-S$39mn), marketing and acquisition expenses (-S$39mn) and cost of services (-S$42mn). Outlook remains muted with a loss of roaming revenue as international borders stay closed. Another pain point is renewed churns in pay-TV subscribers. Earnings resilience will depend on the telco’s ability to cut more costs. Revenue growth to come from cybersecurity, now its second-largest contributor. Maintain NEUTRAL and TP of S$1.24, the average of regional peers at 6x EV/EBITDA

First Ship Lease Trust – Calmer seas ahead

Recommendation: BUY (Initiation), TP: S$0.105

Last Done: S$0.085, Analyst: Vivian Ye

– Projected distribution yields of 47.0%/8.5% for FY21e/FY22e.

– Diversified lease portfolio and vessel employment provide downside protection through contracted revenue as well as freight-rate upside potential. US$29.8mn of contracted revenue as of 31 December 2020.

– Initiate coverage with BUY and TP of S$0.105. We peg FSL at 1.0x FY22e P/B, higher than its 10-year historical average of 0.34x as we see value yet to be unlocked from its current fleet. The trust has been disposing of vessels that are not deemed profit-making

ComfortDelGro Corp Ltd – Back to core profitability

Recommendation: BUY (Maintained), TP S$1.83, Last close: S$1.58

Analyst Paul Chew

– 4Q20 PATMI is 40% below expectations due to lower-than-expected public transport revenue and earnings.

– QoQ, 4Q20 EBIT swung from S$0.2mn loss in 3Q20 to S$29.7mn profit, excluding government relief. Taxis returned to profitability in 4Q20.

– Comfort is emerging out of the pandemic with an even stronger balance sheet. Net cash of S$279mn was up from S$64mn in FY19

– Recovery is underway with economic reopening, rebound in fuel index and dialling back of taxi rebates. Maintain BUY and DCF target price of S$1.83 (WACC 7.7%). Taxis to lead the rebound with lower rental relief. Public transport to lag as traffic volumes are still almost 30% below pre-pandemic levels. Our FY21e forecasts are relatively unchanged

>> Read more research reports

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Date: 08 February 2021

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