DAILY MORNING NOTE | 22 February 2024

Trades Initiated in the past week


Singapore shares fell 0.8 per cent or 26.95 points to 3,217.11 on Wednesday (Feb 21), amid a mixed regional showing as well as a steep decline in Singapore Airlines shares after the company’s Q3 results on Tuesday underperformed expectations. Across the broader market, gainers beat losers 312 to 283 after 2.24 billion securities worth S$1.47 billion changed hands. Elsewhere in the region, the Hang Seng Index rose 1.6 per cent, while South Korea’s Kospi fell 0.2 per cent and Japan’s Nikkei 225 fell 0.3 per cent.

Wall Street stocks finished mixed on Wednesday following Federal Reserve minutes that signalled slower interest rate cuts ahead. Fed officials offered mixed views over the timing of cutting interest rates, but most members voiced concern about moving early. The Dow Jones Industrial Average finished 0.1 per cent higher at 38,612.24. The broad-based S&P 500 gained 0.1 per cent to 4,981.80, while the tech-rich Nasdaq Composite Index dropped 0.3 per cent to 15,580.87.

Top gainers & losers


Events Of The Week



UOB’s 4Q2023 results beat expectations with normalised net profit of S$1.5bn vs our estimate of S$1.37bn. This was mainly due to fee income growth of 17% YoY to S$569mn and other non-interest income growth of 54% YoY to S$438mn offset by lower net interest income of S$2,404mn (-6% YoY) as NIM fell 20bps to 2.02%. Credit costs rose slightly by 4bps YoY to 25bps as there was lower GP writeback of S$9mn (4Q22: GP writeback of S$80mn) while NPL ratio improved to 1.5%. 4Q23 dividend is up 13% YoY to 85 cents and total FY23 dividend at 170 cents (+26% YoY), representing a dividend payout ratio of around 50% and a dividend yield of 5.8%. More details to follow after the 10.15am analyst call.

Glenn Tham
Senior Research Analyst

Prime US Reit’s distribution per unit (DPU) for the second half fell over 90 per cent year on year, as the manager opted to preserve a “substantial proportion of distributable income”. In a bourse filing on Wednesday (Feb 21), the manager said DPU for the second half fell to US$0.0025, down from US$0.0303 in the year-ago period. The DPU payout is about 10 per cent of the distributable income per unit of US$0.024 for H2 2023. Prime US Reit’s manager said that capital preservation is a key component to the Reit’s deleveraging strategy. It opted to “preserve a substantial proportion of distributable income to meet Prime’s capex needs and provide creditors with the assurance that Prime will reinvest cash flows in the business alongside its lenders”. “In addition to the cash distribution, Prime will be issuing new units to unitholders on the basis of one new unit for every 10 existing units held,” it said. These units are issued as fully paid, at nil consideration. Prime US Reit’s portfolio valuation as at December 2023 fell 8.7 per cent on year to US$1.4 billion, amid an increase in cap rates. Aggregate leverage rose to 48.4 per cent as at December 2023, up from 42.1 per cent in December 2022. Its interest coverage ratio fell to 3.1 times in FY2023, from 4.1 times in the previous FY.

Sasseur Real Estate Investment Trust’s (Reit) distribution per unit (DPU) rose 8.7 per cent on the year to S$0.01415 for the fourth quarter ended Dec 31, 2023, from S$0.01302 previously. This was driven by an 81.7 per cent year-on-year increase in the variable component of the rental income under the Reit’s entrusted management agreement (EMA) model, which stood at 58.7 million yuan (S$11.1 million) for the quarter, said the Reit’s manager on Wednesday (Feb 21). The manager highlighted that the rise in the variable component of EMA rental income came on the back of an 84.6 per cent increase in the portfolio’s outlet sales. Sasseur Reit’s EMA rental income for the quarter rose 21.1 per cent on the year to 170.6 million yuan, from 140.9 million yuan in the same period the year before. This brought distributable income up 3.6 per cent to S$20.6 million, from S$19.9 million previously.

Vehicle inspection company Vicom reported on Wednesday (Feb 21) a 4.5 per cent increase in net profit for the second half of 2023, on the back of higher revenue. Net profit for the six months ended Dec 31, 2023, rose to S$13.7 million from S$13.1 million in the corresponding year-ago period. A final dividend of S$0.0275 per share was proposed, down from the S$0.0332 final dividend in the preceding financial year. Including the interim dividend of S$0.0275 per share, the total dividend for FY2023 amounted to S$0.055 per share, down from S$0.0664 in FY2022. The lower dividend represents a payout ratio of 70 per cent.

Financial services company iFast Corporation’s net profit for the fourth quarter surged 917.1 per cent, on the back of higher revenue, as initial contributions from its ePension division streamed in. Net profit for the three months ended Dec 31, 2023 climbed to S$13.2 million from S$1.3 million in the year-ago period. On a per share basis, earnings rose to S$0.0446 in Q4 FY2023, from S$0.0044 in Q4 FY2022. A final dividend of S$0.014 per share was proposed, unchanged from the previous year. Total revenue for the quarter climbed 69.3 per cent on-year to S$82.2 million amid an increase in assets under administration (AUA). iFast said its AUA rose 13.8 per cent on-year to a record S$19.8 billion as at end-2023, driven by net inflows of S$2 billion during the year. Net inflows were also positive during the fourth quarter, amounting to S$334 million. For the full year, net profit increased by 340 per cent on-year to S$28.3 million, on the back of a 22.8 per cent increase in total revenue to S$256.5 million.

Wilmar International’s net profit for the half year ended December 2023 fell 21.3 per cent to US$973.9 million, from US$1.2 billion the year before. This was due to lower contributions from its feed and industrial products division as well as non-operating losses, the agribusiness group said in a bourse filing on Wednesday (Feb 21). The non-operating losses were due to factors such as weaker equity market conditions and a higher interest cost environment throughout the year. However, this was partially offset by improved contributions from its plantations and sugar milling division, as well as in food products. Earnings per share stood at 15.6 US cents for the half year, down 21.2 per cent from 19.8 US cents a year ago. Revenue declined 7.1 per cent to US$34.6 billion for the half year, from US$37.3 billion in the corresponding period last year.


Nvidia reported fourth fiscal quarter earnings that beat Wall Street’s forecast for earnings and sales, and said revenue during the current quarter would be better than expected, even against elevated expectations for massive growth. Here’s what the company reported compared with what Wall Street was expecting for the quarter ending in January, based on a survey of analysts by LSEG, formerly known as Refinitiv: earnings per share was $5.16 adjusted vs. $4.64 expected, while revenue was $22.10 billion vs. $20.62 billion expected. Nvidia said it expected $24.0 billion in sales in the current quarter. Analysts polled by LSEG were looking for $5.00 per share on $22.17 billion in sales. Nvidia has been the primary beneficiary of the recent technology industry obsession with large artificial intelligence models, which are developed on the company’s pricey graphics processors for servers.

Rivian Automotive revealed plans to cut 10 per cent of its salaried workforce and set production guidance well below Wall Street’s expectations as the maker of electric vehicles (EVs) grapples with stagnant demand and economic turbulence. Rivian reported an adjusted loss last quarter of US$1.36 a share, compared with an average US$1.33 deficit in estimates compiled by Bloomberg. Revenue of US$1.32 billion narrowly topped expectations. The company will build 57,000 vehicles this year, roughly in line with its 2023 output, according to a statement on Wednesday (Feb 21). The forecast fell far short of analysts’ average estimate of more than 80,000 units in 2024. Rivian also said it expects an adjusted loss before interest, taxes, depreciation and amortisation of US$2.7 billion, guidance that was influenced by “economic and geopolitical uncertainties and pressures, most notably the impact of historically high interest rates”.

Mercedes-Benz Group plans to buy back as much as three billion euros (S$4.4 billion) worth of stock, extending moves to reward shareholders after cash flow exceeded expectations. The German luxury car maker said the new buyback will begin immediately after the conclusion of an ongoing programme, worth four billion euros. That repurchase – at the time the first in 15 years – was unveiled about a year ago. Carmakers have returned more money to shareholders in recent months after benefiting from pent-up demand after years of supply-chain disruptions. General Motors, Ford and Stellantis spent a combined US$22.7 billion buying back shares and paying dividends last year, while Renault last week proposed its biggest shareholder payout in five years.

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


Singapore Airline – Costs escalate, yields under pressure

Recommendation: REDUCE (Maintained) Last Done: S$6.67

Target Price: S$5.91; Analyst: Peggy Mak

– 3Q24 operating profit fell 19.3% YoY to S$609mn, as yield decline and inflationary cost pressure (+9.3%) offset strong passenger traffic (+19.1%) and cargo load (+3.9%). Net profit was lifted (+4.9%) by positive contributions from associates, and other one-offs including higher interest income, gains from aircraft sale and carried forward tax losses.

– 9M24 net profit of S$2.1bn is above our FY24e forecast. We raise our FY24e net profit by 10.5%, as passenger load factors are coming in above our earlier assumptions. However, 4Q24e is expected to fall YoY and QoQ with mounting pressure on yields and costs.

– We maintain a REDUCE recommendation, and raise our TP to S$5.91 (prev. S$5.45) at 1x FY25e P/B, as we roll over to the new FY. This factors in a projected 31% decline in net profit for FY25e.

Sembcorp Industries – Renewables to be the key earnings driver

Recommendation: ACCUMULATE (Maintained) Last Done: S$5.48

Target Price: S$6.00; Analyst: Peggy Mak

– FY23 net profit was 3.3% higher than our estimates. Growth was driven by renewables (+41.8%), gas and related services (+30.1%) and maiden interest income from deferred payment note (DPN) in exchange for the sale of the Indian coal power plant. 2H23 net profit, at S$412mn, was 22.3% lower than 1H.

– FY24e net profit is expected to fall due to major maintenance for 60 days at the Singapore power plant (we estimate S$66mn impact) and the handover of the Vietnam Phu My 3 power plant in Feb 2024.

– Maintain ACCUMULATE and TP of S$6.00. We are also maintaining our FY24e net profit estimate. Energy sales and infrastructure services form a stable and visible income stream for the group. Renewable energy will drive earnings growth in FY25e, whose share of net profit could grow to 31.8% in FY25e, from 21% in FY23.

SASSEUR REIT – Resilient balance sheet and low onshore rate

Recommendation: BUY (Maintained), Last Done: S$0.69

Target price: TP: S$0.87, Analyst: Liu Miaomiao

– FY23 rental income in SGD terms was within expectations (S$ 126.7mn, +0.6% YoY, +10.7% YoY in RMB. DPU was within our expectation at 6.25 Singapore cents for the whole year, representing a 4.6% decline YoY due to RMB depreciation of 7% in FY23. Keeping the exchange rate the same, DPU would have increased by c.4.1% YoY. SASSR retained 7% of distributable income mainly for the repayment of onshore RMB loans.

– Outlet sales in RMB were in line with our projection. It spiked 31.9% YoY to RMB4.6bn, leveraging on the consumption downtrading and various promotional events in FY23.

– We reiterate our BUY recommendation with a lower DDM TP of S$0.87 (prev. S$0.90) on the back of a fading recovery tailwind and weaker-for-longer exchange rate. FY24e- FY25e DPU forecasts have been lowered by 2-3% to 6.36-6.67 Singapore cents. SASSR is trading at 9% of FY24e forward dividend yield.

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