DAILY MORNING NOTE | 22 July 2022

The Straits Times Index (STI) fell 0.6 per cent or 17.99 points to close at 3,152.30 points on Thursday (Jul 21), as uncertainties in Europe and China weighed on market sentiment. In the wider Singapore market, losers edged out gainers 235 to 223, with 800.8 million shares worth S$816.7 million changing hands. Hong Kong’s Hang Seng Index fell 1.5 per cent and the Jakarta Composite Index dipped 0.2 per cent; South Korea’s Kospi Composite Index and the FTSE Bursa Malaysia KLCI each gained 0.9 per cent, and Japan’s Nikkei 225 climbed 0.4 per cent.

Wall Street stocks shrugged off early weakness and finished higher for a third straight session Thursday following strong Tesla results and a pullback in the US dollar. Tesla surged nearly 10 per cent after it reported better-than-expected profits despite a drag from lower output at a key China factory due to Covid-19 restrictions. Meanwhile, the European Central Bank surprised markets with a bigger than expected half-point interest rate hike to combat soaring inflation, a move that lifted the euro against the dollar following a huge rally in the greenback that has dented results for some US multinationals. The tech-rich Nasdaq Composite Index led the major indices, jumping 1.4 per cent to finish at 12,059.61. The Dow Jones Industrial Average gained 0.5 per cent to end the day at 32,036.90, while the broad-based S&P 500 advanced 1.0 per cent to 3,999.00.

Top gainers & losers

Factsheets

SG

Mall and office landlord Mapletree North Asia Commercial Trust (MNACT) on Thursday (Jul 21) said its net property income (NPI) for the first fiscal quarter ended June came in at S$81.5 million, up 4.1 per cent from the corresponding quarter last year. In a voluntary business update, MNACT said the improved NPI figure was due to the full-quarter contribution from Hewlett-Packard Japan Headquarters Building, which it acquired in June last year, as well as a lower quantum of rental relief granted for Festival Walk, a Hong Kong shopping strip, compared to the same period last year. The trust was granted S$0.2 million in rental relief for Q1 FY2022/23, versus S$4 million in Q1 FY2021/22.

Samudera Shipping Line was on Thursday (Jul 21) slapped with a query from the Singapore Exchange Regulation (SGX RegCo) about “unusual price movements” in its shares. In its query issued at 4.52pm, SGX RegCo asked if the company was aware of any possible explanation for the trading, including any information not previously announced, or the public circulation of information by rumours or reports. Such information could include events that are “potentially material and price-sensitive” – including discussions and negotiations that might lead to joint ventures, mergers and acquisitions, or the purchase of sale of a significant asset, SGX RegCo said. The bourse regulator also asked the company to confirm its compliance with listing rules. Samudera Shipping’s shares had made steady gains over the course of the day, but gained speed particularly in the second half of the trading day. The counter closed at S$0.99 on Wednesday, and opened at S$1.00 on Thursday. According to SGX data, the stock ended the first half of the trading day at S$1.03, up 4 per cent or S$0.04 from Tuesday’s close.

Capitaland Integrated Commercial Trust (CICT) and Link Real Estate Investment Trust (Link Reit) are among bidders vying for NTUC Enterprise Co-operative Ltd’s S$4 billion portfolio of shopping malls in Singapore, people with knowledge of the matter said. CICT is sounding out sources of financing for the prospective transaction, while Hong Kong’s Link Reit is working with an adviser on a potential bid, said the people, who asked not to be identified as the information is private. The assets are also drawing interest from other players in Singapore including Frasers Property Ltd., the sources said. Non-binding bids are due by the end of this month, they added. Mercatus Co-operative, a unit of NTUC that holds the properties, is working with a financial adviser on the potential sale, Bloomberg News reported last month. The company later confirmed it’s conducting a strategic review of some of its real estate assets. Mercatus manages assets worth more than S$10 billion and is one of the largest mall owners by floor space in Singapore, according to its website.

US

Shares of Snapchat-parent Snap lost a quarter of their value in after-hours trades on Thursday following release of dismal quarterly earnings figures. Snap reported that its loss in the recently ended quarter nearly tripled to US$422 million despite revenue increasing 13 per cent under conditions “more challenging” than expected. “We are not satisfied with the results we are delivering, regardless of the current headwinds,” California-based Snap said in a letter to investors. Snap share price was around US$12 in after-hours trading in the wake of the earnings report. Snap told investors that policy changes have “upended” advertising industry standards while macroeconomic woes have disrupted industries that buy Snapchat advertising.

American Airlines Group on Thursday (Jul 21) posted its first quarterly profit without US government aid since the Covid-19 pandemic began as strong summer travel demand generated the highest quarterly revenue in its history. The Texas-based carrier, however, warned of an escalation in non-fuel costs in the quarter to September as it expects to operate fewer flights than previously planned in order to get operations back on track. “The capacity moderation drives cost headwinds,” analysts at Jefferies wrote in a note. American’s shares were down 6.2 per cent at US$14.26 in morning trade. The company expects non-fuel costs to be up as much as 14 per cent in the current quarter from the same period in 2019, compared with a 12 per cent jump in the quarter to June. Its capacity in the current quarter is estimated to be 8-10 per cent below the pre-pandemic level. Capacity was earlier projected to be down 6-8 per cent.

Ford Motor Co on Thursday (Jul 21) announced a series of deals to accelerate its shift to electric vehicles (EVs), including sourcing battery capacity and raw materials from such companies as Chinese battery maker CATL and Australian mining giant Rio Tinto. The deals are part of Ford’s push to have its annual EV production rate globally reach 600,000 vehicles by late 2023 and more than 2 million by the end of 2026. Ford said it expects a compound annual growth rate for EVs to top 90 per cent till 2026, more than doubling the forecast industry growth rate. “We are putting the industrial system in place to scale quickly,” Ford chief executive Jim Farley said in a statement. In March, Ford boosted its planned spending on EVs till 2026 to US$50 billion from its prior target of US$30 billion, and reorganised its operations into separate units focused on EVs and petrol-powered vehicles with Ford Model e and Ford Blue, respectively. The Dearborn, Michigan-based company also said at the time that its EV business would not be profitable until the next-generation models begin production in 2025.

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

RESEARCH REPORTS

Sembcorp Industries – Conventional Energy to lift 1H22 profits

Recommendation: NEUTRAL (Downgraded), Last Done: S$3.04

Target price: S$2.96, Analyst: Terence Chua

• The average Uniform Singapore Energy Price (USEP) prices rose 239% YoY in 1H22 driven by the conflict in Ukraine. Spark spreads have increased as average USEP prices have moved ahead of high sulfur fuel oil (HSFO) in the last nine months. Tariffs for power in Tamil Nadu and Gujarat also rose ~88% YoY as higher temperatures in the country drove up power demand.

• Sembcorp Industries (SCI) gross renewables capacity in operation and under development globally now stands at 6.8GW in 1H22 from 6.1GW as at end-2021. This is ahead of our FY22e target of 7.3GW. Accordingly, we revise our FY22e capacity to 7.6GW on account of the Group’s aggressive buildup of its renewables portfolio.

• We downgrade to NEUTRAL from ACCUMULATE with higher target price of $2.96 (prev. $2.94). We raise FY22e PATMI by 6% as we bake in higher profits from Conventional Energy and Renewable Energy for FY22. Our target price is raised to $2.96, still based on 1.2x FY22e P/BV, the average of its peers. But we downgrade to Neutral after the recent run-up in its price.

Netflix Inc – Turning corner on negative growth

Recommendation: BUY (Maintained); TP: US$399.00, Last Close: US$216.44

Analyst: Jonathan Woo

• 2Q22 results in line with our expectations. 1H22 revenue/PATMI at 48/55% of our FY22e forecasts. Earnings beat by 7% due to unrealized gain from FX remeasurement of Euro Debt.

• Lower than expected subscriber loss for 2Q22 (-0.97mn actual vs -2.0mn expected) and guiding 3Q22e to turn around with 1.0mn subscriber additions.

• Guided to ~US$1bn in Free Cash Flow (FCF) for FY22e with stabilisation in content spend, even in the face of FX headwinds affecting revenue growth.

• We maintain a BUY recommendation with a lowered DCF target price of US$399.00 (prev. US$427) as we increase our WACC assumptions (WACC 12.2%, g 1%).

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