Daily Morning Note – 26 May 2020
Asian stocks looked set to follow U.S. futures and European shares higher Tuesday as investors weighed more signs of economies reopening around the world against the rise in U.S.-China tensions, while the dollar was steady. Futures on Japanese, Australian and Hong Kong equities pointed higher, but volumes were light with holidays in the U.S. and U.K. S&P 500 contracts rose and benchmark Treasury futures were little changed.
Tensions between Washington and Beijing remain in focus with China condemning the U.S. for adding 33 Chinese entities to a trade blacklist, but without announcing any retaliatory steps. Elsewhere, oil rose as the head of the International Energy Agency forecast demand will likely grow past its level before the global pandemic, and gold dipped 0.2%.
Catalist-listed Vividtree Holdings posted a net loss of S$829,063 for the financial year ended March 31, 2020 as its content production segment took a blow from the Covid-19 pandemic. The group had turned a net profit of S$3.27 million for the previous financial year. Revenue was down 33.9 per cent to S$6.14 million. Content production revenue slumped 61.2 per cent to S$2.62 million due to travel restrictions and safe distancing measures in China and South-east Asia.
Fitch Ratings has downgraded coal producer Geo Energy Resources Limited’s long-term issuer default rating IDR to C from CC. It has also downgraded the rating on subsidiary Geo Coal International Pte Ltd’s outstanding senior unsecured guaranteed notes to C, from CC, with a recovery rating of RR4. The downgrade follows mainboard-listed Geo Energy’s tender offer and consent solicitation to change the protective covenant of its US dollar notes due 2022. Fitch considers this to be a distressed debt exchange as it believes Geo Energy’s exchange offer was made to avoid payment default in May 2021, given its tight liquidity.
DBS has approved over 3,500 loans for micro and small enterprises, totalling more than S$1.1 billion, under Enterprise Singapore’s financing schemes. The loans account for eight in 10 of all government-assisted small and medium enterprise (SME) loans that the bank has approved between the start of March 2020 and mid-May 2020. Of the more than 3,500 loans approved, around three in 10 were for customers with no prior relationship with the bank, while over half were for customers with no prior borrowing history with DBS.
Trade associations in Singapore are appealing to the government for more support in resuming some industry activities, albeit with safety measures in place. An association of real estate agents in Singapore has appealed to Minister for Trade and Industry Chan Chun Sing to allow potential tenants to physically view vacant property units when the circuit breaker lifts on June 2. The Institute of Estate Agents (IEA) said landlords and owners – who have mortgage loans to service – as well as property agents will suffer further loss of income if the suspension of physical viewings of properties continues beyond June 2. A normal tenancy deal takes about a month to complete.
Global venture capital (VC) firm B Capital, co-founded by Facebook billionaire Eduardo Saverin, is working with its Asian portfolio companies with ample cash to suss out merger and acquisition (M&A) opportunities thrown up by the Covid-19 crisis. The firm, which counts Singapore’s logistics firm Ninja Van and online car marketplace Carro as well as Indian fintech Khatabook as part of its portfolio of investments, is pushing its startups to focus on business resilience and customer relationships during the pandemic while training one eye on potential M&A, according to B Capital’s general partner Kabir Narang. Mr Narang’s remarks come as industry watchers predict consolidations within certain industries as the pandemic stress-tests young businesses that have long been fuelled by venture capital money. Startups that are well-placed to consider M&A activity would have at least 18 months’ worth of cash reserves.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, PSR
Recommended Action: Technical SELL
Suntec REIT (SGX: T82U) impulse down move on mid-March 2020 was expected given the weak consolidation between January to February 2020. Although the stock did make a decent rebound, edging above 1.40 from 1.04, the rebound is more of a corrective move rather than recovery and based on the technical, Suntec Reit will resume its downtrend
ComfortDelGro Corp Ltd – Pain everywhere
Recommendation: NEUTRAL (Downgraded); Last Done: S$1.54
Target Price: S$1.50, Analyst: Paul Chew
– Revenue and PATMI were below expectations. 1Q20 PATMI fell 49% YoY, dragged down by taxi profits declining 92% YoY. The full impact of circuit breaker and rental rebates to taxi drivers in Singapore will occur in the following quarter.
– Comfort will be providing a total of S$116mn worth of taxi rental rebates. Rebates started in mid-February and will end in September. The bulk of the rebates will occur in 2Q20 when 100% waiver of rent is given for almost two months.
– The taxi operations will be loss-making in FY20 due to the rebates. The rental relief from Comfort will help retain taxi drivers longer than competitors. We expect the path to recovery will be gradual. Social distancing behaviour, working from home and the decline in tourist will all weight on passenger volumes. We downgrade to NEUTRAL with a lower target price of S$1.50 (prev: $2.20). Our PATMI for FY20e is slashed by 62%. It excludes the job support scheme to be received from the government.
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Date: 11 May 2020
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