DAILY MORNING NOTE | 24 April 2023

Week 17 equity strategy: This week, investors will be watching Big Tech earnings. Any surprises are likely to come from cost cuts as we anticipate revenue headwinds will persist due to slowing economic growth and a strong USD.

Economic data continues to slide downwards. US unemployment claims reached their highest levels in more than a year and LA container imports are down 30% YoY in March. Despite the decelerating pace of growth, Fed Vice-Chair John Williams has clearly telegraphed another rate hike in the 2-3 May FOMC meeting. His comments were inflation is still too high and the Fed will use monetary policy tools to restore price stability. We believe rate hikes will only exacerbate the already weakening economic growth. Market has priced in this “final” rate hike as a one-and-done narrative.

In Singapore, Nanofilm reported a massive 40% drop in 1Q23 revenue due to weak consumer demand, rescheduling of new product launches and cutbacks in Capex. This serves as another reminder of the global weakness in goods demand. UOB will be reporting 1Q23 update on Thursday.

China appears to be the only growth theme at the moment, and we think it can surprise on the upside. Retail sales surged 10% YoY in March, highest in almost two years and new loans are up 40% YoY to a record RMB11.5tr in 1Q23. Our model portfolio, Phillip Absolute 10, has its main exposure to China through CapitaLand Investment from its portfolio of malls, lodging and offices owned in China, as well as S$21bn funds managed in China. DBS and OCBC also benefit from a revitalised China through their Hong Kong operations.

Paul Chew
Head Of Research

Singapore shares were spared the rout in other Asian markets on Friday (Apr 21), after it managed to rally in the afternoon session and claw back losses. Singapore shares rose 0.3 per cent or 8.41 points to 3,321.82. The gauge was 0.6 per cent higher than last Friday’s close. Asian markets were in a sea of red after a sell-off on Wall Street on Thursday. Sentiment was hit by the Federal Reserve possibly further raising interest rates, a slowing economy with accompanying recession fears, as well as lacklustre earnings from Tesla and several regional banks.

Wall Street stocks closed slightly higher on Friday (Apr 21), concluding a lackluster week on a benign note ahead of next week’s deluge of major earnings reports. Stocks traded within a narrow range for most of the day, extending a choppy period in a week with few major economic releases. The Dow Jones Industrial Average ended 0.1 per cent higher at 33,808.96. The broad-based S&P 500 also edged up 0.1 per cent to 4,133.52, as did the tech-rich Nasdaq Composite Index, which stood at 12,072.46. Investors mostly focused on corporate earnings, which were mixed. But analysts said this week’s results were a warm-up for next week’s heavy schedule involving tech giants like Apple and Microsoft, along with blue-chip companies such as Boeing and McDonald’s.

Top gainers & losers





Singapore-based crypto exchange Zipmex has sunk into deeper trouble after its Thai buyout investor scrapped a US$100 million deal to rescue the company and restore customer funds. In an Apr 16 letter seen by The Business Times (BT), the investor, V Ventures, demanded a clawback of US$4.6 million it already invested in Zipmex. The sum was mostly used for working capital. The about-turn deals another blow to Zipmex’s 70,000 customer-creditors, who were holding out for a full return of their crypto assets still trapped on the exchange.

Singapore-based startup Higgz Academia Technology is in discussions with potential investors to lift its $100 million valuation in a fresh funding round and capitalize on OpenAI’s ChatGPT phenomenon. The tutoring app developer last raised US$20 million around two years ago from investors including Matrix Partners and Qiming Venture Partners, chief executive officer Joey Sun said in an interview. ChatGPT’s rise to prominence has prompted prospective backers to hold early discussions with Higgz about another round of similar size, Sun said. The firm is slated to embed OpenAI’s chatbot into its app next month.

The supply of certificates of entitlement (COEs) for cars will be lower in the May to July period, according to the latest announcement by the Land Transport Authority (LTA) on Friday (Apr 21). For cars with engines up to 1,600cc and 130bhp, as well as for electric vehicles (EVs) with up to 110 kilowatts of power, there will be a monthly average of 932 COEs – 7.72 per cent fewer than the monthly average of 1,010 for the period of February to April. Supply of COEs for larger and more powerful cars and EVs will be 8.26 per cent lower with a monthly average of 789, down from 860 previously. Open category COEs falls from 259 a month on average, to 248, marking a cut of 4.25 per cent.

Hoi Hup Realty and Sunway Developments opened previews for The Continuum on Friday (Apr 21), with indicative prices ranging from about S$2,580 per square foot (psf) to more than S$2,800 psf. This marks the second major residential launch in District 15 in the year to date, after City Developments Ltd and MCL Land’s 638-unit Tembusu Grand. That project sold 53 per cent of units on its launch weekend in April, at an average price of S$2,465 psf. The Continuum freehold development on Thiam Siew Avenue off Tanjong Katong Road will house 816 units in six blocks on the site acquired at a collective sale in 2021. More than 60 per cent of the units available will be two- and three-bedroomers.


The pay package awarded to Alphabet chief executive officer Sundar Pichai soared to US$226 million in 2022, boosted by a triennial stock grant, making him one of the world’s highest-paid corporate leaders. The stock award portion of his pay amounted to US$218 million, according to a filing from the Google parent company Friday (Apr 21). He received a total of US$6.3 million in compensation in 2021, when he didn’t receive the grant, and his salary has remained steady at US$2 million the past three years. The 50-year-old CEO has been navigating a more competitive industry, with AI products such as the chatbot ChatGPT from startup OpenAI threatening to undermine Google’s dominance in search. A broader tech slowdown also has taken a toll on the company, with its shares sliding 39 per cent in 2022. Still, they’ve mounted a comeback in 2023, rising 19 per cent.

Procter & Gamble (P&G) raised its sales projection for the fiscal year ending in June, citing higher prices and a slight increase in demand for some of its products. The shares rose the most in three years. The maker of Bounty paper towels and Herbal Essences shampoo said organic sales, which exclude currency fluctuations, should grow about 6 per cent from the prior year, up from its previous forecast of as much as 5 per cent. Yet P&G didn’t budge on its profit outlook despite easing costs, reiterating its expectation that earnings per share will be at the lower end of a US$5.81 to US$6.04 range. The outlook and quarterly results outpaced expectations in key metrics, highlighting that the US economic slowdown appears to be relatively contained even as elevated inflation restricts household spending. The Head & Shoulders shampoo manufacturer said total unit sales fell 3 per cent in the quarter ended in March. That decline is less than what analysts expected and smaller than the one P&G posted the previous quarter. The volume of products sold increased in the US, chief financial officer Andre Schulten said in an interview.

Bed Bath & Beyond Inc filed for Chapter 11 bankruptcy protection on Sunday (Apr 23) after the home goods retailer failed to secure funds to stay afloat, and has begun a liquidation sale. The Union, New Jersey-based home goods retailer filed for bankruptcy in a District of New Jersey court, listing both its estimated assets and liabilities in the range of US$1 billion and US$10 billion, according to a court filing. Bed Bath & Beyond said that it has received a commitment of approximately US$240 million in debtor-in-possession financing from Sixth Street Specialty Lending, according to a separate statement.

Arm is developing its own chip to showcase the capabilities of its designs, as the SoftBank-owned group seeks to attract new customers and fuel growth following a blockbuster IPO later this year. The company will team up with manufacturing partners to develop the new chip, according to people briefed on the move who describe it as the most advanced chipmaking effort the Cambridge-headquartered group has ever embarked upon. The effort comes just as SoftBank seeks to drive up Arm’s profits and attract investors to a planned listing on New York’s Nasdaq exchange.

China’s largest bank is being sued by Dutch lender ING for losses suffered in a batch of copper deals in a case that highlights the risks of servicing the scandal-plagued world of commodity trading. Amsterdam-based ING is claiming $170mn in damages from Industrial and Commercial Bank of China, alleging it breached contract terms by releasing export documents for copper transactions without collecting payment, according to a Hong Kong court filing seen by the Financial Times. That resulted in ING booking losses on metals sold to China’s biggest copper trader Maike Metals International by Triway International, a fully owned subsidiary of Maike based in Hong Kong. Maike banked with ICBC and Triway with ING, but the latter trader did not receive payment and ING had been financing its deals, according to one person close to the Dutch lender. ICBC’s alleged breach of contract happened just before Maike declared a liquidity crisis last September when it said it would have to sell assets and shareholdings as it became low on cash.

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


Keppel Corporation – Asset monetisation drives its valuation

Recommendation: Accumulate (Downgraded); Last Done: S$6.46

Target Price: S$7.01; Analyst: Peggy Mak

– 1Q23 revenue only rose marginally by 3% YoY, excluding the divested offshore and marine division. Urban development led the growth, driven by higher home sales in China and India. Net profit was only slightly higher.

– Disposal of Keppel Offshore & Marine resulted in a gain of S$3,300mn, but equity is reduced by S$3,845mn with the distribution-in-specie of SembCorp Marine (SMM) shares. Out-of-scope assets were sold to Asset Co in exchange for vendor notes, perpetual securities and a 10% equity stake, amounting to S$2.50/Keppel share.

– Downgrade to ACCUMULATE with a lower TP of S$7.01, from S$7.21 previously. Keppel plans to announce further transformation plans in May which could include more monetization initiatives to reach its goal of S$17.5bn.

Lendlease Global Commercial REIT – Organic and inorganic growth opportunities

Recommendation: Re-initiate (Buy), Last Done: S$0.70

Target price: S$0.91, Analyst: Liu Miaomiao

– Organic growth of an additional 10,200 sft NLA, retail footfall to benefit from upcoming tenant Live Nation, c.3% annual rental escalation from 313@somerset and c.5.7% rental escalation tied to CPI growth from Milan commercial property.

– Inorganic growth opportunities from the sponsor’s stabilised asset pipeline, of up to c.$5bn.

– Resume coverage with a BUY recommendation and DDM TP (cost of equity 7.6%) of S$0.91. Valuations are attractive at FY23e yields of 6.6%.

Keppel DC REIT – Resilient demand amid tight supply

Recommendation: Accumulate (Downgraded), Last Done: S$2.11

Target price: S$2.26, Analyst: Darren Chan

– Q23 DPU rose 3% YoY to 2.541 Singapore cents, due to the acquisitions of Guangdong Data Centre 2 and 3; completed asset enhancement initiatives (AEI); renewals and income escalations; and tax savings from the approval of the NetCo Bonds being qualified as Qualifying Project Debt Securities (QPDS).

– These were partially offset by lower contributions from some of its Singapore co-location assets arising from higher facilities expenses including electricity costs, higher finance costs and the depreciation of EUR, AUD and GBP against SGD.

– Downgrade from BUY to ACCUMULATE. Target price lowered from S$2.58 to S$2.26 on higher interest expense and cost of equity. Catalysts include more accretive acquisitions and lower-than-expected interest costs. The current share price implies FY23e/24e DPU yields of 4.7%/4.9%.

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