DAILY MORNING NOTE | 24 March 2023

Singapore shares overcame a slump in early trading to close 0.06 per cent lower on Thursday (Mar 23). Real estate investment trusts (Reits) and property players were among the worst performers.

Wall Street stocks ended higher on Thursday as markets weighed the implications of the US central bank’s latest interest rate hike and commentary, following turmoil in the banking sector. The Dow Jones Industrial Average ended 0.2 per cent higher at 32,105.25, while the broad-based S&P 500 Index rose 0.3 per cent to 3,948.72. The tech-heavy Nasdaq Composite Index surged 1.0 per cent to 11,787.40.

SG

Singapore’s CPI-All Items inflation (or headline inflation) increased by 6.3% on a y-o-y basis in February, down from the 6.6% y-o-y growth in January. The lower inflation growth was due to lower private transport inflation. On a m-o-m basis, February’s headline inflation grew by 0.6%. The Monetary Authority of Singapore’s (MAS) core inflation which excludes private transport and accommodation and is MAS’s preferred gauge, rose by 5.5% y-o-y. On a m-o-m basis, MAS core inflation eased to 0% compared to January’s 0.8% m-o-m growth as a result of the GST increase.

Shareholders making up 90.4 per cent of Sats shares have made valid applications for new shares it will be issuing, announced the inflight caterer and ground handler in a bourse filing on Thursday (Mar 23). The issuer will allocate these rights shares, amounting to 328.1 million, in full to those whose applications have been accepted. The remaining shares of close to 35 million will be allocated to shareholders who applied for excess rights.

City Developments Limited (CDL) and MCL Land will open previews for their residential project, Tembusu Grand, on Friday (Mar 24). Located along Tanjong Katong Road in District 15, Tembusu Grand will house 638 units in four 20-storey or 21-storey blocks on the Jalan Tembusu site acquired through a government land tender in 2022. More than 80 per cent of the residential units available will be one-bedroom to three-bedroom units. Sales bookings will start on Apr 8.

The manager of Mapletree Pan Asia Commercial Trust (MPACT) said that the real estate investment trust (Reit) will be issuing S$150 million of senior green notes priced at a fixed rate of 4.25 per cent annually. These notes, which are under its S$5 billion Euro Medium Term Securities Programme established in September 2022, will be issued on Mar 29, 2023 and mature on Mar 29, 2030. The proceeds raised from this issuance will be used by MPACT and its subsidiaries to finance or refinance, in whole or in part, eligible green projects in accordance with the company’s green finance framework.

ESR Group announced its FY2022 ended Dec 31, 2022 results on March 22. This is its first set of full-year results following its acquisition of ARA Asset Management which was completed on January 20, 2022. In answers to unitholders, E-LOG’s manager has said that the funds raised of around $300 million from a placement and EFR would be used for redevelopment, asset enhancement initiatives (AEI) and acquisitions if any. Among the New Economy assets in E-LOG’s portfolio with leases of more than 40 years is Cold Hub which has unutilised GFA.

US

Hindenburg Research on Thursday disclosed short positions in Block Inc and alleged that the payments firm led by Twitter co-founder Jack Dorsey overstated its user numbers and understated its customer acquisition costs. The U.S. short-seller, behind a market rout of over $100 billion in India’s Adani Group, said in its report that former Block employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

Accenture on Thursday (Mar 23) lowered its annual revenue and profit forecasts and said it would cut about 2.5 per cent of workforce, or 19,000 jobs, the latest sign that the worsening global economic outlook was sapping corporate spending on IT services. More than half of the layoffs will affect staff at its non-billable corporate functions, the company said. Accenture now expects annual revenue growth to be between 8 per cent and 10 per cent compared to the previous projection of 8 per cent to 11 per cent increase.

General Mills Inc. (GIS) on Thursday reported fiscal third-quarter net income of $553.1 million. On a per-share basis, the Minneapolis-based company said it had net income of 92 cents. Earnings, adjusted for non-recurring costs, were 97 cents per share. The results surpassed Wall Street expectations, the average estimate was for earnings of 91 cents per share. The maker of Cheerios cereal, Yoplait yogurt and other packaged foods posted revenue of $5.13 billion in the period, which also beat Street forecasts of $4.91 billion.

UBS Group will likely shrink Credit Suisse Group’s US$10 billion shipping portfolio that it inherited as part of its emergency takeover on Sunday (Mar 19). UBS could also try to sell the portfolio, but doing so could prompt owners to move their accounts elsewhere, citing people familiar with the matter. About half of the shipping portfolio involves Greek ship owners that use their deposits in the bank’s wealth management arm as collateral to finance new ships.

Snap, the parent company of video-messaging app Snapchat, is launching its first product line aimed at business customers. The company is adapting the augmented reality (AR) technology behind its popular filters and lenses – tools that can add glittery makeup or cartoon eyes to someone’s video selfie – to help retailers use AR on their own websites and apps. These technologies would let users try on clothing, footwear and accessories virtually on a retailer’s site, in order to consider a purchase.

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

RESEARCH REPORTS

LHN Ltd – Building a real estate franchise with scale

Recommendation: BUY (Maintained); Last Done: S$0.28 TP: S$0.47; Analyst: Paul Chew

– We visited LHN’s recently launched 411 keys co-living property in Orchard. The new project will raise LHN co-living capacity by around 40%.

– Co-living is a product with a flexible lease to serve the medium-term residential lease market. It fits in between tenants requiring longer stays than a hotel and shorter than a rented apartment. It is more affordable than service apartments with an added community experience.

– No change to our FY23e forecast. Coliwoo is a major earnings driver for LHN in FY23e. Capacity over FY21-FY23e is expected to double to around 1,600 keys. The current pipeline is 2,500 keys. Coliwoo Orchard can generate more than S$15mn in revenue, doubling FY22 co-living revenue. We maintain a BUY with a lower TP of S$0.47. Core business valuations are pegged to 6.5x FY23e P/E, while the industry is trading at 13x. The stock is also trading at 38% discount to book value of S$0.455 with a dividend yield of around 6%.

Phillip Macro Update – Key Points for March FOMC Meeting

Analyst: Shawn Sng

1. Interest rates – In this FOMC meeting, the U.S. Federal Reserve (Fed) raised its benchmark interest rate by 25bps to a range of 4.75% – 5%. This is the ninth consecutive hike since March 2022. The quarter percentage hike was in line with market expectations, although a handful of investors were hoping for a pause in the hike cycle in this meeting. Though the pause in the rate hikes was considered in light of what had transpired in the banking sector, the recent inflationary data point coupled with a strong labour market took precedence. The members voted unanimously to raise rates to stay in line with achieving their targeted inflationary goal of 2%.

2. Inflation remain elevated – Inflation remains persistent – Inflationary data points such as the PCE and CPI index which the Federal Reserve monitors closely have shown that inflation still remains sticky. (January Total PCE rose by 5.4% YoY; 0.6% MoM while Core PCE that excludes food and energy increased by 4.7% YoY; 0.6% MoM. February’s CPI index was in line with market expectations but is still elevated at 6% YoY for annual inflation rate and 5.5% YoY for Core CPI respectively)

3. Guidance – In terms of guidance, Chairman Jerome Powell changed the guidance from “ongoing rate hikes” to “some additional hikes for policy firming may be appropriate” in view of potential credit tightening resulting from the recent events in the banking sector which would also contribute to disinflationary effects in the economy. This signals that the central bank may be nearing the end of its hike cycle.

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