DAILY MORNING NOTE | 24 October 2023

Trade of the Day

AEM Holdings Ltd (SGX: AWX)

Analyst: Zane Aw

(Current Price: S$3.36) – TECHNICAL SELL
Sell price: S$3.36 Stop loss: S$3.50 (-4.17%) Take profit: S$3.10 (+7.74%)

Singapore shares shed 0.8 per cent and continued their fourth straight session of declines on Monday (Oct 23). Across the broader market, losers beat gainers 269 to 124 after 1.14 billion securities worth S$835.35 million changed hands. Frasers Logistics and Commercial Trust was the top gainer, rising 1 per cent or S$0.01 to S$1.02. Meanwhile, Seatrium was at the bottom of the table, shedding 4.3 per cent or S$0.005 to S$0.112. The trio of banks also closed in the red on Monday. DBS closed down 0.2 per cent or S$0.07 at S$33.01, while UOB fell 0.5 per cent or S$0.14 to S$27.62 and OCBC declined 0.6 per cent or S$0.08 to S$12.71.

Wall Street stocks were mixed at the end of Monday’s session as markets monitored US Treasury yields and awaited key earnings and economic data later in the week. The tech-centered Nasdaq Composite Index finished up 0.3 per cent at 13,018.33. The Dow Jones Industrial Average dropped 0.6 per cent to 32,936.41, while the broad-based S&P 500 shed 0.2 per cent to 4,217.04. Besides a heavy week of earnings, this week’s schedule includes several significant economic reports that will be scrutinised for their implications on monetary policy. These include a report on third quarter US growth and September personal income and spending that also includes key inflation data.

SG

Sembcorp Industries (Sembcorp), IHI Corporation (IHI) and GE Vernova’s Gas Power business have signed a non-binding memorandum of understanding (MOU) where all parties will explore the potential retrofitting of Sembcorp’s Sakra power plant in Singapore with ammonia-firing capabilities. The latest partnership is an extension of an MOU signed between Sembcorp and IHI in 2022. At the time, both parties were looking to explore decarbonisation pathways for the power and industrial sector, in particular ammonia direct combustion systems. The partnership also builds on a separate cooperation between IHI and GE Vernova on developing a retrofittable, 100% ammonia-capable combustion system that is compatible with specific GE Vernova turbine models. According to Sembcorp, the latest project will allow the company to generate low-carbon energy from its existing power plant assets in addition to supporting Singapore’s efforts to diversity its energy sources and decarbonise the power sector. This is also expected to bolster industry confidence for the development of an ammonia value chain in Singapore.

The Singapore government is a step closer to clean ammonia power generation as it plans a request for proposals on developing and operating ammonia combustion power plants and bunkering facilities in Jurong Island. Based on the proposals received, the government will appoint a lead developer for the project, said Trade and Industry Minister Gan Kim Yong on Monday (Oct 23), who was speaking at the launch of the Singapore International Energy Week. The request for proposals will be launched before the end of 2023. It comes after the Energy Market Authority (EMA) and the Maritime Port Authority of Singapore (MPA) launched an expression of interest (EOI) in December last year for such projects, as part of a wider national strategy to power Singapore with hydrogen to meet the country’s net-zero by 2050 target. There were six consortiums shortlisted after the EOI out of 26 proposals received both local and foreign interest, which Gan said reflected “strong industry interest”. The ammonia generation project would involve generating between 55 MW and 65 MW of electricity from imported low-carbon or zero-carbon ammonia via direct combustion in a gas turbine or combined cycle gas turbine. It will also facilitate ammonia bunkering at a capacity of at least 0.1 million tonnes per annum, starting with shore-to-ship bunkering followed by ship-to-ship bunkering. Besides piloting ammonia generation, Gan also announced that Singapore will be centralising the procurement and supply of gas to the power sector to improve its resilience of its natural gas supplies. This is in view of how the global gas market conditions are expected to be more volatile with the energy transition. As Singapore does not have much domestic renewable energy resources, Gan said that it is exploring other low-carbon alternatives, including geothermal heat, biofuels and nuclear.

Singapore’s headline inflation stood at 4.1% y-o-y in September, up from 4.0% in August, due to higher private transport prices. Meanwhile, Monetary Authority of Singapore (MAS) core inflation, which excludes accommodation and private transport, eased to 3.0% on a y-o-y basis, down from 3.4% in August. The lower core inflation was due to lower inflation for food and retail & other goods. In September, transport saw the highest y-o-y increase at 6.3% among the rest of the sectors due to a faster pace of increase in car prices and higher petrol prices. At the same time, accommodation inflation edged down as the pace of increase in housing rents moderated. In its outlook statement, the MAS and the Ministry of Trade and Industry (MTI) are expecting core inflation to range between 2.5% to 3.0% by December. In early 2024, however, the country’s core inflation is expected to be impacted by the higher GST as well as “seasonal effects”. Meanwhile, headline inflation is expected to rise further in the coming months due to higher certificate of entitlement (COE) premiums. Nonetheless, private transport inflation should slowly moderate over the course of next year alongside an expected increase in COE quotas. Inflation for accommodation is also projected to ease as the supply of completed housing units increases.

Fortress Minerals’ subsidiary, Fortress Resources, has entered into two new nine-month offtake agreements with an unnamed independent third-party domestic steel mill in Malaysia. The two agreements will run at the same time. Under the agreements, Fortress Resources has agreed to deliver approximately 150,000 wet metric tonnes and 90,000 tonnes per agreement to the domestic steel mill from Oct 1 to June 30, 2024. Both deliverables are subject to a variance of an additional or a reduction of 20% at the option of Fortress Resources. The selling price of the deliverables will be based on a formula guided by the average of the available daily price of Platts for 65% Fe CFR North China, adjusted subject to the Fe content of each shipment of the deliverables. It will also be guided by the average of the available daily price of Platts for 58% Fe CFR North China, adjusted subject to the Fe content of each shipment of the deliverables. Platts refers to the price benchmark service for the oil industry. According to Fortress Minerals, the agreements will provide a firm source of recurrent income and cash flow to the group during the period it has signed for. It will also strengthen its financial position, although it will not have any impact on the group’s net asset value (NAV) for the FY2024 ending Feb 29, 2024. It will, however, contribute positively to the group’s earnings per share (EPS) for the FY2024.

Stamford Land is expecting to report a net loss in the 1HFY2024 ended Sept 30. This is mainly due to the fair value loss on the group’s investment property in London, says the group in its Oct 23 statement. The profit guidance is based on a preliminary assessment of the group’s unaudited consolidated management accounts for the six-month period. The group will announce its results for the 1HFY2024 on or before Nov 10.

US

The U.S. Justice Department has sought documents and issued subpoenas to Tesla as it scrutinizes the automaker’s driver assistance system Autopilot and vehicle driving range, among other issues, the company said on Monday. Tesla said in a regulatory filing it has received requests for information “including subpoenas, from the DOJ. These have included requests for documents related to Tesla’s Autopilot and FSD features” and other requests “associated with personal benefits, related parties, vehicle range and personnel decisions.” Tesla also said its capital expenditure for 2023 would exceed the US$7 billion to US$9 billion target it had laid out earlier this year, as it ramps up output at its factories and gears up to roll out new models. The company’s spending is, however, expected to return to the US$7 billion to US$9 billion range in the next two years, a regulatory filing showed.

NVIDIA is using Arm Holdings technology to develop chips that would challenge Intel processors in personal computers (PCs), ratcheting up competition between the two semiconductor makers, according to sources familiar with the situation. Nvidia, whose artificial intelligence (AI) accelerator chips already dominate that market, is attempting to make central processing units for PCs, said the sources, who asked not to be identified because the matter is private. The CPUs would run Microsoft’s Windows operating system and go on sale as soon as 2025. Intel’s main rival in PCs, Advanced Micro Devices (AMD), is now also working on Arm-based processors, according to the sources. AMD currently licenses Intel’s technology.

Japan’s competition watchdog on Monday said it would start investigating Google’s possible breach of antimonopoly laws in web search services, following similar steps taken by authorities in Europe and other major economies. The Japan Fair Trade Commission (JFTC) said it would investigate whether Google violated Japan’s Antimonopoly Act, including by returning part of its revenues to Android smartphone makers on the condition that they not install rival search engines. The decision follows similar moves by antitrust regulators in the European Union, the United States and others.

Chevron Corp agreed to buy Hess Corp in a deal worth US$53 billion, the latest major consolidation in the US oil industry. In an all-stock transaction, Chevron will pay US$171 per share for Hess, according to a statement from the companies on Monday. Hess shareholders will receive 1.025 shares of Chevron for each Hess share, giving the company a total enterprise value of US$60 billion including debt. This is the second major deal in the US oil industry in just a few weeks. Exxon Mobil Corp. has agreed to buy shale-oil producer Pioneer Natural Resources Co. for US$58 billion, underpinning a bet that oil and gas will remain central to the world’s energy mix for decades to come. “This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” Chairman and Chief Executive Officer Mike Wirth said in the statement.

Microsoft said it will spend A$5 billion (US$3.2 billion) expanding its artificial intelligence (AI) and cloud computing abilities in Australia over two years as part of a wide-ranging effort that includes skills training and cyber security. The U.S. tech giant said it would raise its computing capacity in Australia by 250%, enabling the world’s No. 13 economy to meet demand for cloud computing – the practice of storing data on a separate network – which was expected to double from 2022 to 2026 as AI became more prevalent. The spending amounts to a charm offensive by Microsoft in a country that began public consultation this year over regulation of AI, which stands for artificial intelligence but is a term often used to describe fast automation, since Microsoft-backed OpenAI stunned the technology world with lifelike language program ChatGPT in 2022. Microsoft said that on top of the A$5 billion, it would support training 300,000 Australians in skills needed to “succeed in the digital economy” and expand a cyber threat information-sharing agreement with the country’s cyber security agency, the Australian Signals Directorate.

The United Auto Workers (UAW) union and General Dynamics have reached a tentative agreement over a new labour contract covering hundreds of workers at some of the US defence contractor’s facilities, the company said on Monday (Oct 23), staving off a potential strike. Earlier this month, over 1,000 UAW members in Michigan, Ohio and Pennsylvania plants had voted to authorise a strike after a four-year agreement was set to expire on Oct 22. UAW did not immediately respond to a request for comment. Details of the proposed agreement, which needs to be ratified by UAW workers, were not immediately available. The UAW is engaged in a separate strike action at the Detroit Three automakers – General Motors, Ford Motor and Stellantis – since the middle of last month in a fight for a better contract.

E-commerce giant Alibaba Group said it will be offering huge discounts as it gears up for its annual Singles Day shopping extravaganza – an indication that Chinese consumer confidence remains at a low ebb. The event – which begins on Tuesday (Oct 24) and despite its name now stretches over several weeks – will offer over 80 million products at their lowest prices this year, it said. Alibaba also said that this year its Tmall marketplace for established brands and its Taobao site for smaller retailers will offer a 15 per cent price reduction for some products in addition to the discount coupons usually offered. Tmall will also compare prices on products in real-time with other e-commerce platforms in China and tag products with the lowest price, it said. Alibaba did not disclose how much in subsidies and coupons it plans to offer in total this year but added that Taobao and Tmall had committed an “unprecedented” amount of investment. Presales, when consumers can put down deposits on items, will begin on Tuesday and then purchases are made over two periods – the evening of Oct 31 till Nov 3 and Nov 10-11 – which helps with managing the logistics of deliveries. The company last year did not announce the sales tally for the event for the first time, saying only that the total amount was in line with 2021.

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

RESEARCH REPORTS

Suntec REIT – Resilient performance hampered by rising interest rates

Recommendation: BUY (Maintained), Last Done: S$1.11

Target price: TP: S$ 1.47, Analyst: Liu Miaomiao

– 3Q23 results were within expectations. Gross revenue grew 15% YoY to S$123.4m and NPI increased by 9.7% YoY to S$84.6m.Over the past three quarters, results have been 79.7%/77.9% of our FY23e forecast, respectively.

– 3Q23 DPU declined by 14% YoY to 1.793 Singapore cents, and when considering 1H DPU, it was 76.3% of the FY23e forecast. Strong operating performance was offset by higher financing cost, FX fluctuation, and higher maintenance fund contribution.

– We maintain BUY with an unchanged DDM-TP of S$ 1.47. No change to our forecasts. We expect Singapore market to be the key revenue driver with double-digit rental reversion for the retail side to continue and high single-digit for office sector in FY24e. The current share price implies FY23e/24e DPU yields of 6.08%/7.16%.

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