Daily Morning Note – 25 April 2022


Welcome to our Daily Morning Note from our Research team!


Stocks are set to start the week lower as investors weigh the impact of more aggressive interest rate increases. Futures fell in Japan and earlier in Hong Kong. U.S. stocks capped the longest run of weekly losses since January. Investors will also be keeping a close watch on any policy measures from China after the yuan dropped to a one-year low Friday. The nation’s Covid-zero policy is also weighing on sentiment. Meanwhile, the first analyst to call China’s tech selloff last summer has warned there’s further pain ahead.

Shanghai reported its highest number of daily Covid-19 deaths in the current outbreak, as the city’s strict lockdown measures entered their fourth week. The city recorded 39 fatalities for Saturday, up sharply from 12 the previous day. Meanwhile, more Covid clusters were found in Beijing at the weekend, with the city’s Communist Party chief describing the situation as “urgent and serious.”

Top gainers & losers




Singapore banks are expected to report weaker first quarter earnings from a year ago, as wealth and treasury income are weighed down by investors’ risk-off sentiment amid market volatility. Analysts forecast that profits will come off by 15 per cent to 20 per cent across the sector from record earnings in Q1 2021, when the trio of lenders had benefited from robust wealth management fees and lower provisions.On Apr 29, Singapore’s 3 listed banks – DBS, OCBC and UOB – are expected to report their earnings for the quarter ended March 31. The lenders had seen stronger-than-usual contributions from wealth management and other non-interest income sources for the Q1 period last year. For this year as a whole, the banks are expected to do better than in 2021 because net interest margins (NIMs) have edged up – a response to the Federal Reserve lifting benchmark interest rates by a quarter percentage point in March. But significant NIM expansion will likely materialise only later in the year. The NIM, which compares the amount of money a bank is earning in interest on loans with the amount it is paying in interest on deposits, is a key indicator of profitability.

The first executive condominium (EC) project to be launched this year, Sing Holdings’ North Gaia, moved 164 of its 616 units over the weekend. The take-up rate, as at 5pm on Sunday (Apr 24), works out to nearly 27 per cent of the total number of units. There were 1,045 applications from prospective buyers when e-applications closed on April 19. Sing Holdings said: “With 62 per cent of the sold units having opted for the deferred payment scheme, the average sales price for the weekend works out to be S$1,301.93 per square foot (psf) with total sales value at S$232.528 million. Of the 164 units, 84.1 per cent are 3-bedroom units, 10.4 per cent are 4-bedroom units and 5.5 per cent are 5-bedroom units. Ken Low, managing partner at marketing agent SRI, told BT that about 70 per cent of the buyers were second-timers. He described the sales performance as respectable, pointing out that 2 other upcoming ECs – City Developments (CDL) and MCL Land’s EC at Tengah Garden Walk as well as Qingjian Realty and Santarli Construction’s EC at Tampines Street 62 – are likely to be launched at higher prices as the land acquisition costs were steeper.

Fintech platform iFAST Corp posted a near 35 per cent year-on-year drop in net profit to S$5.74 million for the first 3 months ended Mar 31, 2022, as global stock market conditions turned sour. The bottom line was lower in line with decreased revenue and higher operating expenses. Net revenue for the quarter was 1.2 per cent lower at S$28.15 million as an 18.7 per cent decline in non-recurring net revenue offset an 8.8 per cent increase in recurring net revenue. Earnings per share for the quarter fell to 1.97 Singapore cents, down from 3.22 cents a year ago. Operating expenses rose 10.4 per cent year-on-year to S$21.12 million in Q1 2022 as the group continues to invest in its next phase of growth. “The wealth management platform business that the group is building has very strong long-term growth drivers, (but) in the short term, financial market conditions can cause interruptions in its growth path, and 2022 looks likely to be one of those years,” iFAST warned. The group’s assets under administration (AUA) declined 2 per cent quarter-on-quarter to S$18.63 billion as at Mar 31, 2022, on the back of declines in stock and bond prices globally. When comparing year-on-year however, the group’s AUA was up 15.6 per cent.

Ascent Bridge is investing S$77 million to acquire stakes in a group of companies that distribute beverages and liquor in Singapore and Malaysia. In a filing to the Singapore Exchange on Sunday (Apr 24) night, Ascent said that it was acquiring 80 per cent of the issued share capital in Singapore-incorporated Octopus Distribution Networks (ODN) and Singapore-incorporated Cape Exim from Octopus Global Hldgs for S$57.75 million. Meanwhile, it is acquiring 39.2 per cent of the issued share capital of Malaysia-incorporated Luen Heng F&B from Octopus Investment for S$19.25 million. The S$77 million will be paid with S$45 million in cash, while the balance S$32 million will be via the issuance of about 24.62 million new shares at S$1.30 per share. The proposed acquisitions will be funded by the company’s internal resources and bank borrowings.


Nearly 180 companies in the S&P 500, worth roughly half of the benchmark index’s market value, are due to report results next week. They include the 4 biggest US companies by market capitalisation: Apple, Microsoft, Amazon and Google parent Alphabet. The latest round of earnings comes amid a backdrop of hawkishness from the Federal Reserve and a rapid rise in bond yields that has sparked unease about whether policymakers will damage the economy as they fight the worst inflation in nearly 4 decades. The S&P 500 has moved lower in April and was down 10.4 per cent so far this year after a sharp sell-off last Friday (Apr 22).

Elon Musk can’t spend it fast enough. The Tesla chief executive has lined up a $46.5 billion financing package to buy Twitter, if he decides to give it a go. It could entail him personally raising some $33 billion, on top of the $4 billion-worth of Twitter stock he already owns. That might require him to sell most of his Tesla shares that aren’t pledged against loans. But for him and Tesla’s other shareholders, it’s less risky than it looks. That’s because Tesla’s recent financial performance has triggered plenty more essentially free shares for Musk. The math works like this. At the end of 2021, Musk held 173 million shares in the carmaker, plus 59 million options that could be exercised within 60 days – combined, a 21% stake. According to a June 2021 regulatory filing, more than 88 million of those shares were already pledged against personal loans.

Gap has highlighted the uncertainty facing clothing retailers. Shares in the San Francisco-based purveyor of jeans and casual sweatshirts fell over 19% in Friday morning trading, the day after it announced that Old Navy boss Nancy Green was leaving the division. The $4 billion company also warned sales in the three months to the end of April would be down by more than 10%, worse than previously expected. Though Gap talked of the macroeconomic dynamics it is facing, its warning of “execution challenges” at Old Navy is more ominous. Chief Executive Sonia Syngal said in March that lower-priced brands like Old Navy could benefit in times of inflation as consumers trade down. But now the company plans to start discounting Old Navy merchandise, hitting margins in a business that accounted for more than 50% of Gap’s top line in the 52 weeks ended January 29. Gap shares, which are down over 30% year-to-date compared to just 5% at rival Macy’s (M.N), also suggest the company’s woes go deeper than rapidly rising prices.

Netflix surprised the world this week, saying it plans to finally address the rampant practice of password sharing. More than 100 million households are using a shared password, Netflix said Tuesday, including 30 million in the U.S. and Canada. But the video streamer doesn’t plan to simply freeze those shared accounts. Instead, the company will likely favor the setting of an extra fee for those accounts being used by multiple people outside of the home. Netflix’s plan to capture that lost revenue would start with an alert being sent to account holders whose passwords are being used by other households. The company has already started a test of this feature in Peru, Costa Rica and Chile. For accounts that are sharing a password across addresses, Netflix is charging an additional fee to add “sub accounts” for up to two people outside the home. The pricing is different per country — about $2.13 per month in Peru, $2.99 in Costa Rica, and $2.92 in Chile, based on current exchange rates.

Spacs have been stung by sketchy accounting and gut-wrenching stock drops. Plans for four new blank-check firms have been pulled in less than 24 hours by the serial dealmakers at Navigation Capital Partners as the once frenetic industry goes cold. Navigation won’t proceed with efforts to raise US$150 million apiece for Navigation Capital Acquisition VI, VII, VIII and IX, regulatory filings show. The shelved special-purpose acquisition companies counted investors Lawrence Mock and David Panton as chairmen of two. Another was led by CEO Lonnie Johnson, inventor of the “Super Soaker” water gun, and one featured Super Bowl champion Jerome “the Bus” Bettis on its board. The aborted quadruple play brings the week’s total of pulled spac filings to seven, the second-biggest weekly total this year behind a mid-March rout, when 11 were cancelled. All told, at least 56 spacs with ambitions to raise more than US$16 billion have been called off this year. Navigation Capital didn’t respond to requests for comment.

European banks’ buyback boom faces bad-debt risks. European bank investors started 2022 expecting a new era of bumper payouts. Their hopes may be scuppered as the Ukraine war has raised the chances of a recession. Big lenders, like Barclays (BARC.L) and BNP Paribas (BNPP.PA), may have to focus on rebuilding buffers against loan defaults, which are slimmer than before the pandemic, especially since governments have less room to support the economy. Granted, there are bright spots. Money-market prices imply the European Central Bank will lift interest rates above zero this year, while the Bank of England has already hiked three times. That boosts banks’ revenue. The average net interest margin for the 10 biggest UK and euro zone banks will rise to 1.56% this year and 1.62% next, compared with 1.52% in 2021, using analysts’ estimates from Refinitiv.

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

LHN Logistics Ltd – Logistics partner in container and chemicals

(IPO Note); TP: N/A

Analyst: Vivian Ye

– Spin-off of logistics arm by parent company LHN Group (BUY, TP: S$0.49).

– To raise 167.7mn shares, including 25.2mn placement shares, at S$0.20 per share, to raise gross proceeds of S$5mn. Post-IPO market cap will be S$33.5mn.

– Two main segments, transportation and container depot services. Growth drivers include new ISO tank depot and expected recovery of container depot utilisation rates.

Netflix Inc – Shifting efforts into higher monetization

Recommendation : BUY (Maintained); TP: US$427.00, Last Close: US$215.52

Analyst: Jonathan Woo

– 1Q22 results in line with our expectations. 1Q22 revenue/PATMI at 24/29% of our FY22e forecasts.

– Weak guidance of a decline of 2mn paid subscriptions in 2Q22. We believe higher subscription prices, and a weaker overall macroeconomic environment, will continue to increase churn and affect NFLX’s ability to add new subscribers.

– We reduce our FY22e revenue/PATMI forecast by 2%, due to a weaker overall growth outlook, and maintain a BUY recommendation with a lowered DCF target price (increased WACC of 11.5%, and lowered g to 1%) of US$427.00. We believe that revenue generated from raising subscription prices, and increasing monetization on its platform via password sharing add-ons and lower-end ad plans should still be able to drive top and bottom line growth, even as subscriber growth wanes.

FAANGM Monthly Mar 22: Regulatory risk increases

Recommendation : OVERWEIGHT

Analyst: Timothy Ang, Jonathan Woo

– The FAANGM gained 5.9% while the S&P 500 gained 5.2% in March. NFLX continued to underperform, declining 3% in the month, largely due to a continued negative effect from poor 4Q21 earnings. Meta was the outperformer, gaining 9.3%.

– The highlight for the month was the agreement over a newly created Digital Markets Act in the EU, mainly targeting monopolistic practices of “gatekeeper” large tech companies, in particular the FAANG stocks.

– We remain OVERWEIGHT on FAANGM. On the hardware side, the easing of supply chain and labour shortages should continue to benefit AAPL and AMZN. For software, we expect corporate demand for MSFT’s higher-end licenses to continue as concerns over increased cybersecurity linger. As for the internet, we like GOOGL’s robust M&A activity as it invests more in its capabilities for the metaverse.

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