Daily Morning Note – 25 August 2021

Dear valued client,

Asian stocks look set to track U.S. gains Wednesday as strong corporate earnings and a commodity rally boost confidence in the economic recovery from the pandemic. Treasuries and the dollar declined.

Futures rose in Japan, Australia and Hong Kong. U.S. contracts were steady after the S&P 500 and the Nasdaq 100 closed at record highs, with Best Buy Co. the latest U.S. retailer to report robust consumer demand.

In commodity markets, oil extended gains in part on China’s success in stamping out virus flare-ups, which is easing some of the concerns about the impact of the delta variant on demand. Iron ore also climbed.


SG News

ESR-REIT has raised S$49.6 million in gross proceeds from its preferential offering, which was 3.6 times subscribed, the manager said on Tuesday. This brings the total amount raised from the real estate investment trust’s equity fundraising exercise to S$149.6 million, including S$100 million from a private placement in May 2021. Adrian Chui, chief executive of the manager, said altogether, the demand for both the private placement and preferential offering was about S$517.4 million, or about 3.5 times the total offer size. Some 124.1 million in new preferential offering units were offered on the basis of 32 preferential offering new units for every 1,000 existing units, at a price of S$0.40 apiece.

AIMS APAC Reit has priced S$250 million in perpetual securities at 5.375 per cent per annum, the manager of the real estate investment trust (Reit) said in a bourse filing on Monday night. The perpetual securities will bear an initial distribution rate of 5.375 per cent per annum and a re-offer yield of 5.375 per cent, according to a term sheet seen by The Business Times. The distribution rate will first reset on Sept 1, 2026; it will subsequently reset every five years thereafter based on the prevailing five-year Singapore overnight-rate average plus the initial spread of 4.654 per cent. Deal statistics showed an orderbook of S$450 million across 31 accounts, with 99 per cent of investors from Singapore and 1 per cent from overseas. Some 51 per cent of the overall orderbook came from private banks, with the remaining 49 per cent from fund managers and banks.

Precision engineering group Spindex Industries saw a 75 per cent jump in net profit to S$21.3 million for the full year ended June 30, due in part to the Covid-19 pandemic. Remote working has contributed to new demand for office equipment, domestic appliances and hobby-related equipment, while pandemic-related disruptions to the global supply chain have resulted in some forward stocking of components, the mainboard-listed company said in an exchange filing on Tuesday. Accordingly, the company’s revenue for FY21 rose 37 per cent to S$204.9 million despite generally uncertain and challenging market conditions, Spindex said.

Auto dealer Tan Chong International reported earnings of HK$78.6 million (S$13.7 million) for the first half of 2021, swinging back into profit following a HK$46.1 million net loss in the same period last year. The company’s revenue for the period was nearly HK$6.2 billion, an increase of 6 per cent from that in the first half of 2020, according to its interim results for the six months ended June 30. Its directors have declared an interim dividend of 1.5 Hong Kong cent per share for H1 2021. Tan Chong said the automotive business of the group remains challenging, with the business environment remaining fluid amid new strains of Covid-19 as well as geopolitical factors.

Agriculture giant Cargill has entered into an agreement to acquire Singapore-based chocolate manufacturer Aalst Chocolate for an undisclosed amount. Aalst is 50 per cent owned by Singapore-listed Wilmar International. In 2017, Wilmar had purchased the stake for an undisclosed sum through its subsidiary KOG Investments. Wilmar said the acquisition would be a “strategic complement” to its own specialty fats and sugar businesses, as the two commodities are essential raw materials for chocolate. In an interview with The Business Times in August last year, Wilmar said Aalst constitutes just a “very small component” of its operations and therefore has a “negligible contribution” to the group’s financials. Wilmar was, however, expecting Aalst to grow rapidly with the ability to leverage Wilmar’s manufacturing and distribution network in Asia.

US News

Visa is the latest major company jumping into the NFT craze. The payments processor said Monday it bought a “CryptoPunk,” one of thousands of NFT-based digital avatars, for nearly $150,000 in ethereum. An NFT — which stands for non-fungible token — is a unique digital asset designed to represent ownership of a virtual item. Unlike bitcoin and other cryptocurrencies, NFTs can’t be exchanged like-for-like with another NFTs. Proponents say this makes NFTs scarce, driving up their value. NFTs have often been compared to physical collectible items like rare trading cards and works of art.

South Korea is likely to bar Alphabet Inc’s Google and Apple Inc from charging software developers commissions on in-app purchases, the first such curbs by a major economy that could hurt the tech giants’ lucrative revenue streams. The parliament’s legislation and judiciary committee is expected on Tuesday to approve the amendment of the Telecommunications Business Act, dubbed the “Anti-Google law,” banning app store operators with dominant market positions from forcing certain payment systems. If the bill gets the committee’s approval, it will be put to a final vote on Wednesday. Lawmakers in South Korea started raising the issue of the tech giants’ commission structure since the middle of last year.

Best Buy said Tuesday fiscal second-quarter sales rose nearly 20% as consumers upgraded devices and equipment and permanently embraced habits formed over the past year — from hybrid work to streaming TV shows. Shares were up about 6% early Tuesday. The consumer electronics retailer raised its outlook for the second half of the fiscal year. It now expects same-store sales to range from flat to down 3% in the second half of the fiscal year versus a year ago. It previously anticipated a high single-digit decline. “Over the longer term, we are fundamentally in a stronger position than we expected just two years ago,” CEO Corie Barry said in a press release. “There has been a dramatic and structural increase in the need for technology.”

McDonald’s announced a number of promotions on Tuesday, tapping company veterans and a Petco executive to fill slots leading marketing efforts and its international markets. A month ago, the fast-food giant created the role of global chief customer officer and promoted Manu Steijaert, then senior vice president of the international operated markets segment, to the position. The appointment was part of McDonald’s strategy to centralize its marketing, data analytics and digital initiatives across the company. To fill the hole left by Steijaert’s promotion, McDonald’s has named Paul Pomroy as his successor. Pomroy currently is CEO of McDonald’s U.K. and Ireland, which is a part of the international operated markets segment.

Airbnb is planning to start housing 20,000 Afghan refugees around the world free of charge, the company’s CEO, Brian Chesky, said Tuesday. The refugees will be housed in properties listed on Airbnb’s platform and the stays will be funded by Airbnb, Chesky said on Twitter, without specifying exactly how much the company plans to spend on the commitment or how long refugees will be housed for. The U.S. said Monday it has evacuated roughly 48,000 people from Afghanistan in recent days, while thousands are still trying to escape, fearing reprisals from the Taliban militants now in power.

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


Singapore REITs Monthly – Recovery in progress

Recommendation: OVERWEIGHT (Maintained)

Analyst: Natalie Ong

– FTSE REIT Index’s recovery lagged the STI and FTSE Real Estate Developer Index YTD. Sector’s dividend yield spread of 283bps at -0.9SD of 10-year historical average.

– Leasing remains challenging, although improving QoQ. Portfolio reconstitution, redevelopment and AEI could help DPUs recover faster.

– Remain OVERWEIGHT with selective preferences. Catalysts expected from pick-up in economy and portfolio reconstitution. REITS under coverage expected to deliver FY21e DPU yields of 3.9-7.9%. Prefer Industrial and Retail. Top picks are Frasers Centrepoint Trust (FCT SP, BUY, TP: S$2.87) and Ascendas REIT (AREIT SP, BUY, TP S$3.64).

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