Daily Morning Note – 26 July 2021

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Stocks are set for a mixed start to the week as traders weigh a U.S. rally spurred by spectacular corporate earnings. The dollar was steady. Equity futures rose in Japan and Australia but slid in Hong Kong. U.S. stocks closed Friday at a record and the S&P 500 has almost doubled from the depths of the pandemic. About 87% of the S&P 500 firms reporting results so far this season have beaten estimates. But concerns about inflation and the delta strain linger, portending bouts of volatility.


SG News

Golden Energy and Resources (Gear) expects a “significant improvement” in its revenue and earnings for H1 ended June, the Mainboard-listed company announced on Sunday. This is mainly due to the higher average selling prices arising from an increase in coal prices, as reflected in the Indonesian Coal Index 4. The energy company had previously posted a revenue of US$593.5 million for the six-month period ended June 2020, while turning in a net profit of US$16.5 million.

Jubilee Industries Holdings has entered conditional placement letters with seven individuals to raise up to S$3 million via the issue of shares and warrants, the Catalist-listed company announced on Saturday. The seven placees will subscribe to 30 million shares of Jubilee at S$0.05 each, a 5.66 per cent discount to the counter’s volume weighted average price on July 19. In addition, Jubilee will issue 30 million warrants to the placees, each at an exercise price of S$0.05.

Stock Exchanges in South-east Asia have seen robust initial public offering (IPO) activity in the first half of 2021, in spite of Covid-19 flare-ups in the region. Market watchers see the trend continuing for the rest of the year, with the listing of tech unicorns and the possible introduction of special purpose acquisition companies (SPACs) among the potential drivers. According to Bloomberg data, exchanges in Singapore, Malaysia, Thailand, Indonesia and the Philippines saw 51 IPOs in the first half of 2021 – up from 43 in the same period a year earlier. These deals raised US$4.9 billion, compared to US$3.2 billion in the first half of 2020.

Iron-ore boom, led by a trifecta of a supply crunch, China’s huge steel appetite, and an infrastructure-led global economic recovery, is stoking demand for high-grade or “greener” iron ore, as the decarbonisation push moves centre stage in the global steel industry. All of that is showing up on the Singapore Exchange’s commodities futures market, where trading in the reddish metal makes up the lion’s share of volume.

US News

The US and China barreled into their first high-level talks since March trading sanctions and rhetorical barbs, raising the stakes for the effort to stabilise strained relations between the world’s two largest economies. Deputy Secretary of State Wendy Sherman, the US’s No. 2 diplomat, is set to meet Foreign Minister Wang Yi on Monday in Tianjin, about 97km east of the capital Beijing.

The U.S. is moving in the “wrong direction” in combating a surge in delta variant infections. Booster shots may be needed especially for the most vulnerable, said Anthony Fauci, the nation’s top infectious disease expert. Meanwhile, Indonesia is extending its tightest mobility curbs for another week as cases remain high.

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


SPDR Dow Jones Industrial Average ETF

Analyst: Chua Wei Ren

Recommended Action: Technical BUY

SPDR Dow Jones Industrial Average ETF (US: DIA) upside has been trapped within a consolidative range since May when it reached a high at US$351.17. The corrective bullish flag has come to an end after the sub-double three corrective wave has ended with a break above the bulling flag. Further technical price action has shown potential further upside.

Buy stop: 351.18 Stop loss: 331.07 Take profit 1: 373.00 Take profit 2: 398.00

>> Read more technical reports


CapitaLand Limited – Growth-focused power

Recommendation: BUY (Maintained), Last Done: S$4.00

Target Price: S$4.38, Analyst: Natalie Ong

– Proposed restructuring and demerger of investment-management business to allow unitholders to realise immediate upside from development business, at 0.95x BV offer compared to CAPL’s 20-30% historical discounts to NAV.

– Implied consideration of S$4.102 is 27% premium to 1-month pre-announcement VWAP and 8-18% discounts to IFA’s valuation range, suggesting upside for CLI.

– Maintain BUY and TP of S$4.38, based on 80% probability-weighted RNAV that the demerger will be approved and SOTP. Catalysts expected from faster asset recycling and a hospitality recovery

Dasin Retail Trust – Loan extension and new strategic partner

Recommendation: Accumulate (Maintained); Last Done $0.52

Target Price: S$0.78, Analyst: Natalie Ong

– Extension of S$516.7mn loan repayment to 19 December 2021 a small reprieve. Could help halt 32% slide in YTD share price. Refinancing of loans on longer terms required to return confidence to unitholders.

– Strategic partnership with ARA terminated in favour of China-focused Sino-Ocean. Sale and purchase agreement between Mr. Zhang and Sino-Ocean’s entity, New Harvest, will allow New Harvest to acquire 70% of the Trustee-Manager. Call option by Mr. Zhang to Sino-Ocean could increase Sino-Ocean’s stake from 6.36% to 26%.

– Maintain ACCUMULATE and DDM TP (COE 8.12%) lowered from S$0.82 to S$0.78. FY21e/22e DPUs cut by 14.8%/5%/7% for higher borrowing costs. Current price implies yields of 7.4/8.2%.

Frasers Centrepoint Trust – Underappreciated resilience

Recommendation: BUY (Maintained), Last Done: S$2.38

Target Price: S$2.87, Analyst: Natalie Ong

– Occupancy of 96.4% at pre-pandemic levels. Signed 11.8% of NLA in the quarter despite general tenant caution

– 3Q21 tenant sales 6-19% below pre-COVID levels, due to Phase 2 Heightened Alert. Still, resilience from 45% of its tenants in essential trades lowers rental-rebate burden.

– Maintain BUY with DDM TP (COE 6.38%) lowered from S$2.88 to S$2.87. FY21e DPU dips 7.5% after accounting for S$25k or 6.4% of revenue in rental rebates. FY21e/22e DPU yields of 5.1%/5.8%. Catalysts expected from growth in mall catchment, asset enhancement and M&A/collaboration opportunities.

Singapore Exchange Limited – Another step toward a multi-asset exchange

Recommendation: Neutral (Downgraded), Last Done: S$11.80

Target price: S$11.95, Analyst: Terence Chua

– Acquisition of MaxxTrader for US$125mn to scale up FX into core pillar of growth under its multi-asset strategy. Will also broaden its client base to more than 200 institutional clients, both on the buy-side and sell-sides.

– Funded by external borrowings with expected completion by December. Earnings-accretive on an adjusted basis, including additional performance-based earn-out of up to US$35mn to be paid in CY2021 – 2022 if pre-determined targets are achieved.

– Downgrade to NEUTRAL from ACCUMULATE, albeit with higher TP of S$11.95, from S$11.25. Our TP is now pegged to 25x FY21e PE, +2SD if its 5-year mean vs. parity previously. This is in view of its stronger growth prospects. Stock positives, however, have been priced in, in our view.

SG Bonds Weekly

Earnings season and FOMC meeting ahead

Credit Analyst: Timothy Ang

– Asia G3 primary bond market continues to steamroll over a volatile week for risk assets.

– However, all Chinese real estate bonds issued this week traded down in the secondary market due to negative headlines from China Evergrande Group.

– This will be the last SG Bonds Weekly issue. Coverage will cease due to shifting of resources to focus on individual bond coverage.

>> Read more research reports

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Date: 19 July 2021

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