DAILY MORNING NOTE | 26 May 2023

Market Trend Analysis – Topic #3 – Is Market Breadth a Lead Indicator of Market Direction?

Analyst: Zane Aw

– Market breadth, often known as an internal market indicator, is commonly used to provide insights on the overall health of an index, helping investors gauge the level of participation and broad-based buying or selling in the market

– Breadth indicators such as the Advance-Decline (A/D) Line, New Highs-Lows Index and McClellan Volume Summation Index have their limitations in predicting trend reversals and market direction for the S&P 500

– Breadth indicators analyze the number of securities advancing relative to those declining and serve more as coincidental indicators which move together with the market and are unable to act as lead indicators of market direction

Singapore shares fell 0.2 per cent or 6.49 points to 3,207.72 on Thursday (May 25) as markets in the region put up a mixed showing. Across the broader market, losers beat gainers 308 to 257 after 1.3 billion securities worth S$1 billion changed hands. Regional stocks were mixed on Thursday. Japan’s Nikkei 225 was up 0.4 per cent, while South Korea’s Kospi was down 0.5 per cent and Hong Kong’s Hang Seng Index declined 1.9 per cent. UOB was the top gainer, rising 1.2 per cent or S$0.33 to S$28.16. The other local banks were also in the black. DBS rose 0.7 per cent or S$0.21 to S$31.61, while OCBC rose 0.4 per cent or S$0.05 to S$12.25. Meanwhile, DFI Retail Group was at the bottom of the table, shedding 3 per cent or US$0.09 to close at US$2.87.

Wall Street ended sharply higher on Thursday (May 25) after a blowout forecast from Nvidia sent the chipmaker’s stock soaring and fuelled a rally in artificial intelligence (AI) related companies, while investors watched for signs of progress in US debt ceiling talks. The S&P 500 climbed 0.88 per cent to end the session at 4,151.28 points. The Nasdaq surged 1.71 per cent to 12,698.09 points, while the Dow Jones Industrial Average declined 0.11 per cent to 32,764.65 points. Volume on US exchanges was relatively heavy, with 10.8 billion shares traded, compared to an average of 10.5 billion shares over the previous 20 sessions. The S&P 500 is now up about 8 per cent so far in 2023 and the Nasdaq has recovered over 30 per cent from its losses last year.

SG

Luxury watch retailer The Hour Glass reported on Thursday (May 25) a 5 per cent decline in net profit for its second half despite a slight increase in revenue, as costs and expenses rose. Net profit for the six months ended Mar 31, 2023 fell to S$87.8 million from S$92.1 million in the same period a year earlier. On a per share basis, earnings fell 1 per cent to S$0.1333 from S$0.1344. The board has recommended a final dividend of S$0.06 per share, unchanged from a year earlier.

Boustead Projects reported on Thursday (May 25) a near doubling in net profit on the back of slightly higher revenue and a strong improvement in gross profit. Net profit for the six months ended Mar 31, 2023 rose 97 per cent on year to S$10.7 million, while revenue for the period was up 4 per cent to S$166.2 million, the provider of real estate solutions said in a bourse filing. The group’s gross profit rose to S$14.8 million, up from S$2.3 million in H2 FY22, mainly due to improved cost management partially offset by the reduction in rental revenue, Boustead Projects said.

Sembcorp Industries said on Thursday (May 25) that its wholly-owned subsidiary Sembcorp Power has signed a 10-year power purchase agreement to supply electricity to Singtel, with an annual contract value of around S$180 million. Sembcorp said in a bourse filing that the power purchase agreement will commence on Oct 1 this year, and is subject to approval by Singtel’s shareholders at the upcoming annual general meeting. Sembcorp added that the contract will be accretive to earnings for its financial year ending December 2023.

The latest cut-off yield for Singapore’s six-month Treasury bill (T-bill) that closed on Thursday (May 25) was 3.85 per cent per annum – seven basis points higher than the tranche auctioned a fortnight ago. The S$5.3 million government guaranteed risk-free fixed income instrument for auction on Thursday had only 2 per cent of competitive applications at the cut-off yield allotted. Those who bid at a lower yield were fully allotted, whereas those specified a higher yield went away empty-handed.

Mapletree Industrial Trust (MIT) is acquiring a new data centre in downtown Osaka, Japan, through the purchase of the trust beneficial interest for a consideration of 52 billion yen (S$507.9 million). The asset sits on around 45,280 square feet (sq ft) of land, with gross floor area of about 143,500 sq ft and net lettable area of about 136,900 sq ft. While construction and the first phase of fitting-out works have been completed, the building is expected to be fully fitted by May 2025. It is also fully leased to a data centre operator, with a weighted average lease to expiry of about 20 years, said MIT’s manager on Thursday (May 25).

Catalist-listed Sanli Environmental has reported earnings of $4.3 million for its FY2023 ended March, up 138% y-o-y. Earnings per share for the year stood at 1.63 cents. Revenue for the year increased by 64.6% to $106.4 million. This is attributable to the 78.1% y-o-y increase from the engineering, procurement and construction (EPC) segment and 20.6% y-o-y increase from the operations and maintenance (O&M) segment.

US

The European Commission approved the takeover by UBS of its embattled banking rival Credit Suisse on Thursday (May 25), ruling that the merger does not harm competition in Europe. The commission, which runs the EU’s powerful anti-trust regulator, said “the merger would not significantly reduce competition in the markets where their activities overlap” within the European Economic Area.

US company Viasat has won unconditional EU antitrust approval to acquire British satellite rival Inmarsat for US$7.3 billion, the European Commission announced on Thursday (May 25), adding that the merger would not raise competition concerns. The companies, which compete with market leaders Panasonic and Intelsat in the market for wi-fi on long-haul flights, announced the tie-up in late 2021.

Boeing Co’s finance chief said on Thursday (May 25) that the top end of its full-year free cash flow forecast was “a bit pressured”, in part due to supply-chain problems at its ailing defence business. However, the plane maker is keeping its 2023 free cash flow forecast of US$3 billion to US$5 billion, CFO Brian West said at a conference organised by Wolfe Research. Boeing has also begun to deliver “reworked” 737 jets out of its inventory after a manufacturing snafu involving supplier Spirit AeroSystems Holdings Inc forced the plane maker to halt deliveries of some jets.

Alibaba Group Holding said on Thursday (May 25) it planned to hire 15,000 people this year, dismissing rumours circulating on Chinese social media in recent days that the company planned to cut 20 per cent of its workers. In a post on the firm’s official Weibo account, Alibaba said that among the 15,000, more than 3,000 people would be newly-graduated students. “Talent movement is what all enterprises have been doing. In Alibaba, talents have been coming in and out, moving normally,” the company said in the Weibo post.

Social media platform TikTok is testing an artificial intelligence (AI) chatbot that can converse with users about short videos and help them discover content, an app intelligence firm said. Israeli-based Watchful Technologies said it has found the AI chatbot dubbed “Tako” on some versions of the TikTok app on Apple Inc mobile devices. Screenshots and video Watchful shared with Reuters showed the chatbot featuring prominently on the app’s interface as a ghost-shaped icon, which users can tap while watching videos to have text-based conversations and get help finding content.

Stratasys, a maker of industrial 3D printers, said on Thursday (May 25) it would merge with peer Desktop Metal in an all-stock transaction valued at about US$1.8 billion. The transaction comes after Stratasys rejected multiple takeover offers from Nano Dimension, its largest shareholder with a 14.2 per cent stake. Nano on Thursday launched a hostile US$18.00 per share all-cash offer to boost its stake in Stratasys to between 53 per cent and 55 per cent. Stratasys said it will “carefully review and evaluate” the unsolicited special tender offer and intends to advise its shareholders of the board’s stance within 10 business days.

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

RESEARCH REPORTS

LHN Ltd – Growth from new capacity

Recommendation: BUY (Maintained); Last Done: S$0.35 TP: S$0.47; Analyst: Paul Chew

– 1H23 earnings was within expectations. Revenue and adjusted PATMI were 45%/48% of our FY23e forecasts. 1H23 adjusted PATMI declined 11% YoY to S$14.1mn due to the completion of a worker dormitory contract in May22.

– Co-living and car park revenues jumped 50% and 28% YoY respectively in 1H23. The interim dividend was raised 67% to 1 cent, implying an annualised yield of 6%.

– 2H23e earnings growth will be supported by: 1) additional 516 keys of co-living capacity; and 2) Expansion of 2,800 car park lots. Meanwhile, FY24e will benefit from 3) commencement of a new ISO Tank Depot; 4) launch of food factory development project. Our FY23e earnings is unchanged. We maintain a BUY with an unchanged TP of S$0.47. Core business valuations are pegged to 6.5x FY23e P/E, while the industry is trading around 13x. LHN is trading at 4x PE and a 28% discount to book value of S$0.487.

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