DAILY MORNING NOTE | 27 April 2023

Singapore shares fell 0.1 per cent or 2.65 points to 3,293.91 points on Wednesday (Apr 26), as markets were swayed by a weaker overnight US session and positive surprises from tech giants Microsoft and Alphabet. Across the broader market, gainers beat losers 298 to 264 after 1.3 billion securities worth S$927.9 million were traded. Regional indices were mixed on Wednesday. Japan’s Nikkei 225 index fell 0.7 per cent, while South Korea’s Kospi shed 0.2 per cent and Hong Kong’s Hang Seng Index gained 0.7 per cent.

Wall Street stocks finished mostly lower on Wednesday, shrugging off relatively solid corporate earnings amid recession worries, while First Republic Bank tanked again. While shares of some companies such as Microsoft and Chipotle Mexican Grill surged on their results, two of the three major US indices ended the day lower. The Dow Jones Industrial Average dropped 0.7 per cent to 33,301.87. The broad-based S&P 500 declined 0.4 per cent to 4,055.99, while the tech-rich Nasdaq Composite Index advanced 0.5 per cent to 11,854.35. First Republic, meanwhile, suffered another pummeling, ending nearly 30 per cent lower.

SG

UOB’s 1Q2023 results were slightly higher than expectations with normalized net profit of S$1.51bn vs consensus estimate of S$1.48bn. This was mainly due to net interest income growth of 43% YoY to S$2.41bn on the back of NIM growth of 56bps to 2.14%, other income growth of 457% YoY to S$563mn and lower allowances of S$169mn (-5% YoY) offset by net fee income dipping slightly by 4% YoY to S$552mn. Credit costs rose 6bps YoY to 25bps but remained within expectations while NPL ratio remained unchanged at 1.6%. More details to follow after the 10.15am analyst call.

The government is levying higher ABSD rates, in a bid to cool the property market that remains firm even with a dimmer economic outlook. With effect from April 27, Singapore citizens have to pay a 20% ABSD, or additional buyers’ stamp duty, on their second residential property. They now pay 17%. Citizens have to pay 30% on their third and subsequent property, up from 25% now. A similar rate applies for Singapore PRs buying their second residential property. The government is also raising the ABSD rate from 30% to 35% for Singapore PRs purchasing their 3rd and subsequent residential property. The ABSD for foreigners buying any residential property will be doubled from 30% to 60%. The ABSD for entities or trusts buying any residential property, except for developers, will be raised from 35% to 65%.

The Inland Revenue Authority of Singapore (Iras) is offering a reward of up to $100,000 to whistleblowers who call out private property buyers who use the so-called “99-to-1” or similar arrangements to evade or reduce additional buyer’s stamp duty (ABSD) on their purchase. A reward based on 15 per cent of the tax recovered – capped at $100,000 – for each case will be given to informants if the information and/or documents provided lead to tax recovery, the tax regulator told The Straits Times on Tuesday (Apr 25). This is not the first time Iras has offered a reward for information on tax avoidance or evasion.

The cut-off yield on Singapore’s latest six-month Treasury bill (T-bill) has risen to 3.83 per cent, according to auction results released on Wednesday (Apr 26). The yield is higher than the 3.75 per cent offered in the previous six-month T-bill auction, although demand for the government-backed, risk-free fixed-income product has slipped. The latest tranche of the T-bills was around 2.2 times subscribed for the S$5 billion allotment. The total value of applications in this auction was S$11.1 billion, down from the S$12.3 billion in the previous six-month T-bill auction.

Singapore’s manufacturing output contracted less than expected in March, but economists expect the industry’s slump to continue for at least the first half of 2023. Industrial production fell 4.2 per cent year on year in March, marking the sixth straight month of contraction, according to data from the Singapore Economic Development Board on Wednesday (Apr 26). This was an improvement from February’s revised figure of a 9.7 per cent fall, and better than the 6.1 per cent fall expected by private-sector economists in a Bloomberg poll. Excluding the typically volatile biomedical manufacturing cluster, factory output fell 6 per cent year on year in March.

Starhill Global Reit reported net property income (NPI) of S$38 million for the third quarter ended Mar 31, 2023, down 1.3 per cent from S$38.5 million in the year-ago period. Gross revenue for the real estate investment trust (Reit) fell 2.3 per cent to S$47.3 million in the quarter, from S$48.4 million previously. The variance in NPI and gross revenue were due mainly to net movements in foreign currencies from a weaker Australian dollar and Malaysian ringgit, along with the divestment of a property in Tokyo, the Reit manager said in a business update on Wednesday (Apr 26). That was partially offset by higher contributions from its properties in Singapore, it added. Some 61.8 per cent of the Reit’s gross revenue in Q3 came from its Singapore assets, compared with 59.4 per cent in the year-ago period. As at Mar 31, portfolio occupancy stood at 96.7 per cent.

US

The US trade deficit in goods narrowed sharply in March as exports surged and imports declined, which augurs well for economic growth in the first quarter. The goods trade deficit contracted 8.1 per cent last month to US$84.6 billion, the Commerce Department said on Wednesday (Apr 26). Exports of goods increased US$4.9 billion to US$172.7 billion. They were boosted by industrial supplies, which include crude oil, motor vehicles as well as consumer goods. Food exports fell 4.5 per cent. Goods imports fell US$2.5 billion to US$257.3 billion, pulled down by decreases in industrial supplies, capital goods and other goods. Imports of consumer goods rose 2.4 per cent. The Commerce Department also reported that wholesale inventories edged up 0.1 per cent in March after a similar gain in February. Retail inventories increased 0.7 per cent after rising 0.3 per cent in the prior month.

ASML’s CEO Peter Wennink said on Wednesday (Apr 26) it was “logical” that China would seek to develop its own semiconductor equipment when it is restricted from purchasing tech products made abroad. ASML Holding is Europe’s largest technology firm by market capitalisation and dominates the market for lithography tools – important equipment needed to make computer chips. Last week, the company reported strong first quarter earnings and said China sales would increase as Chinese chipmakers rush to buy older tools that do not fall under US-led restrictions that the Dutch government said it would adopt in March. Washington is seeking to slow Beijing’s technological and military advances by hobbling its semiconductor industry.

EBay rose after projecting revenue in the current quarter that exceeded analysts’ estimates, suggesting the e-commerce company’s efforts to boost sales after a post-pandemic slump are paying off. Revenue will be US$2.47 billion to US$2.54 billion in the period ending in June, the company said in a statement on Wednesday (Apr 26). Analysts estimated US$2.43 billion. Sales and earnings in the quarter ended Mar 31 also beat expectations, showing that EBay is slowing down its loss of customers. The shares increased as much as 8 per cent in after-market trading. Chief executive officer Jamie Iannone is trying to cut costs after a boom during the pandemic fizzled out. Earlier this year, EBay announced it would cut about 500 employees or 4 per cent of its workforce. First-quarter revenue of US$2.51 billion beat analysts’ estimates of US$2.48 billion and grew 1 per cent from a year earlier, reversing sales declines.

Germany’s Bosch Group has agreed to buy key assets of California chip manufacturer TSI Semiconductors and invest US$1.5 billion to expand US production of silicon carbide chips for electric vehicles. Bosch and TSI did not disclose a purchase price. Bosch said it plans to invest US$1.5 billion to retool TSI’s chip production facilities in Roseville, California to start producing silicon carbide chips by 2026. The investment “will be heavily dependent on federal funding opportunities” through the CHIPS act as well as state subsidies, Bosch said in a statement.

Amazon.com has started laying off employees in its cloud services operation amid slowing sales growth in its most profitable division. Amazon Web Services (AWS) employees in the US, Canada and Costa Rica whose jobs were being eliminated were notified early on Wednesday (Apr 26), the unit’s chief said in an e-mail to employees. AWS generates most of the company’s profits but is experiencing slowing growth as corporate customers look to trim expenses. Overall, Amazon is axing 27,000 mostly corporate positions, after a hiring spree during the pandemic left the company with too many people.

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

RESEARCH REPORTS

Alphabet Inc. – Resilient growth, Cloud profitability

Recommendation : BUY (Maintained); TP: US$131.00, Last Close: US$103.85

Analyst: Jonathan Woo

– 1Q23 results were within expectations. 1Q23 revenue/PATMI were at 23%/21% of our FY23e forecasts. Adj. PATMI (excl. one-off restructuring charges) was at 24%. Earnings were hurt by a one-off US$2.6bn restructuring charge.

– Revenue growth of 3% was led by travel and retail advertising. Cloud turned the corner on profitability, even amidst slowing topline growth. Cautious outlook for the remainder of FY23e given the uncertain macroeconomic backdrop.

– We maintain BUY with an unchanged DCF target price of US$131.00, with a WACC of 7.3% and terminal growth of 3.5%.

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