DAILY MORNING NOTE | 27 July 2023

Singapore shares edged up on Wednesday (Jul 26) ahead of an expected interest-rate hike by the United States Federal Reserve, which will be released in the early hours of Thursday (Singapore time). Singapore index rose 18.8 points or 0.6 per cent to 3,304.96 points.

Wall Street stocks shrugged off the latest Federal Reserve interest rate hike on Wednesday (Jul 26), finishing little-changed after a choppy session. The Dow Jones Industrial Average ended 0.2 per cent higher at 35,520.12. The broad-based S&P 500 slipped less than 0.1 per cent to 4,566.75, while the tech-rich Nasdaq Composite Index dipped 0.1 per cent to 14,127.28.

SG

Keppel Infrastructure Trust: 1H23 distributable income (DI) rose 51.8% to S$132.9mn. The gain (S$45.3mn) was derived from newly-acquired Aramco Gas Pipelines (S$30.6mn) and German offshore wind farm (S$32.4mn). Keppel Merlimau Cogent Plant ceased to contribute (1H22: S$3mn) as mandatory debt repayment kicked in from June 2023. It has a S$700m outstanding loan to be progressively paid down till 2027, and the remaining S$350mn refinanced. Ixom also has debt of S$564mn due in Feb 2024 that needs to be refinanced or repaid, which could affect future distributions. Aggregate leverage improved to 38.5% (Mar: 42.5%) with new equity raised. A near-term concern is the expiry of the concession for Senoko Waste-to-Energy Plant in 2024, SingSpring Desalination Plant in 2025, and Keppel Seghers Ulu Pandan NEWater in 2027. These assets contribute about S$72mn DI annually. Higher capex might be required if the concessions are renewed.1H23 DPU declared is 1.93 cts/share (1H22: 1.91 cts). This includes the stub distribution of 1.24 cts paid on 11 May 2023. The remaining 0.69 cts/share will be paid on 11 Aug. Distribution yield is 7.5%.

Peggy Mak Bang Mui
Manager, Research
peggymak@phillip.com.sg

UOB’s 2Q2023 results were slightly higher than expectations with normalised net profit of S$1.51bn vs consensus estimate of S$1.40bn. This was mainly due to net interest income growth of 31% YoY to S$2.44bn on the back of NIM growth of 45bps to 2.12% and other income growth of 113% YoY to S$581mn offset by higher allowances of S$365mn (+166% YoY) and net fee income dipping by 8% YoY to S$524mn. Credit costs rose 13bps YoY to 30bps but remained within expectations while NPL ratio remained unchanged at 1.6%. More details to follow after the 10.15am analyst call.

Glenn Thum Jia Cherng
RESEARCH ANALYST,RESEARCH
glennthumjc@phillip.com.sg

Indonesian coal producer Geo Energy Resources plans to spend just over US$154 million to acquire stakes in two companies – Indonesia-listed coal miner Golden Eagle Energy and coal infrastructure developer Marga Bara Jaya. A 58.7 per cent stake in Golden Eagle Energy and a 33 per cent stake in Marga Bara Jaya are being acquired from Indonesian conglomerate Rajawali Group for aggregate considerations of US$154.1 million and US$49,000 respectively, Geo Energy said in a filing on Wednesday (Jul 26).

Office-focused Keppel Pacific Oak US Reit’s distribution per unit fell 17.2 per cent to US$0.025 for its first half ended Jun 30 from US$0.0302 in the same period a year earlier, due to higher financing costs, rising interest rates and divestments of two of its properties in Atlanta. Gross revenue was up 2.4 per cent to US$75.9 million for the half-year period, from US$74.1 million in the year-earlier period, the real estate investment trust’s (Reit) manager said on Wednesday (Jul 26). Net property income grew 2 per cent on the year to US$43.9 million, from US$43 million previously, on higher performance from the other assets in KORE’s portfolio.

Mappletree Industrial Trust (MIT)’s distribution per unit fell 2.9 per cent to S$0.0339 for the first quarter ended Jun 30, from S$0.0349 in the same period a year earlier.This follows a private placement in May which led to an increase in the number of units in issue. The amount available for distribution to unitholders was down 2.5 per cent year on year to S$89.9 million, from S$92.1 million previously, MIT’s manager said on Wednesday (Jul 26).

Oue Commercial Real Estate Investment Trust reported a 23.1 per cent increase in net property income to S$115.3 million for the first half of 2023, from S$93.6 million in the year-ago period. Revenue rose 19.8 per cent to S$138.8 million from a year ago, the manager announced on Wednesday (July 26).OUE Commercial Reit’s H1 performance was based on higher contributions from its hospitality segment, which benefited from the recovery of Singapore’s tourism sector; its commercial segment rode on stable or improving occupancy and positive rental reversions.

Wealth management platform iFast Corporation is looking at its global banking business and e-pension services to drive growth in the next five to 10 years, and chief executive Lim Chung Chun is expecting the global bank to break even in H2 2024. In a briefing with reporters and analysts on Wednesday (Jul 26) to discuss the company’s latest quarterly earnings, Lim acknowledged that iFast’s banking business, or iFast Global Bank, reported a loss of S$2.2 million in the second quarter ended June and a loss of S$3.9 million for the first half of the year. iFast Global Bank was born out of iFast’s acquisition of an 85 per cent stake in UK-based BFC Bank for a price tag of £40 million (S$73.4 million). The transaction was first announced in January last year, and was completed in April last year.

US

Meta Platforms reported earnings and revenue for the second quarter that topped analysts’ estimates and issued a better-than-expected forecast for the current period, reflecting a rebound in the digital advertising market. The stock rose about 5% in extended trading, and is up ~160% so far this year. Revenue (US$32bn vs est. US$31.1bn) and earnings (US$2.98 vs est. US$2.91) both grew by double digits YoY for the first time since 3Q21 as the company saw stronger engagement on its apps, and better cost savings taking effect. Company guidance for 3Q23e was also positive, indicating a continued reacceleration in revenue growth to 15% (taking the midpoint of its guidance range) as the digital advertising industry continues its recovery.

Jonathan Woo
Senior Research Analyst
jonathanwookj@phillip.com.sg

Boeing said on Wednesday (Jul 26) it was ramping up production of its bestselling 737 MAX narrow-body jet to 38 per month from 31, a sign the planemaker was recovering from a supplier error that had scuttled its plans for an early ramp up.The company also posted second-quarter results that beat Wall Street expectations. Boeing reiterated its plan to generate US$3 billion to US$5 billion in free cash flow this year, as well as to deliver at least 400 single-aisle 737s and 70 787 Dreamliners in 2023.

Microsoft on Tuesday (Jul 25) surpassed Wall Street estimates for fourth-quarter revenue and profit as its cloud business benefited from product upgrades featuring new artificial intelligence (AI) technology. But costs rose sharply from the previous quarter as it built new data centres to support AI, and Microsoft chief financial officer Amy Hood said on a conference call with analysts that the company’s capital expenditures will continue to increase each quarter throughout the company’s fiscal 2024.

Amazon.com has agreed to change the way it deals with rivals’ sales data and to treat all sellers equally on its UK platform after an investigation by the country’s antitrust agency. The Competition and Markets Authority (CMA) said on Wednesday (Jul 26) that Amazon offered a number of promises to change the way it treats third-party sellers on its UK marketplace. The move comes after the technology company offered a similar truce to European regulators in December.

Food and agri giant Olam expects to record an exceptional one-off charge of US$83 million after tax for the first half of its 2023 financial year, causing total net profit to be “materially lower” compared with the same period a year ago. The one-off charge is primarily due to an unprecedented and materially lower crop yield in the group’s almond orchards in Australia, with estimates that the final yields would be between 35 per cent and 40 per cent lower than initially forecast.

AT&T reported profit and free cash flow that topped analysts’ estimates, offering a brighter picture as the phone giant faces a challenging restructuring effort, a heavy debt load and the potentially high costs of cleaning lead out of its old copper phone network. Second-quarter earnings, excluding special items, were 63 US cents a share and free cash flow was US$4.2 billion, the company said on Wednesday (Jul 26) in a statement. Revenue gained about 1 per cent to US$29.9 billion. Analysts, on average, predicted profit of 60 US cents a share, free cash flow of US$3.77 billion and sales of US$30 billion, according to data compiled by Bloomberg.

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

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