DAILY MORNING NOTE | 27 November 2023

**Do note that the last day of Morning Note Issuance will be on 14 December 2023. Morning Note will resume in January 2024**

Summary of Trades Initiated in Past Week


Week 48 strategy: In a shortened trading week, US markets eked out a 1% gain. Initial jobless claims (209k) for the week ending 18th Nov were well below expectations of 225K. Indications are still that the labour market is gradually cooling off, a positive sign that the restrictive policies of the Fed are working. Coupled with inflation that continues to fall, this only stands to affirm our view that the Fed is done hiking interest rates for the current cycle. Current data shows that US economic activity remains muted, with the Composite PMI unchanged at 50.7. Durable Goods orders for Oct were down -5.4% MoM. Our view is the longer Fed restrictive policies are kept in place, the higher the chance of a recession occurring as economic activity remains under pressure.

We think China remains a trading opportunity. Keen on keeping its property sector from spiralling out of control and affecting the broader economy, Chinese authorities have created a draft list of 50 or so companies (Country Garden, Sino-Ocean, etc.) eligible for a range of financing support. We think that this is important as a meltdown in China’s property sector could have significant negative effects on the overall economy. In addition, government advisors have recommended 2024 GDP growth targets of 4.5-5.5%, with the expectation that a step up in fiscal stimulus would be required to reach these targets. This should be positive for equity markets.

Jonathan Woo
Senior Research Analyst

Singapore stocks closed lower on Friday (Nov 24) amid mixed trading in the region. Singapore stocks fell 0.5 per cent or 16.94 points to close at 3,094.81. Elsewhere in the region, stocks in Australia and Japan ended higher, with the ASX 200 and Nikkei 225 rising 0.2 and 0.5 per cent respectively. But other key indices in South Korea, Hong Kong and Shanghai closed in the red, with declines ranging between 0.7 and 2 per cent.

Wall Street stocks mostly climbed to end a shortened trading day on Friday, with investors keeping close watch on consumer spending at the unofficial start of the year-end shopping season. The Dow Jones Industrial Average rose 0.3 per cent to 35,390.15. The broad-based S&P 500 edged up 0.1 per cent to 4,559.34, while the tech-heavy Nasdaq Composite Index ticked down 0.1 per cent to 14,250.85.

Top gainers & losers





In-flight caterer and ground handler Sats has given notice that it has recorded three consecutive years of losses. Based on audited full-year consolidated accounts, the mainboard-listed group recorded pre-tax losses for the last three consecutive financial years, it said in a bourse filing on Sunday (Nov 26). However, Sats will not be placed on the Singapore Exchange (SGX) watch list, as its six-month average daily market capitalisation was nearly S$3.9 billion as at Nov 23.

LHN Group posted a 55.9 per cent rise in net profit to S$21.3 million for its second half ended Sep 30, 2023, from S$13.6 million in the previous corresponding period. This was while the Catalist-listed company’s revenue for the period was up 30.7 per cent to S$50.8 million, from S$38.8 million the previous year, it said in a bourse filing on Friday (Nov 24) evening. LHN Group has businesses in space optimisation, facilities management and logistics. Earnings per share stood at 0.82 Singapore cent for the second half, down from 4.33 cents a year ago. A final dividend of 1 Singapore cent, and a special dividend of 1 Singapore cent, was declared for the full year, up from 1 Singapore cent in the previous corresponding period. The proposed final and special dividends will be paid on Feb 23, 2024, and May 31, 2024, respectively, after books closure on Feb 7, 2024.

Mainboard-listed tourism facilities operator Straco Corporation reported a net profit of S$16.3 million for its third quarter ended Sep 30, 2023. This put the company firmly in the black, compared to the narrow profit of S$175,000 in the same quarter last year. Revenue for Q3 rose to S$35.5 million from S$11.7 million a year earlier, Straco said in a bourse filing on Friday (Nov 24). The company operates multiple tourist facilities in China, including the Shanghai Ocean Aquarium and Underwater World Xiamen. It also operates the Singapore Flyer at Marina Bay. Straco said that the return of summer crowds in China was a major contributing factor to its increased revenue, adding that there had been no business disruptions during the three-month period.

Media and entertainment company MM2 Asia has given notice that it has recorded three consecutive years of losses. Based on audited full-year consolidated accounts, the mainboard-listed company recorded pre-tax losses for the last three consecutive financial years, it said in a bourse filing late on Friday (Nov 24). However, it will not be placed on the Singapore Exchange (SGX) watch list as its six-month average daily market capitalisation was S$105.4 million as at Nov 15.


Gold rose over the key US$2,000 level on Friday (Nov 24), logging its second consecutive weekly gain, see-sawing against a weaker U.S. dollar on bets that the U.S. Federal Reserve is done with its interest rate-hiking cycle. Spot gold was up 0.5 per cent at US$2,001.97 per ounce by 2.30 pm ET (7.30 pm GMT), and has risen over 1 per cent so far this week. US gold futures settled 0.5 per cent higher at US$2,003.00.

Oil fell on Friday (Nov 24) as the release of some hostages in Gaza reduced the geopolitical risk premium, but prices notched their first week of gains in over a month ahead of next week’s Opec+ meeting to decide on production cuts in 2024. Brent crude futures settled down 84 US cents, or 1 per cent, at US$80.58 a barrel, while US West Texas Intermediate crude fell US$1.56, or 2 per cent, from Wednesday’s close to US$75.54. There was no settlement for WTI on Thursday owing to the US Thanksgiving holiday.

Shares of iRobot, the maker of Roomba vacuums, closed up about 39% Friday after a report said the European Union is set to approve Amazon’s $1.7 billion acquisition of the company. Reuters said Thursday morning the deal is set to “win unconditional EU antitrust approval,” citing three sources familiar with the matter. The European Commission is expected to rule on the deal by Feb. 14. Representatives from the European Commission didn’t immediately respond to CNBC’s request for comment. The deal is still under review by the U.S. Federal Trade Commission. The U.K.’s Competition and Markets Authority said in June the deal would not result in “a substantial lessening of competition” in the U.K. Amazon shares were flat.

Nvidia is delaying a new artificial intelligence chip for China that has been designed to comply with U.S. export restrictions, according to Reuters. Nvidia shares closed down about 1.9% after a shortened trading day in the U.S. Reuters, citing two sources familiar with the matter, reported that Nvidia told Chinese customers that it is delaying the launch of an AI chip that is designed to comply with U.S. export rules until the first quarter of next year. The new chip, called the H20, was being delayed due to issues server manufacturers were having while integrating the semiconductor into their products, Reuters reported.

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


Elite Commercial REIT – Attractive valuations with monetisation underway

Recommendation: BUY (Initiate), Last Done: S$0.30

Target price: TP: S$ 0.36, Analyst: Liu Miaomiao

– The rental escalation of around 11% that is tied to CPI began in Apr23. We believe there is downside protection from the UK government department, contributing 93.2% of the total rental income, with no further break clause until FY28.

– ELITE is actively reducing leverage through divestments. As of 3Q23, the total proceed of £11.4mn reduced the gearing by 60bps to 45.4%. 4 assets, valued at c.£13.8mn, are ready for the next round of divestment, and they are expected to lower gearing by c.100bps further.

– At 0.59x P/NAV (FY23e, NAV:0.51), ELITE is currently trading at 1.13 SD below its mean of 0.93 P/NAV, and below the average SREIT historical valuation of 0.86x P/NAV. We initiate coverage with a BUY recommendation and a DDM-based target price of £0.36. ELITE is paying a dividend yield of 16.6%.

Singapore REITs Monthly – 3Q23 results within expectations

Recommendation: Overweight (Maintained)

Analyst: Darren Chan

– S-REITs Index fell 6.9% MoM in October, due to the hawkish stance of FOMC to hold interest rates higher for longer. 3Q23 results were mostly in line with our expectations, as all REITs were negatively impacted by higher interest rates.

– S-REITs are now trading at a forward dividend yield of c.6.9%, 1.3x s.d. above the mean of 6.1% and a P/NAV of 0.8x, 2.6x s.d. below the mean of 1.03x. We think this is an opportune time to reposition into S-REITs for the eventual interest rate pause and decline.

– We remain OVERWEIGHT on S-REITs but are more selective. We prefer REITs with a healthy balance sheet, strong sponsor and improving operating metrics such as the hospitality and retail sub-sector. Catalysts are expected from a pick-up in the economy and asset recycling. Top picks are CapitaLand Ascott Trust (CLAS SP, BUY, TP S$1.04) and Frasers Centrepoint Trust (FCT SP, ACCUMULATE, TP S$2.29).

Nvidia Corp. – Uncertainty over China; but demand still robust

Recommendation : BUY (Maintained); TP: US$685.00, Last Close: US$477.76

Analyst: Jonathan Woo

– 3Q24 results exceeded expectations. Revenue beat NVDA’s own guidance by 13%, with PATMI spiking 13x YoY. 9M24 revenue/PATMI was at 75%/80% of our FY24e forecasts.

– Data Centre (DC) revenue grew almost 4x YoY, driven by: 1) Enterprises and nations inferencing large language models (LLMs); 2) Cloud Service Providers (CSPs) expanding into new markets; 3) 5x YoY growth in demand for InfiniBand.

– Upbeat 4Q24e revenue guidance of US$20bn implies 231% YoY growth, and US$59bn for FY24e. US export controls to China remain an uncertainty, with revenue from China expected to decrease substantially in 4Q24e.

– We raised our FY24e revenue/PATMI by 13%/27% for the stronger demand of Data Centre products. NVDA dominates AI GPUs that is growing ~4x YoY. Demand is driven by a global shift to accelerated computing for generative AI applications, and inferencing LLMs. We maintain a BUY rating with a raised target price of US$685 (prev. US$645). Our WACC/g is unchanged (6.8%/4.5%).

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