Daily Morning Note – 27 October 2021
U.S. stocks rose to all-time highs as corporate earnings helped boost sentiment amid lingering concerns about inflation and growth.The S&P 500 and Dow Jones Industrial Average set records as Tuesday’s round of earnings kicked off, with United Parcel Service Inc. and General Electric Co. gaining after strong results. Facebook Inc. dropped as a pledge to buy back more shares and increase spending on digital offerings was offset by a revenue miss. Big-tech peers Twitter Inc., Alphabet Inc. and Microsoft Inc. are reporting after close of regular trading.
In a new twist of the Evergrande Group meltdown, Chinese authorities told its billionaire boss Hui Ka Yan to use his personal wealth to pay off the company’s 12-figure debt. The demand adds to signs that Beijing is reluctant to organize a government rescue while President Xi Jinping cracks down on the billionaire class. It also comes as the property giant’s woes spread to other developers and sours sentiment in the nation’s huge real estate market
Tikehau Capital submits application to SGX for S$200m SPAC IPO. European asset manager Tikehau Capital, together with partner Financiere Agache, on Tuesday (Oct 26) submitted an initial public offering (IPO) application to list a special purpose acquisition company (SPAC) on the Singapore Exchange (SGX), according to people familiar with the matter.The application is to raise S$200 million for the SPAC – Pegasus Asia – but this is a placeholder amount and the eventual amount raised from the IPO could be larger, said the people, who asked not to be identified as the information is confidential. The submission is likely among the first applications for a Singapore SPAC, with the framework for listing blank-cheque companies having been rolled out in early September.Last month, SGX said it could receive its first SPAC submission in weeks. Market participants had also told The Business Times that there is keen interest in Singapore SPACs, and expected the first SPACs to come to market by the end of this year. For its business combination, Pegasus Asia will be focused on technology-enabled new economy sectors that have operations in Asia-Pacific. This could include fintech, proptech, insurtech and digital services.
Mapletree Industrial Trust’s (MIT) second-quarter distribution per unit (DPU) rose to 3.47 Singapore cents from 3.1 cents a year ago. Income distributable to unitholders grew 21.3 per cent to S$88.4 million for the three months to Sep 30, following a boost in revenue from assets in the US. Net property income climbed 47.4 per cent to S$120.3 million as gross revenue rose 50.5 per cent to S$155.6 million. The increase came on the consolidation of revenue from 14 US data centres previously held by joint venture Mapletree Redwood Data Centre Trust, 29 data centres in the US acquired for US$1.32 billion, and a data centre in Virginia.
ARA Logos Logistics Trust (K2LU) on Tuesday posted a 9 per cent drop in distribution per unit (DPU) to S$0.01329 for its third quarter ended Sept 30, 2021, from S$0.01461 the year before. This was mainly due to an enlarged unit base after raising equity for its maiden Australian portfolio acquisition in April this year, the real estate investment trust’s (Reit) manager said in a press statement. Gross revenue rose 15.1 per cent to S$34 million for Q3, from S$29.5 million the year prior, while net property income (NPI) was up 13.9 per cent on the year to S$26.1 million, from S$22.9 million. The growth in gross revenue and NPI was underpinned by a rise in revenue from the acquisition of the Australian portfolio, the commencement of new leases in the quarter and a relatively stronger Australian dollar in Q3 2021 versus Q3 2020.
Catalist-listed Koh Brothers Eco Engineering announced on Tuesday (Oct 26) that it has secured a S$200.7 million contract from the Public Utilities Board (PUB) to carry out mechanical, electrical and instrumentation control and automation (MEICA) works for the first of 2 Industrial Liquid Modules (ILMs) at Tuas Water Reclamation Plant. After securing the project, the sustainable-engineering solutions provider will have an order book of S$783 million, up from S$582.3 million as at June 30. When completed, the plant will be the world’s largest industrial used-water treatment facility using ceramic membrane technology, with a treatment capacity of 75,000 cubic metres daily, equivalent to 30 Olympic-sized pools.
From Nov 8, vaccinated travellers from Australia and Switzerland will be welcome in Singapore, and will not need to serve a quarantine, Transport Minister S Iswaran said on Tuesday (Oct 26). The two countries join an existing 11 that are part of Singapore’s vaccinated travel lanes (VTL), as the Republic takes “calibrated” steps to reopen its borders.
Fintech giants Stripe and Klarna partner on ‘buy now, pay later’ as competition heats up. Stripe said it has agreed a strategic partnership with Klarna to offer the Swedish firm’s buy now, pay later payment method to its merchants. The deal could be a way for Stripe to capitalize on the fast-growing BNPL trend as rivals like Square and PayPal make big moves in the space. Stripe and Klarna are the world’s biggest private fintech companies, according to CB Insights data, worth $95 billion and $46 billion respectively.
US consumer confidence unexpectedly rose in October as concerns about high inflation were offset by improving labour market prospects, suggesting economic growth was picking up after a turbulent third quarter. The survey from the Conference Board on Tuesday showed consumers eager to buy a home and big-ticket items such as motor vehicles and major household appliances over the next six months. The share of Americans planning to go on vacation was the largest since February 2020, just before the nation was slammed by the first wave of Covid-19 infections.
The negative impact of currency fluctuations on corporate results for North American companies fell in the second quarter of this year from the previous quarter, data from treasury and financial management firm Kyriba showed on Tuesday. The collective exchange rate hit, including on companies in the United States, Canada and Mexico, was $2.32 billion in the second quarter, compared with a $5.87 billion negative effect in the first quarter, Kyriba said in a report. Kyriba said 35 North American companies reported currency impacts in the second quarter, compared with 77 in the first quarter and 28 in the fourth quarter of 2020. The U.S. dollar index fell 0.9% in the second quarter of this year. It gained 2% in the third quarter.
Both General Motors and Ford Motor are expected to report solid third-quarter earnings Wednesday despite an ongoing global disruption of supply chains, including a shortage of semiconductor chips that have depleted vehicle inventories but boosted profits this year. Both of the Detroit automakers have managed as well as they could during the disruptions, allowing them to raise their earnings expectations for the year on record vehicle pricing and profits amid surprisingly resilient consumer demand. That’s expected to be a continuing trend as the automotive industry rebuilds inventory as more production comes back online in the coming weeks and quarters, according to analysts.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Facebook Inc – Stable growth in the face of uncertainty
Recommendation : BUY(Maintain); TP: US$424.00, Last Close: US$315.81
– 3Q21 results in line with expectations. YTD FY21 revenue/PATMI at 73/78% of our FY21e forecasts. EPS beat consensus estimates largely due to share repurchases in the quarter.
– Monthly Active People (MAP) growth for the quarter above our full-year estimates, with Family Average Revenue per Person (ARPP) growth in line.
– Limited guidance on 4Q21 due to the continued uncertainty of Apple’s iOS 14 privacy changes, and other macro headwinds.
– We maintain our BUY recommendation and unchanged DCF target price (WACC 6.7%) of US$424.00.
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