DAILY MORNING NOTE | 28 August 2023

Week 35 equity strategy: Fed chairman Jerome Powell’s recent speech at Jackson Hole may have provided nothing new, but it was hawkish. We think Powell’s goal was to remind the market he is still willing to raise interest rates and maintain rates at these high levels until inflation is “sustainably” sliding towards its 2% target. Achieving this target would require the economy and labour market to slow. He seemed confident that market conditions were pushing down goods and rental inflation. However, of the three components of inflation, the most stubborn was non-housing services, or the labour-intensive healthcare, food service, transport and accommodation services, which have not seen much progress. The market is pricing in one more rate (of 25bps) hike by year-end and four rate cuts in 2024. The ensuing period of elevated interest rates means equities have to compete against attractively yielding fixed deposits and money market funds. It will be a positive for banks and cash-rich companies. Conversely, it is negative for REITs.

In Singapore, hotel RevPAR (i.e. room rates adjusted for occupancy) achieved a milestone, rising to a record of S$261, up 13% YoY. Average occupancy is 90% with an average rate of S$290 per night. Beneficiaries of this growth are hospitality stocks and REITs. Even co-living companies such as LHN benefit from rising room rates.

Paul Chew
Head Of Research

Singapore shares bucked regional market trends and rose on Friday (Aug 25) to close out the week higher. The gains come amid slowing growth in the Republic’s second-quarter service receipts and yet another fall in monthly factory output. The trio of local banks mostly ended higher on Friday. DBS shares rose 0.3 per cent or S$0.09 to S$32.90, while UOB shares were up 0.9 per cent or S$0.25 to S$28.08. OCBC ended flat at S$12.36.

US stocks ended a volatile session higher on Friday (Aug 25) as investors digested comments from Federal Reserve Chair Jerome Powell that the US central bank may need to raise interest rates further to ensure inflation is contained. The major US indices, which started the day with solid gains, alternated between extending and paring those gains for much of the session. According to preliminary data, the S&P 500 gained 29.01 points, or 0.7 per cent, to end at 4,405.32 points, while the Nasdaq Composite gained 125.16 points, or 0.9 per cent, to 13,589.13. The Dow Jones Industrial Average rose 244.58 points, or 0.7 per cent, to 34,344.00.

Top gainers & losers





Property group Wing Tai Holdings sank into the red for the second half-year ended June with a S$50 million net loss, a reversal from a net profit of S$86.4 million in the corresponding period the year before. This was largely due to a loss from its associated and joint venture (JV) companies, reported at S$43.8 million. This was a reversal from last year’s S$90.7 million in share of profits from associated and JV companies. In announcing its results on Friday (Aug 25), the group posted a 4 per cent rise in revenue to S$215.5 million, from S$208 million in H2 2022. Loss per share for the second half-year was S$0.0701, compared to earnings per share of S$0.1048 cents the year before. The company recommended a first and final dividend of S$0.03 per share, with an additional special dividend of S$0.02 per share. Shareholders will be notified of the dates for its books closure and payout later, it added.

Nordic Group has won new contracts worth $40.8 million, including from repeat customers in the marine, offshore oil and gas, petrochemical, semiconductor, infrastructure and security industries sectors. In a separate announcement, the company announced the sale of a factory and warehouse at 24 Benoi Place for $3.5 million. The property, deemed non-core, occupies a land area of 39,000 sq ft and has a remaining lease of 19 years. The property was held on its books at $2.5 million as at June 30. Nordic plans to use proceeds to pare down debt.

Union Steel Holdings has reported earnings of $11.1 million in its latest FY2023 results ended June 30, improving on its earnings of $7.3 million in FY2022. Earnings per share also improved to 27.94 cents, compared to 17.96 cents per share last year. For the period, the group’s revenue increased by 34% to $107.3 million compared to $80.1 million in FY2022, mainly attributable to the growth of its engineering and scaffolding segments as the construction sector remained strong on backlogged projects. This revenue improvement came about even as softening metal prices saw an 8% y-o-y decrease in revenue for Union Steel’s metals segment to $50 million in FY2023. The board has declared a final dividend of 5 cents per share for FY2023. Shares in Union Steel closed flat at 75 cents on Aug 25.


PropertyGuru on Thursday (Aug 24) reported a net loss of S$6.5 million in the second quarter ended June 2023, reversing from its net income of S$3.8 million in the same period last year. However, the group’s revenue for the second quarter rose 11.7 per cent to S$36.9 million, from S$33 million in the year-ago period. This came on the back of higher contributions from both its marketplaces segment as well as its fintech and data services segment. Its Singapore marketplaces saw the highest increase in revenue, up 24.5 per cent to S$21.5 million from S$17.3 million last year. The only segment which registered a fall in revenue was its Vietnam marketplaces, where revenue for Q2 fell 26.9 per cent to S$5.1 million, from S$6.9 million a year earlier. Loss per share for the group stood at S$0.04. In Q2 last year, earnings per share was S$0.02.

3M has agreed to pay more than US$6.5 million to resolve US charges of Foreign Corrupt Practices Act violations (FCPA) related to a 3M subsidiary in China, the Securities and Exchange Commission said on Friday (Aug 25). The SEC alleged that a 3M unit in China made arrangements to provide Chinese government officials with overseas travel, including tourism activities, to induce them to purchase company products, according to a statement from the US regulator. Employees at the 3M unit colluded with local travel agencies to make the arrangements, with the subsidiary paying nearly US$1 million to fund at least 24 trips for Chinese government officials that included tourism activities and shopping visits, the SEC alleged. 3M did not admit or deny the SEC’s findings, according to the statement.

The US dollar held steady on Friday (Aug 25), on pace to finish the week strong, after Federal Reserve chair Jerome Powell said the central bank may need to raise interest rates further to ensure inflation is contained, but promised to move “carefully” at upcoming meetings. Powell, in a speech at an economic summit in Jackson Hole, Wyoming, said policymakers would “proceed carefully as we decide whether to tighten further”, but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2 per cent target. The US dollar index – which measures the currency against six major counterparts – was about flat at US$104.06 after rising to 104.44, its highest since Jun 1. The index, up 0.6 per cent for the week, was on course for its sixth straight week of gains, aided by signs of resilience in the US economy that has bolstered the case for rates staying higher for longer.

Wells Fargo has agreed to pay a US$35 million civil penalty to settle US charges that the company overcharged advisory fees, the Securities and Exchange Commission (SEC) said on Friday (Aug 25). The SEC said it charged Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for overcharging more than 10,900 investment advisory accounts more than US$26.8 million in advisory fees. The SEC alleged that Wells Fargo and its predecessor firms overcharged certain clients who opened accounts prior to 2014 for advisory fees through the end of December 2022. Wells Fargo settled without admitting or denying the charges, the SEC said in a statement. Wells Fargo paid affected account holders about US$40 million, including interest, to reimburse them for the overcharging, according to the statement.

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


Singapore Telecommunications Ltd – Directionally healthy

Recommendation: BUY (Maintained); TP S$2.80, Last close: S$2.34; Analyst Paul Chew

– 2023 Investor Day: Mobile price recovery is underway in India, delayed in the Philippines and Thailand and likely in Indonesia. Australia and Singapore face challenges due to low-end competition by MVNOs.

– Growth drivers for Singtel include fixed broadband (Indonesia, India and Thailand), data centres and NCS. There is an upside to ordinary dividends with S$2bn of excess cash yet to be returned. Generative AI will soak up data centre supply even faster due to the spike in power and cooling requirements.

– Our BUY recommendation and SOTP TP of S$2.80 are maintained. We believe earnings have troughed as mobile prices start to edge up higher and new growth engines gather scale. The downside will depend on Optus’s ability to rationalise cost to cope with the unrelenting price competition. Other catalysts for Singtel include the disposal of loss-making Trustwave, paring down of associate stakes (to narrow holding co-discount) and monetisation of fixed assets (towers, real estate) and other businesses (IPO).

Q & M Dental Group Ltd – Still filling up the new clinics

Recommendation: ACCUMULATE (Downgraded); TP S$0.34 Last close: S$0.29; Analyst Paul Chew

– 1H23 revenue was within expectations, but earnings were below. Revenue and adjusted PATMI were 47%/29% of our FY23e forecast. Post-expansion of clinics, the company is facing operating cost pressure such as staff cost, utilities, rent, finance and development expenditure of AI-guided clinical support software.

– Q&M has not opened any new clinics this year. The aim is to raise the utilisation of existing clinics with dentists and improve skill sets, especially for the loss-making clinics.

– We cut our FY23e PATMI by 34% to S$11.9mn. We lowered revenue by 4% and raised our operating expense assumptions. Our recommendation is downgraded from BUY to ACCUMULATE. The target price is lowered to S$0.34 (prev. S$0.47). We value the company at 25x PE FY23e earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.125, Not Rated), is valued at market price with a 20% discount. After building out a record 34 clinics or 30% more, Q&M needs to raise profitability by recruiting new dentists to fill its existing chain of clinics, installing new equipment and upgrading the poorer performing dentists.

NVIDIA Corporation – Market monopoly = blowout results and guidance

Recommendation : BUY (Upgraded); TP: US$645.00, Last Close: US$460.18

Analyst: Maximilian Koeswoyo

– 2Q24 results exceeded expectations. 2Q24 revenue/PATMI at 54%/63% of our FY24e forecasts. 2Q24 PATMI spiked by 8-fold YoY.

– Revenue doubled and beat guidance due to Data Centre sales nearly tripling YoY. 3Q24 guidance of a 170% YoY jump in overall revenue driven by continued strong demand for accelerated computing server products, with demand visibility extending into next year.

– Gaming returns to positive YoY growth, while ProViz continues its YoY decline. Automotive saw QoQ decline as it faces lower demand from China OEMs.

– We increase our FY24e revenue/PATMI by 35%/69% to account for the stronger-than-expected growth in Data Centre business. We upgrade from ACCUMULATE to a BUY rating with an increased target price of US$645.00 (prev. US$440.00), with a WACC of 6.8%, and a terminal growth rate of 4.5%.

Semiconductor – Outlook remains subdued despite AI strength

Analyst: Maximilian Koeswoyo

– Most semiconductor companies reported YoY sales decline, apart from NVDA , ASML, and AMAT. Worst declines were the memory player with 50% YoY drop in revenue.

– Only NVDA, ASML, AMD guided for YoY growth in 3Q23. Others are expecting contraction due to inventory adjustments and customer order pushouts.

– Outlook for 3Q23 and 2H23 remains subdued, mainly dragged down by continued weakness in memory and slower-than-expected China recovery. Strong AI-related business was the bright spot, but is still a small portion relative to the overall market.

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